The Impact of Mergers and Acquisitions in Asian and European Countries - Statistics Project Example

Theoretical and empirical studies on merger and acquisitions

The impact of mergers and acquisitions on any country is based on the financial and economic benefits. Khanal, Mishra and Mottaleb (2014) argue that despite different scholars’ divergent opinions on the matter, mergers and acquisitions have real benefits to countries and companies. Several empirical findings have determined the concept that shareholders of acquired (target) corporations gain through M&As (Khanal et al. 2014). Based on empirical findings, it relevant to deduce that mergers and acquisitions have impacted Asian and European countries’ economies.

Doytch and Cakan (2011) argue M&As’ activities have common structure and transaction activity for decades in European markets prior to reaching its establishment stage in early twentieth century. On the other hand, the authors reiterated that in Asia, majority of M&A activities were established only after the 1997Asian financial crisis (Doytch and Cakan 2011). It is evident that M&A activities have not just attracted the attention and interest of an extensive section of the nations but have also attracted the captured the interest of administration in Asian economies. The purposes are that most of the Asian counties promote the M&A of firms to heave competitiveness and minimize expenses. The empirical studies show that economic influence would be rigorous to not many multinational enterprises (MNCs) because of M&A practices (Doytch and Cakan 2011). It has been proven by scholars that M&A are significant features of any company plan and diversity of tactical, economic, technological or managerial issues. Evidently, joint ventures, tactical affiliations, and lately outsourcing are additional strategies through which corporations can operate jointly for a definite series of goals, practices or amenities but with no regularly managing the partaking firms. The mergers and acquisition are recognized to be effective in cases where some hurdles such as regulatory, cultural or others restrictions hindering collaboration through mergers and acquisitions. Evidently, in good conditions among the firms, then strategic alliances and joint ventures would effectively facilitate mergers and acquisitions among corporations (Bhalla 2014).

The current studies analyze the impact of M&As among selected Asian and European countries based on stock transactions and economic growth. The analysis involves sectors of services and manufacturing. M&A transactions are disaggregated by industries into cross-border and domestic sales. The selected counties examined in this study are a group of the OECD nations. The applicable method involves use of a Generalized Method of Moments (GMM) estimator that involves endogeneity of mergers and acquisitions. The aim is to evaluate the impact of M&A activity to economic expansion of China, India, Russia, United Arab Emirates, Malaysia and South Africa.

Materials and methods

Data sources

The research covers a range of M&A deals in both private and public companies in China, India, Russia, United Arab Emirates, Malaysia and South Africa from 1999 to date, to identify the impacts of M&A to these countries. These countries are selected since they are key economic powers in Asia, Europe and Africa with well-established stock ventures and markets. The sample selected represents some of the M&As pronouncement instead of a complete list of acquisitions to minimize the ex-post assortment and categorization challenges. For the case of the study, China as the leading nation in terms of M&A is assessed and outcome associated. The announcement of the M&A is the first notice to the public about the practices (Wong, Cheung, and Mun 2009). Based on the issues, the aim is assess the impacts of acquisition and mergers announcements on the cost and stock values of the Asian and European bidding and target companies using the data announcements from the peer-reviewed articles and online databases.

The selected companies in Asia and Europe were obtained from internet web sources, and peer-reviewed articles. M&A data based on the companies from different sectors and collected from business databases and the M&A Statistics. News data sources included key daily news outlets and databases (Khanal et al. 2014). The data collected through news and statistics searching academic tool and Google scholars to search M&A-associated news on selected companies. The data are based on market-adjusted indices acting as proxies of the stock market for the purpose of collection accuracy. The data and the events were based on the acquisitions of public and private firms. The limitation is that it is only possible to collect the financial data of M&A corporations since most of the target firms were private, and only daily stock returns was possible to collected.

Methodology

The analysis is based on the incorporation of GDP indexes and M&A indexes to provide impact assessment platforms. The statistical assessment is based on per capita growth rates on of M&A ventures among companies of different nations. Furthermore, the study examines the impact of M&As as a cumulative for the countries’ growth rates. The method applicable is based on the GMM estimation.

The substitute static techniques like Fixed Effects and pooled OLS are not appropriate for analyzing growth. A pooled OLS approximation is not based on time-series aspects of statistics and the disregarded country-detailed heterogeneity. In addition, the technique of fixed effects also do not manage the possible endogeneity and not suitable for the long-run tendency in the data analysis because it calculates variances based on time-mean sample. Therefore, the static strategies are not ideal instrument for assessment of a dynamic correlation of variables of the study.

The Blundell-Bond scheme GMM is exclusively developed to collect the combined endogeneity descriptive variables using the establishment of a template of internal tools. The tool utilizes both lagged variance observations as measures for level variables and lagged level observations as tools for variance variables. A necessary state for both differentiation and GMM method is that the fault expression is not serially linked, or else the standard errors of the tool estimates cultivate without leap (Nadia Doytch, Esin Cakan 2011).

