Mergers and acquisitions and firm value growth in emerging markets

Abstract

Despite disagreements about whether mergers and acquisitions create value, it remains a dominant businesses’ expansion strategy for firms worldwide. Several studies however suggest that the value of acquiring firms may increase
or decrease after mergers and acquisitions. This study, specifically, investigates acquirer firms value growth in emerging markets, three years after M&A transactions in comparison with three years before the deals were executed. We use a panel of 160 listed firms from ten (10) emerging market countries gleaned from the Bloomberg and DataStream databases over the period of 2000 to 2016 and employ the two-step difference GMM (Generalized Method of Moments)
estimator for a dynamic analysis of firms’ value growth after M&A transactions. Our results revealed that emerging market acquirers do not experience value growth in terms of profitability and growth opportunities in the first three years
after M&As deals. The total assets of these firms were, however, found to have a positive impact on their profitability levels and their ability to grow and expand. Managerial share ownership was also found to have a positive influence on these firms’ growth opportunities but its impact on profitability is negative. Finally, there was no evidence of a positive relationship between total debt, financial leverage, working capital and the acquirers’ profitability levels.