Performance of West African Firms in Mergers and Acquisitions
Keywords:
Mergers; Acquisitions; Differenced GMM; Profitability; Firm sizesAbstract
Mergers and acquisitions (M&As) have become essential pathways firms use to access new markets and capabilities. As a result, firms located in West Africa are also taking advantage of M&As to reposition themselves to expand in size and become more profitable. However, the extent to which these firms have been improving their performances regarding increased profits and growth in their sizes following their M&A executions remains an issue that has not been investigated. Using a firm-level dataset of 23 quoted firms from West Africa gleaned from the Bloomberg Database from 2000 to 2017, the present study, therefore, employs the difference generalised method of moments (GMM) technique to investigate whether M&A deals by firms from West Africa are value-adding or destroying, particularly in the areas of profitability and growth in sizes. The study results indicate that West African firms that undertake M&As experience growth in profits in the immediate four years after acquisition deals compared to the two years preceding these transactions. However, no evidence is obtained for growth in the sizes of these firms in the initial four years after M&A transactions. Following these findings, managers of West African firms desirous of growth in profits could rely on M&As as one possible route to realize this objective, even though they may not be able to use M&As to improve on their sizes in the short-term period after deals are completed.
References
Adams, R. B., & Mehran, H. (2008). Corporate Performance. Board Structure, and Their Determinants in the Banking Industry, Federal Reserve Bank of New York Staff Reports, (330).
Akhavein, J. D., Berger, A. N., & Humphrey, D. B. (1997). The effects of megamergers on efficiency and prices: Evidence from a bank profit function. Review of Industrial Organization, 12(1), 95-139.
Barber, B. M., & Lyon, J. D. (1997). Detecting long-run abnormal stock returns: The empirical power and specification of test statistics. Journal of financial economics, 43(3), 341-372.
Berkovitch, E., & Narayanan, M. (1993). Motives for takeovers: An empirical investigation. Journal of Financial and Quantitative Analysis, 28(3), 347-362.
Bertrand, O., & Betschinger, M.-A. (2012). Performance of domestic and cross-border acquisitions: Empirical evidence from Russian acquirers. Journal of Comparative Economics, 40(3), 413-437.
Bris, A., Brisley, N., & Cabolis, C. (2008). Adopting better corporate governance: Evidence from cross-border mergers. Journal of Corporate Finance, 14(3), 224-240.
Cosh, A. D., Hughes, A., Lee, K., & Singh, A. (1989). Institutional investment, mergers and the market for corporate control. International Journal of Industrial Organization, 7(1), 73-100.
Delcoure, N. V., & Hunsader, K. (2006). Value Creation of Cash Mergers–Empirical Investigation. Investment Management and Financial Innovations, 3(2), 46-61.
DePamphilis, D. M. (2008). Mergers, acquisitions, and other restructuring activities, 4th Edition, London: Elsevier.
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.
Ekundayo, K (2008): “Stanbic, IBTC Seal Merger, Raise N70 Billion Capital base www.newsdailytrust.com. Extracted on 11/05/2020.
El Zuhairy, H., Taher, A., & Shafei, I. (2015). Post-mergers and acquisitions: The motives, success factors and key success indicators. Eurasian Journal of Business and Management, 3(2), 1-11.
Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2), 288-307.
Hope, O. K., & Thomas, W. B. (2008). Managerial empire building and firm disclosure. Journal of Accounting Research, 46(3), 591-626.
Ikeda, K., & Doi, N. (1983). The performances of merging firms in Japanese manufacturing industry: 1964-75. The Journal of Industrial Economics, 257-266.
Freund, S., Prezas, A. P., & Vasudevan, G. K. (2003). Operating performance and free cash flow of asset buyers. Financial Management, 87-106.
Gatsi, J. G., & Agbenu, D. (2006). A case of Cross-Border merger and acquisition in Ghana. Center for Finance, School of Business, Economics and law, Goteborg University.
Gubbi, S. R., Aulakh, P. S., Ray, S., Sarkar, M., & Chittoor, R. (2010). Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies, 41(3), 397-418.
Hansen, B. E. (2000). Econometrics. Manuscript, Madison, WI.
http://www.SSC.wisc.edu/˜bhansen/notes/notes.htm.
Hayashi, F. (2000). Econometrics. Princeton, NJ: Princeton University Press.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Kohli, R., & Mann, B. J. S. (2012). Analyzing determinants of value creation in domestic and cross border acquisitions in India. International Business Review, 21(6), 998-1016.
Lang, L. H., Walkling, R. A., & Stulz, R. M. (1991). A test of the free cash flow hypothesis: The case of bidder returns. Journal of Financial Economics, 29, pp. 315–35.
Lin, C., Ma, Y., Malatesta, P., & Xuan, Y. (2013). Corporate ownership structure and the choice between bank debt and public debt. Journal of Financial Economics, 109(2), 517-534.
Malmendier, U., & Tate, G. (2008). Who makes acquisitions? CEO overconfidence and the market's reaction. Journal of Financial Economics, 89(1), 20-43.