Furthermore, due to economic aspects, stock and cash, event analysis was pertinent for the study. Khanal et al. (2014) describes event analysis as a standard technique in monetary economics applicable for exploring the impacts of explicit events M&A from announcements and statistics release. The system assumes that entity stock returns are predictable over time comparative to the general market statistics. Based on the supposition, it is possible to measure the disparity between forecasted returns and real returns commonly known as abnormal returns (Khanal et al. 2014). The assumption of no-impact of the occurrence is discarded if abnormal returns are statistically significantly variance of zero. In the study, the null assumption is that the mean cumulative abnormal returns involving event portfolio is applicable because of the announcement of M&As is negligible. The routine impacts of mergers are estimated in various approaches; however, some elements of assessment are more influential. For this study, the ones that have gotten recognition by some applications are published as those that assess merger activities indirectly by evaluating the responses of the stock market to merger pronouncements. The elements are based on ex-ante studies or event studies and these studies evaluate a direct tendencies by assessing the impacts of mergers on real companies activities. The process of this assessment is possible from internally created accounting statistics known as ex-post studies (Khanal et al.2014).

Market Mode

In M&A analysis, the market model is considered as one of the standards of measuring abnormal returns data with amendments of costs for stock splits and dividends. It is an indication of a linear correlation between returns on market entities and security returns (Wong et al. 2009). There are various formulas for assessing and evaluating M&A impacts through market model.

Mackinlay (1999) suggested that stipulating an event window greater than pre- and post-announcement would allow the assessment of abnormal returns involving the event statistics. Nevertheless, the event aspect considers event date involving pre and post M&A events of companies. In current study, the events of significance are the impacts of M&As of companies in Asia and Europe countries of different sectors since 1999 to 2015.

Abnormal returns firm help in examining whether M&As raise shareholder’s capital, the process must involve control for schedule in stock returns unconnected to acquirements. The market model assesses the market wide impact with the risk modification elements like as

Rjt = αj + βjRmt + μjt

where Rit is the revenue of company j on time t; Rmt denotes the return of the market venture; αj and βj are the elements to be approximated; t indexes over the approximation event; and μjt is the variance term with average zero (Khanal et al. 2014).

To acquire the abnormal returns, it is essential to establish the forecasted normal outcome in the observation window. A series of observation windows and events time intervals are primarily determined. From this primarily determined series, it is possible to observe existence abnormality occurrences in various windows. Respectively, the data captured from any sub-periods showing abnormality are evaluated (Wong et al. 2009).

Results and discussion

This section presents the tables and figures of findings regarding impacts of M&A on companies in the six countries.

Results

The results section presents findings that prove that M&A impact countries. Table 1 below presents announcement dates of M&A in one of the U.S. industry between 2010 and 2013. For a period of three years, this industry has witnessed another of mergers and acquisitions in both public and private companies. Without hesitation, it is appropriate to argue that these M&As activities have been influenced by the importance of mergers and acquisitions on other industries. The table shows that M&As have been rampant in the industry and it is an indication that nations and companies are benefitting from such practices.

Table 1: Announcement dates of the major M&As in the U.S. ethanol-based industry from 2010 to 2013

Source: Khanal, Mishra and Mottaleb 2014

If the M&As had no impacts on the U.S. economy, these dates would have not been made public. Therefore, it is clear that America’s industries values M&As as one of the strategies of making companies more effective for economic growth of the state.

Table 2 and Figure 1 continue to show evidence of M&As impacts on different countries through the ratios of the amount of acquired companies. The table shows that many companies that have involved in M&As in the selected countries during the period of four years, 2010 to 2013. The ratios of amount of acquired companies compare how these nations relate to other nations globally in terms of M&As. The higher the values are is the higher the rate of M&As within the nations. It is evident that China has the higher rate of acquisitions and mergers in relation to the other five nations.

Table 2: The ratios of the amount of acquired companies

Countries

Years

2010

China

2.0473

2.1563

2.2247

4.4018

India

1.7525

2.8615

1.0264

2.1211

Russia

1.083

2.3571

2.5463

2.5393

Malaysia

0.5739

0.5449

0.5788

0.5027

U.A.E

0.1522

0.0578

0.165

0.0855

South Africa

0.576

0.8178

0.3858

0.2219

Source: Author’s compilation from Tsuji (2015)’s online information

Figure 1: Ratios of M & As

Source: The Author

Table 2 and Figure 1 provide the international data concerning to the cross-border M&A in six international nations. Particularly, the table and figure provides the ratios of the number of acquired firms of each nation to the complete numbers of acquired firms in the selected nations. The data collected is concerning the M&A of six nations in the areas of Asia-Pacific, Europe, and Africa. The sample period is from 2010 to 2013 and the values showed in graphs are in percentage.

