Company-Specific Factors and Determination of Target Firms in Mergers and Acquisitions Deals: Experience from Emerging Markets
Keywords:Target firms; Emerging markets; Company-specific variables; Logistic regression; Acquirer firms
This study investigates firm-specific variables that motivate acquirers to pursue target firms from the emerging markets in mergers and acquisitions transactions. Firms from the emerging markets continue to serve as targets instead of acquirers in acquisitions deals. However, this trend appears to be changing since some firms from the emerging markets are becoming more active in M & A deals as acquirers. Several factors may account for the interest various acquirers show in pursuing targets from the emerging markets. These factors could include the company-specific factors or variables of these targets. Using 154 firms gleaned from the Bloomberg database from 2007 to 2017 on ten (10) emerging market countries, the study employs the logistic regression technique to explore the likely firm-specific variables of emerging market targets that influence acquirer firms to be interested in emerging markets firms as targets in M&A transactions. We find that financial leverage, market-to-book ratio, and the ratio of cash and equivalent to total assets of the target firms are more likely to influence the acquirers' decisions to pursue these firms as targets. In contrast, total assets and sales growth of these targets are less likely to motivate acquirers to become interested in these firms as M&A targets. Finally, return on assets (showing profitability levels) does not influence the acquirers’ decisions. Our findings have implications for regulation and policy development to support investment decisions of potential acquirers and other investors interested in emerging market firms.
Ahuja, G., & Katila, R. (2001). Technological acquisitions and the innovation performance of acquiring firms: A longitudinal study. Strategic management journal, 22(3), 197-220.
Agrawal, M., & Sensarma, R. (2007). Determinants of merger activity: evidence from India. International Journal of Financial Services Management.
Ali, R., & Gupta, G. S. (1999). Motivation and outcome of Malaysian takeovers: An international perspective. Vikalpa, 24(3), 41-49.
Amemiya, T. (1981). Qualitative response models: A survey. Journal of economic literature, 19(4), 1483-1536.
Bhabra, H. S., & Huang, J. (2013). An empirical investigation of mergers and acquisitions by Chinese listed companies, 1997–2007. Journal of Multinational Financial Management, 23(3), 186-207.
Boubakri, N., & Cosset, J. C. (1998). The financial and operating performance of newly privatized firms: Evidence from developing countries. The Journal of Finance, 53(3), 1081-1110.
Brooks, C. (2014). Introductory econometrics for finance: Third Edition, Cambridge University Press. Chance, C., 2015. Our insights into M&A trends 2015: Global dynamics. Available at:
http://globalmandatoolkit.cliffordchance.com/downloads/CC-M and A-Trends-jan-2015.pdf.
Dickerson, A. P., Gibson, H. D., & Tsakalotos, E. (1997). The impact of acquisitions on company performance: Evidence from a large panel of UK firms. Oxford economic papers, 49(3), 344-361.
Fisman, R., & Love, I. (2007). Financial dependence and growth revisited. Journal of the European Economic Association, 5(2-3), 470-479.
Harrison, J. S., Hart, M., & Oler, D. K. (2014). Leverage and acquisition performance. Review of Quantitative Finance and Accounting, 43(3), 571-603.
Healy, P. M., Palepu, K. G., & Ruback, R. S. (1992). Does corporate performance improve after mergers? Journal of financial economics, 31(2), 135-175.
Ruback, R. S., & Jensen, M. C. (1983). The market for corporate control: The scientific evidence. Journal of Financial economics, 11, 5-50.
Jensen, M. C. (1988). Takeovers: Their causes and consequences. Journal of economic perspectives, 2(1), 21-48.
Klimek, A. (2014). Results of cross-border mergers and acquisitions by multinational corporations from emerging countries: the case of Poland. Eastern European Economics, 52(4), 92-104.
Kumar, U. D., (2017). Business Analytics The science of data-driven decision making. doi:10.2174/ 156802661709170213214101
Kumar, P., (1985). Growth of industrial corporation in India. New Delhi: Deep & Deep Publications, 27.
Kumar, B. R., & Rajib, P. (2007). Characteristics of merging firms in India: An empirical examination. Vikalpa, 32(1), 27-44.
Lee, K. H., Mauer, D. C., & Xu, E. Q. (2018). Human capital relatedness and mergers and acquisitions. Journal of financial Economics, 129(1), 111-135.
Long, J. S. (1997). Regression models for categorical and limited dependent variables (Vol. 7). Advanced quantitative techniques in the social sciences.
Martin, K. J., & McConnell, J. J. (1991). Corporate performance, corporate takeovers, and management turnover. The Journal of Finance, 46(2), 671-687.
Massa, M., & Xu, M. (2013). The value of (stock) liquidity in the M&A market. Journal of Financial and Quantitative Analysis, 48(5), 1463-1497.
Matsusaka, J. G. (1993). Takeover motives during the conglomerate merger wave. The RAND Journal of Economics, 357-379.
Meador, A. L., Church, P. H., & Rayburn, L. G. (1996). Development of prediction models for horizontal and vertical mergers. Journal of financial and strategic decisions, 9(1), 11-23.
Menard, S. (2002). Applied logistic regression analysis (Vol. 106). Sage.
Moya-Dávila, F. A., & Rajagopal, A. (2020). Managing Microfinance Institutions: Analyzing How Relationships Influence Entrepreneurial Behavior. In Innovation, Technology, and Market Ecosystems (pp. 85-107). Palgrave Macmillan, Cham.
Nguyen, H. T., Yung, K., & Sun, Q. (2012). Motives for mergers and acquisitions: Ex‐ post market evidence from the US. Journal of Business Finance & Accounting, 39(9‐ 10), 1357-1375.
Ntim, C. G., Lindop, S., Osei, K. A., & Thomas, D. A. (2015). Executive compensation, corporate governance and corporate performance: A simultaneous equation approach. Managerial and Decision Economics, 36(2), 67-96.
Pablo, E., (2009). Determinants of cross-border M&As in Latin America. Journal of Business Research, 62,861-867.
Park, K., & Jang, S. S. (2011). Mergers and acquisitions and firm growth: Investigating restaurant firms. International Journal of Hospitality Management, 30(1), 141-149.
Pasiouras, F., & Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21(2), 222-237.
Reuters (2014). Mergers & Acquisitions Review, Full Year 2014, Najdeno. Available at:
Roll, R., (1986). The hubris hypothesis of corporate takeovers. Journal of business,
Sharma, D. S., & Ho, J. (2002). The impact of acquisitions on operating performance: Some Australian evidence. Journal of Business Finance & Accounting, 29(1‐2),
Slama, M. B., Saidane, D., & Fedhila, H. (2012). How to identify targets in the M&A banking operations? Case of cross-border strategies in Europe by line of activity. Review of Quantitative Finance and Accounting, 38(2), 209-240.
Song, M. H., & Walkling, R. A. (1993). The impact of managerial ownership on acquisition attempts and target shareholder wealth. Journal of financial and quantitative analysis, 28(4), 439-457.
Sudarsanam, S., Holl, P., & Salami, A. (1996). Shareholder wealth gains in mergers: effect of synergy and ownership structure. Journal of Business Finance & Accounting, 23(5‐6), 673-698.
Veselinova, E., Gogova Samonikov, M., Matlievska, M., & Sa jnoski, K. (2011, November). Selecting and assessing a target firm for an international merger or acquisition. In Conference Proceedings, Economics and Management in the 21st Century-Solutions for Sustainability and Growth (Vol. 3, pp. 479-563). DA Tsenov Academy of Economics-Svishtov.
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.