Effects of target’s financial distress level on post-merger performance.

• Main Authors: Ong, Joseline., Tan, Hui Kiow., Chan, Faith Yun Ru.
• Other Authors: Tham Tze Minn
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Business::Finance::Mergers and acquisitions
• Online Access: http://hdl.handle.net/10356/48110
• Institution: Nanyang Technological University

This research paper discusses merger and acquisitions (M&A) with relation to distress level of the target, in particular, the impact of the distress level of a target on the post-merger performance of the acquiring firm. We obtained a list of M&A deals from Bloomberg, for the period of 1st January 1997 to 31st December 2007. We also applied seven criteria in obtaining the sample set used to run our regression model. Besides distress level, we have also identified four other variables namely industry relatedness, method of payment, industry growth and relative size between target and acquirer, where we investigated the impact of these variables on the relationship between distress level and post-merger performance. To test for this impact, we divided the sample set into sub-groups according to our hypotheses. Our empirical results show that higher distress levels result in worse post-merger performance, and the four independent variables have an effect on this relationship, within one year after the completion of M&A. We also ran our regression model to test for these relationship two years after the completion of M&A, but the results obtained were insignificant, which is in line with our prediction that the impact of higher distress levels on post-merger performance will gradually reduce after the completion of M&A.