Investigating the Impact of Merger & Acquisition on Post Merger Financial Performance (Relative & Absolute) of Companies (Evidence from Non-Financial Sector of Pakistan)

Abstract

This paper aims to study the impact of merger & acquisition activity on post merger financial performance (absolute & relative) of companies engaged in the non-financial sector of Pakistan. There are total 16 companies selected which were engaged in the merger & acquisition during the period 2000-2009 and which were also listed on the Karachi stock exchange. Both absolute & relative financial performance was used to analyze the impact of merger & acquisition. Three ratios e.g. return on equity (ROE), return on assets (ROA) and earnings per share (EPS) were used to measure the post merger financial performance. The data regarding these ratios were obtained from the annual reports of acquiring companies. While to measure absolute performance, a short type questionnaire was adapted which measures the absolute performance of acquiring companies. At initial level, descriptive statistics was used to analyze the financial performance following merger. At the second level, paired sample t test was used to analyze whether relative performance was improved following merger & acquisition. The results indicate that absolute performance on average was deteriorated following merger & acquisition. The results of paired sample t test also indicate that relative performance was also deteriorated following merger at significant level.

Keywords: Merger & acquisition, absolute & relative performance, financial sector, Pakistan