Module P58836 Literature review

Topics: Mergers and acquisitions, Takeover, Corporate finance Pages: 15 (2791 words) Published: November 7, 2014


Module: Financial research project P58836

Critical literature review on Mergers and Acquisitions

Lu Sun 13123963

Date: 7 April 2014

Contents

1. Abstract………………………………………………............3 2. Introduction………………………………………….............3 3. Literature review……………………………….……………4 3.1 The analysis performance of acquisition……………..5 3.11 Short-term analysis……………………………..5-6 3.12 Long-term analysis……………………………..6-8 3.2 Methodologies assessment…………………………..8-9 3.3 Real motivation for acquisition……………………....9-10 4. Conclusion…………………………………………..........10-11 5. References……………………………………….............12-17 6. Appendix…………………………………………………..18-19

1. Abstract

This paper provides a critical literature review on mergers and acquisitions activities over the past decades. In the short run, researches on the previous studies shows that there is insignificant increasing in shareholders’ value. Furthermore, the significant negative return was discovered to investors in the long run, even all of these are based on limited methodologies. Also, the real motivation for different types of takeover is discussed for which one is likely to increase shareholders’ value, and the method of payment is analyzed in terms of impact of investors’ value.

2. Introduction

Over the past decades, acquisition can be seen as an essential driven for entities’ strategic restructure and renewal (Jemison and Sitkin, 1986). A lot of efforts have been made by many scholars to conduct surveys on efficiency and advantages of acquisition. Some motives involved to carry out acquisition include to produce more benefits for directors (Meeks et al., 1977), to improve cost efficient as redundancy of multifunction departments by gaining synergy and to make current market share enlargeable so that creating more market value, eventually, to lead shareholders to maximize their value (Salter and Weinhold, 1979). Nevertheless, there are many academic papers hold an apposed view on this subject such as Firth (1980); Franks and Harris (1989) and Sudarsanam and Mahate (2006), and the increasing value to shareholders is also not easy to be identified.

The mainly purpose of this essay is to report the results of a study on empirical literature on mergers and acquisitions. In this essay, it will mainly focus on three aspects. In the first part, it will discuss the performance of mergers and acquisitions, involving the short and long terms impact. In the second part, methodologies used in previous studies will be analyzed. In the third part, the real motivation for takeovers will be assessed as well as the nature is friendly or hostile and the impact on investors, as well as the payment method for takeovers.

3. Literature review

The amount of researches provide a view in terms of the loss of shareholders’ value as a result of mergers and Acquisitions activities as well as the real motivation for different kinds of takeovers. The following paragraph presents an analysis for these earlier studies reviewed in this topic.

3.1 The analysis of performance of acquisition

This analysis is based on many earlier studies that the extent to which mainly includes two parts: the impact on short and long term, to shareholders’ wealth of the bidders. And some methodologies that have been used to analyze the performance for the acquirers will also be assessed. According to Firth (1980), he mentioned that there are usually two ways to examine whether stockholders’ value is to be maximized or not, which are considered from financial data and accounting data respectively. Regarding to the short-term analysis, in this report, it will focus on financial data such as share price because most of financial reports issued based on quarterly or yearly basis; this may be suitable for the long-term analysis. The long-term analysis also includes financial data.

3.1.1 Short-term analysis

As Frank and Harris (1989) and Firth (1980)...

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Berkovitch, E. B. and Narayanan, M. P. (1993). Motives for takeovers: An Empirical Investigating. Journal of Finance and Quantitative Analysis, 28(3), PP. 347-362.
Bhagat, S., Shleifer, A., and Vishny, R. W. (1990). Hostile takeovers in the 1980s: The return to corporate specialization. Brookings papers on economic activity: Microeconomics, 1990, 1-84.
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