The moderating role of corporate governance mechanisms, merger’s and firm’s characteristics, on the impact of merger activity on firm value, firm performance and tax effectiveness among publicly-listed firms in the Philippines from 2003-2013: An empirical study using structural equation model

• Main Author: Simbulan, Louis Philippe M.
• Format: text
• Language: English
• Published: Animo Repository 2019
• Subjects: Consolidation and merger of corporations > Philippines; Corporate governance; Corporations—Finance; Accounting
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/7146
• Institution: De La Salle University

One of the goals of a company was to grow and by many strategies that had been done by firms through ages, merger and acquisition was considered one. Hence, this topic was one of the most studied in the course of accounting and finance. Existing literatures provided different variables that had been identified to have a significant impact from the happening of merger. However, various results were provided by researchers on realizing synergistic gain and debate goes on as a new results appeared from the new studies. This paper studied the moderating effect of corporate governance mechanisms, merger’s and firm’s characteristics on the impact of merger activity on firm value, firm performance, and tax effectiveness of publicly-listed firms in the Philippines from the period 2003-2013. Therefore, the specific objectives of this study were 1.) to identify direct effects of merger activity on a.) firm value, b.) firm performance, and c.) tax effectiveness, and 2.) to identify the moderating effect of a.) corporate governance mechanisms, b.) merger’s characteristics, and c.) firm’s characteristics on the impact stated in the first objective.Specifically, firm value, firm performance, and tax effectiveness were measured by Tobin’s Q, Return on Equity, and Effective Tax Rate, respectively. For the moderating variable, corporate governance mechanisms was composed of board size and board independence. Furthermore, merger’s characteristics included focused/diversified merger and friendly/hostile takeover while firm’s characteristics included company size and years in business.To examine the model of the study, data were gathered from different database such as Thomson and Reuters, PSE EDGE, and company’s website. For the period of 2003 to 2013, there were 108 merger and acquisitions from publicly-listed firms in the Philippines. Hence, there were total of 1080 observations covering 5 years before and 5 years after the effectivity date of merger. For data analysis, descriptive statistics, correlational matrix analysis, and Partial Least Square – Structural Equation Modeling (PLS –SEM) were utilized.The findings of the study presented statistical evidence on the impact of merger activity. It showed that merger decreases firm value and firm performance while it increases effective tax rate thereby indicated that the firms were not tax effective. Furthermore, corporate governance mechanisms moderated the effect of merger on firm value while both merger’s and firm’s characteristics moderated the impact of merger on firm performance. Thus, the results of study supported the different theories such as the stewardship theory and agency theory reflected on the variables stated above.