Martynova, M., & Renneboog, L. (2008). A century of corporate takeovers: What have we learned and where do we stand? Journal of Banking & Finance, 32(10), 2148-2177.
Mueller, D. C. (1985). Mergers and market share. The Review of Economics and Statistics, 259-267.
Neumann, M., Böbel, I., & Haid, A. (1983). Business cycle and industrial market power: An empirical investigation for west german industries, 1965-1977. The Journal of Industrial Economics, 32(2), 187-196.
Nicholson, G. J., & Kiel, G. C. (2007). Can directors impact performance? A case‐based test of three theories of corporate governance. Corporate Governance: An International Review, 15(4), 585-608.
Nguyen, A., & Nguyen, T. (2018). Free cash flow and corporate profitability in emerging economies: Empirical evidence from Vietnam. Economics Bulletin, 38(1), 211-220.
Odagiri, H., & Hase, T. (1989). Are mergers and acquisitions going to be popular in Japan too? An empirical study. International Journal of Industrial Organization, 7(1), 49-72.
Oler, D. (2008). Does acquirer cash level predict post-acquisition returns?
Papadakis, V. M., & Thanos, I. C. (2010). Measuring the performance of acquisitions: An empirical investigation using multiple criteria. British Journal of Management, 21(4), 859-873.
Soludo, C. C. (2006). Financial sector reforms and the real economy. Speech to the Council of Fellows of the Pharmaceutical Society of Nigeria.
Roodman, D. (2009). How to do xtabond2: An introduction to difference and system gmm in stata. Stata Journal, 9 (1), 86-136.
Roll, R. (1986). The hubris hypothesis of corporate takeovers. Journal of business, 197-216.
Singh, H., & Montgomery, C. (1987). Corporate Acquisition Strategies and Economic Performance. Strategic Management Journal, 8(4), 377-386.
Soludo, C. ‘Beyond banking sector consolidation in Nigeria.’ [Online]. Presentation at the Global Banking Conference on Nigerian Banking Reform.
Available at: http://www.cenbank.org/out/Speeches/2006/Govadd29-3-06.pdf
[accessed 12/4/2020]
Soludo, C. C. (2006). Financial sector reforms and the real economy. Speech to the Council of Fellows of the Pharmaceutical Society of Nigeria.
Trautwein, F. (1990). Merger motives and merger prescriptions. Strategic Management Journal, May-June, 11 (4), 283-295.
Vo, X. V., & Doan, T. L. C. (2014) "Dòng tiền tự do và hiệu quả hoạt động của các doanh nghiệp Việt Nam" Tạp chí Phát triển kinh tế 280, 61-77.
Wilson, K. M., & Vencatachellum, D. (2019). Stock market performance and cross-border mergers and acquisitions in South Africa. Studies in Economics and Finance.
Zeitun, R., Tian, G., & Keen, K. (2007). Default probability for the Jordanian companies: A test of cash flow theory.
Zollo, M., & Meier, D. (2008). What is M&A performance? Academy of Management Perspectives, 22(3), 55-77.
Akhavein, J. D., Berger, A. N., & Humphrey, D. B. (1997). The effects of megamergers on efficiency and prices: Evidence from a bank profit function. Review of Industrial Organization, 12(1), 95-139.
Barber, B. M., & Lyon, J. D. (1997). Detecting long-run abnormal stock returns: The empirical power and specification of test statistics. Journal of financial economics, 43(3), 341-372.
Berkovitch, E., & Narayanan, M. (1993). Motives for takeovers: An empirical investigation. Journal of Financial and Quantitative Analysis, 28(3), 347-362.
Bertrand, O., & Betschinger, M.-A. (2012). Performance of domestic and cross-border acquisitions: Empirical evidence from Russian acquirers. Journal of Comparative Economics, 40(3), 413-437.
Bris, A., Brisley, N., & Cabolis, C. (2008). Adopting better corporate governance: Evidence from cross-border mergers. Journal of Corporate Finance, 14(3), 224-240.
Cosh, A. D., Hughes, A., Lee, K., & Singh, A. (1989). Institutional investment, mergers and the market for corporate control. International Journal of Industrial Organization, 7(1), 73-100.
Delcoure, N. V., & Hunsader, K. (2006). Value Creation of Cash Mergers–Empirical Investigation. Investment Management and Financial Innovations, 3(2), 46-61.
DePamphilis, D. M. (2008). Mergers, acquisitions, and other restructuring activities, 4th Edition, London: Elsevier.
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.
Ekundayo, K (2008): “Stanbic, IBTC Seal Merger, Raise N70 Billion Capital base www.newsdailytrust.com. Extracted on 11/05/2020.
El Zuhairy, H., Taher, A., & Shafei, I. (2015). Post-mergers and acquisitions: The motives, success factors and key success indicators. Eurasian Journal of Business and Management, 3(2), 1-11.
Fama, E. F. (1980). Agency problems and the theory of the firm. Journal of Political Economy, 88(2), 288-307.
Hope, O. K., & Thomas, W. B. (2008). Managerial empire building and firm disclosure. Journal of Accounting Research, 46(3), 591-626.
