Factor configurations impacting shareholder wealth in mergers and acquisitions of acquiring companies listed on the Johannesburg Stock Exchange

Abstract

Mergers and acquisitions are important components of corporate strategy to improve organisational performance in the current economic climate of low or slowing growth. Empirical studies that focus on one or a couple of factors are numerous, but there is limited research that studies the interplay between the factors and the importance of the various factors that impact on shareholder wealth. This study examined factors that impact on shareholder wealth of acquiring companies listed on the Johannesburg Stock Exchange who took part in merger and acquisition transactions. A quantitative methodology was used for purposes of this research. In order to analyse the factors present at a merger and acquisition announcement and their impact on shareholder wealth, secondary data was utilised. The research utilised financial and accounting data sourced from the Thomson Reuters DataStream and McGregorBFA databases and publicly available daily share price data for shares traded on the Johannesburg Stock Exchange. The sample of listed acquiring firms were obtained from the Thomson Reuters DataStream database. Purposive sampling was employed to select the sample of 31 announcements. This was based on availability of data for all the factors that were deemed important to shareholder wealth creation. Cumulative abnormal returns were calculated for the sample. This was split into positive or negative results and the factors that contribute to either result was analysed using fuzzy-set qualitative comparative analysis. The research concluded there are various configurations of factors that result in either positive or negative shareholder reactions. These configurations subscribe to the principles of equifinality and are asymmetrical, as they are distinct from each other and the negative reactions are not symmetrically opposite the positive reactions.