The impact of cross border mergers and acquisitions on the operating financial and short - term share price performance of acquiring companies listed on the Johannesburg Stock Exchange

Abstract

Mergers and acquisitions are a key component in the toolbox of business strategies that companies employ to improve organisational performance. Empirical studies that focus on domestic mergers and acquisitions activity in developed countries are numerous, however there remains a limited amount of research into the effects of cross border mergers and acquisitions on the performance of acquiring companies, especially in emerging markets. This research examined whether cross border mergers and acquisitions concluded by acquiring companies listed on the Johannesburg Stock Exchange have a positive or negative impact on the operating financial and short term share price performance of the listed acquirer. A quantitative approach was adopted for the purpose of this research. In order to analyse the impact of cross border mergers and acquisitions transactions on the share price and operating financial performance of listed acquiring firms secondary data was utilised. The research incorporated publicly available daily share trading data for shares traded on the Johannesburg Stock Exchange and financial and accounting data sourced from McGregorBFA. In addition, the sample of cross border mergers and acquisitions transactions was obtained from the MergerMarket database. Purposive sampling was applied to select an initial sample of 44 transactions. Based on the exclusion of confounding events a final sample of 29 transactions was tested. Given the small sample size, and that confounding events were determined not to have a material impact on the cross border transactions, comparative analysis was performed using the initial sample of 44 transactions. Different lenses were applied for testing financial performance by using three performance measures. These included abnormal share price returns; key financial performance ratios and industry adjusted operating cash flow return on assets. Various short-term event windows were analysed for each of these measures. Parametric tests including t-tests for unequal variance and paired t-tests were applied in the research. Given the small sample size non-parametric testing in the form of Wilcoxon Signed Rank Sum tests was also applied. In addition, bootstrapping was applied to the cumulative average abnormal returns. This research concluded that both the short-term share price and operating financial performance of acquiring companies listed on the Johannesburg Stock Exchange does not improve significantly in the short-term post the cross border merger or acquisition transaction.