Ikeda, K., & Doi, N. (1983). The performances of merging firms in Japanese manufacturing industry: 1964-75. The Journal of Industrial Economics, 257-266.
Freund, S., Prezas, A. P., & Vasudevan, G. K. (2003). Operating performance and free cash flow of asset buyers. Financial Management, 87-106.
Gatsi, J. G., & Agbenu, D. (2006). A case of Cross-Border merger and acquisition in Ghana. Center for Finance, School of Business, Economics and law, Goteborg University.
Gubbi, S. R., Aulakh, P. S., Ray, S., Sarkar, M., & Chittoor, R. (2010). Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies, 41(3), 397-418.
Hansen, B. E. (2000). Econometrics. Manuscript, Madison, WI.
http://www.SSC.wisc.edu/˜bhansen/notes/notes.htm.
Hayashi, F. (2000). Econometrics. Princeton, NJ: Princeton University Press.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Kohli, R., & Mann, B. J. S. (2012). Analyzing determinants of value creation in domestic and cross border acquisitions in India. International Business Review, 21(6), 998-1016.
Lang, L. H., Walkling, R. A., & Stulz, R. M. (1991). A test of the free cash flow hypothesis: The case of bidder returns. Journal of Financial Economics, 29, pp. 315–35.
Lin, C., Ma, Y., Malatesta, P., & Xuan, Y. (2013). Corporate ownership structure and the choice between bank debt and public debt. Journal of Financial Economics, 109(2), 517-534.
Malmendier, U., & Tate, G. (2008). Who makes acquisitions? CEO overconfidence and the market's reaction. Journal of Financial Economics, 89(1), 20-43.
Martynova, M., & Renneboog, L. (2008). A century of corporate takeovers: What have we learned and where do we stand? Journal of Banking & Finance, 32(10), 2148-2177.
Mueller, D. C. (1985). Mergers and market share. The Review of Economics and Statistics, 259-267.
Neumann, M., Böbel, I., & Haid, A. (1983). Business cycle and industrial market power: An empirical investigation for west german industries, 1965-1977. The Journal of Industrial Economics, 32(2), 187-196.
Nicholson, G. J., & Kiel, G. C. (2007). Can directors impact performance? A case‐based test of three theories of corporate governance. Corporate Governance: An International Review, 15(4), 585-608.
Nguyen, A., & Nguyen, T. (2018). Free cash flow and corporate profitability in emerging economies: Empirical evidence from Vietnam. Economics Bulletin, 38(1), 211-220.
Odagiri, H., & Hase, T. (1989). Are mergers and acquisitions going to be popular in Japan too? An empirical study. International Journal of Industrial Organization, 7(1), 49-72.
Oler, D. (2008). Does acquirer cash level predict post-acquisition returns?
Papadakis, V. M., & Thanos, I. C. (2010). Measuring the performance of acquisitions: An empirical investigation using multiple criteria. British Journal of Management, 21(4), 859-873.
Soludo, C. C. (2006). Financial sector reforms and the real economy. Speech to the Council of Fellows of the Pharmaceutical Society of Nigeria.
Roodman, D. (2009). How to do xtabond2: An introduction to difference and system gmm in stata. Stata Journal, 9 (1), 86-136.
Roll, R. (1986). The hubris hypothesis of corporate takeovers. Journal of business, 197-216.
Singh, H., & Montgomery, C. (1987). Corporate Acquisition Strategies and Economic Performance. Strategic Management Journal, 8(4), 377-386.
Soludo, C. ‘Beyond banking sector consolidation in Nigeria.’ [Online]. Presentation at the Global Banking Conference on Nigerian Banking Reform.
Available at: http://www.cenbank.org/out/Speeches/2006/Govadd29-3-06.pdf
[accessed 12/4/2020]
Soludo, C. C. (2006). Financial sector reforms and the real economy. Speech to the Council of Fellows of the Pharmaceutical Society of Nigeria.
Trautwein, F. (1990). Merger motives and merger prescriptions. Strategic Management Journal, May-June, 11 (4), 283-295.
Vo, X. V., & Doan, T. L. C. (2014) "Dòng tiền tự do và hiệu quả hoạt động của các doanh nghiệp Việt Nam" Tạp chí Phát triển kinh tế 280, 61-77.
Wilson, K. M., & Vencatachellum, D. (2019). Stock market performance and cross-border mergers and acquisitions in South Africa. Studies in Economics and Finance.
Zeitun, R., Tian, G., & Keen, K. (2007). Default probability for the Jordanian companies: A test of cash flow theory.
Zollo, M., & Meier, D. (2008). What is M&A performance? Academy of Management Perspectives, 22(3), 55-77.
Downloads
Published
2022-01-25
How to Cite
Okofo-Dartey, E., & Kwenda, F. (2022). Performance of West African Firms in Mergers and Acquisitions : Array. Acta Universitatis Danubius. Œconomica, 18(1). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1552
Issue
Section
Business Administration and Business Economics
License
The author fully assumes the content originality and the holograph signature makes him responsible in case of trial.