Table 3 and Figure 2 show change rates of the ratio, the rate of change is a tendency that illustrates how one amount transform in association with another entity; rates of M&As of a single country against global rates. It is evident that the rates of change can be negative or positive and corresponds to an inclement or decline in M&As factors of different countries the two data points. The table and figure show that different counties have different impacts of M&As. These change of rates are affected by various factors such GDP and industry indices.

Table 3: Change rates of the ratio

Countries

Years

2011

China

−30.47

43.28

57.98

India

−76.71

−37.44

−8.19

Russia

45.31

24.95

−70.97

Malaysia

−37.07

180.28

−71.41

U.A.E

45.09

−43.40

7.95

South Africa

142.59

−8.03

−7.30

Source: Author’s compilation from Tsuji (2015)’s online information

Figure 2: Change rates of the ratio

Source: Author’s compilation from Tsuji (2015)’s online information

Table 3 and Figure 2 provides the change tendencies of the ratio involving the amount of acquiring firms in each of the six countries selected to the total quantity of acquiring firms internationally. It is evident that low GDP countries South Africa and Malaysia had high change ratios since they have room for improvement.

Table 4 below shows China’s cumulative mean of abnormal return. The abnormal return is a strategy used by economists to test the impact and no-impacts of M&As. Based on the theoretical concepts, it is possible to measure the disparity between forecasted returns and real returns commonly known as abnormal returns (Khanal et al. 2014). The assumption of no-impact of the occurrence is discarded if abnormal returns are statistically significantly variance of zero. In the study, the null assumption is that the mean cumulative abnormal returns involving event portfolio is applicable because of the announcement of M&As is negligible (Khanal et al. 2014).

Table 4: China's Cumulative Average Abnormal Return

Nation: China

Mode

Number of Companies

Cumulative Mean abnormal return

Kind of acquisition

Acquisition

45

-0.80%

Merger

6

-0.24%

Mode of payment

Stock

20

-0.52%

Cash

31

-0.52%

Kind of target firm

Private target firm

50

-0.30%

Public Target firm

1

0.20%

Source: Wong et al. 2009

Figure 3: China's Cumulative Average Abnormal Return

Source: The Author

From the figures and tables above, China has been presented as the country that has had most positive impacts of M&A compared to the other five countries. Therefore, China’s cumulative average abnormal return is used in this study as a pilot due to limitation of data. The result disprove the hypothesis of the study that no-impact of the occurrence is discarded if abnormal returns are statistically significantly variant of zero. The mean abnormal return is statistically significantly difference of zero.

Discussion

The data has shown that M&As have economic and financial impacts on companies in different countries. In this research, international cross-border M&A statistics from various databases and web-based sources are used to analyze the impact of M&A in countries. The data cover global countries specifically picked from Asia, Europe and Africa. Specifically, the analysis involved exploration of M&A impacts on firms in China, India, Russia, United Arab Emirates, Malaysia, and South Africa.

First, Table 1 presented announcement of mergers and acquisitions in the U.S. ethanol-based biofuel industry, it shows that the industry has used M&As as strategies for economic and financial gains. The study involved analysis of the ratio of the numbers of acquiring firms of each nation to the sum of acquiring corporations globally between 2010 and 2013. Table 2 presented the data of the ratios in percentage while Figure 1 presented the ratios graphically. Secondly, the analysis involved comparison of the change rates of the ratio of the firms and Table 3 presented data in percentages and Figure 2 graphically. The last analysis part involved assessment China's cumulative average abnormal return to assess the hypothesis of no-impact if the data is statistically significantly difference to zero. The results are presented in Table 4 and Figure 3.

From the data analysis and results presented, it is evident that M&As impact selected countries economically and financially. Table 1 is about the abnormal return assessment done to evaluate companies listed. The author indicated that every day average abnormal returns for two months event window involving the one-month pre- and one-month postannouncement were assessed and monitored for statistical significance. The findings reveal no significant in preannouncement of abnormal returns (Khanal et al. 2014). However, the statistical significant for daily returns of abnormal return periods showed that M&As have impacts on companies and by and large respective countries (Khanal et al. 2014). However, the impacts are correlated to the GDP and market index of every county. Tables 2 & 3 and Figures 1 & 2 reveal that China has more mergers and acquisition and her change ratios are better due to her GDP ratios. Furthermore, Table 4 and Figure 3 shows that China has statistically significantly variance to zero implying that M&As have impacts on nations and counties. Therefore, the impact of mergers and acquisitions in Asian and European counties are related to GDP ratios of the nations; however, each nation benefit from such activities financially and economically.