CHAPTER 5

DATA ANALYSIS & INTERPRETATION

This part introduces the results of data analysis for meeting the objectives of the study. The
short-term and long-term performance has been investigated through Fama-French three factor
model, panel-data regression, paired sample t-test and multiple regressions. Interpretation of the
findings and results of analysis have been discussed in detail in the present chapter.

5.1 RESULTS FOR EXAMINING THE RELATIONSHIP BETWEEN MARKET SHARE

AND FINANCIAL AND OPERATING PERFORMANCE OF THE ACQUIRER FIRMS’.

This section presents the results of the analysis conducted to examine the effect of M&A’s
on the acquirer firms’. An exhaustive analysis was performed first using basic regression
followed by panel data analysis to check for consistency and robustness of the M&A impacts on
acquirer firms’.

Table 5.1: Estimation of the effect of M&A’s on various Performance Variables

Financial Performance Operating Performance
CFA GS ATR DTR CTR STR
Sign + + + + + +
Interpretation M&A’s have positive impact M&A’s enhances acquirer firms’ efficiency by improving the
on acquirer firms’ financial turnover/efficiency ratios.
performance.

5.1.1 RESULTS FOR BASIC REGRESSION (Refer Tables 5.1.1.1 and 5.1.1.2 of Annexure
A)
The effect of M&A’s on the acquirer firms’ performance is first examined using a basic
regression on the pooled panel data. The results of basic regression are presented in Table 5.1.1.1
& 5.1.1.2 for financial and operating performances. All models were found to be significant at
p<0.001. The columns for each tables display the results of prior performance of the same
performance measure and the alternative performance variables. F-Statistics and R-Square are
exhibited in the end of the tables.

120
Results for Financial Performance

Table 5.1.1.1 gives the results for the basic regression, both the models for cash
generating abilities (CFA) and growth in sales (GS) were significant as indicated by the F-
Statistics and R-Square values. The results suggested that CFA was positively affected by prior
cash flows (CFAp), however the impact was insignificant for the acquirer firms’. On the other
hand, GS was negatively affected by the prior growth in sales (GSp) which was also
insignificant. The results for M&A dummies (M&A1, 2 & 3) were found to be negative but not
significant in both the models. This insignificance of M&A event’s impact on the acquirer firms’
performance supports the fact that M&A did not lead to any economies of scale by improving the
financial performance of the firms’. M&A 2 however had a positive impact on CFA, but was
found to be insignificant. It thus, evidently states that none of the M&A events added value to the
cash generating capabilities (CFA) of the firms’. Size (S) & Advertisement (A) of the firms’ in
contrast had a positive and significant impact on the CFA (t=3.062). The findings here suggested
that big size firms’ were efficient in generating cash post the M&A events and that big size firms’
were also able to effectively use Advertisement cost as a strategic resource to increase the
number of subscribers base.

Results for Operating Performance

Table 5.1.1.2 gives the results for the basic regression; all the models were significant as
suggested by the F-Statistics and R-Square values. The results for operating performance
measures revealed that the firms’ ATRp, CTRp and STRp showed no significant improvements
in the post-M&A period. The results here suggested that the firms’ that had lower turnover ratios
prior to the M&A events, continued such low performance in the post-M&A phase as well. The
M&A dummies (M&A 1, 2 & 3) also showed no improvement in the post-M&A performance of
the firms’. The M&A events that the acquirer firms’ had undertaken, apparently, did not
enhanced the turnover ratios, rather declined them. Hence, it can be implied form the findings
that M&A’s did not lead to the efficient management of the firms’. Although, it was discovered
from the results that M&A1 showed some improvements in the turnover ratios, but were
insignificant. This further adds on to the conclusion that firms’ did not learn from the past M&A
event.

121
 For now, the above results moderately supported the hypotheses of the study. Next, to
further elaborate and substantiate the findings, Arellano-Bond regression has been used which is
considered to be more sophisticated tool, to investigate the financial and operating performances
of the acquirer firms’.

5.1.2 RESULTS FOR ARELLANO-BOND REGRESSION (Refer Tables 5.1.2.1 and 5.1.2.2
of Annexure A)

The findings of the basic regression established robust results. Still, by design, it does not
take into consideration the issues of mutuality/interdependency of performance variables. Since
the relationships between the financial and operating performance variables used are dynamic in
nature. Each of these performance measures are affected by the prior values of other performance
measures and not by their current values. This dynamic nature thus, further, necessitates the use
of panel-data in the analysis of impacts of M&A’s on the Indian Telecommunication Industry.

The results of the Arellano-Bond regression for dynamic panel-data to examine the effect of
M&A activity on the acquirer firms’ of the Indian Telecommunications Industry has been
presented in Tables 5.1.2.1 & 5.1.2.2. The investigation has been conducted using the statistical
package Stata 13 for estimating both the financial & operating performance regression models.
The summary of the result for financial performance is presented in Table 5.1.2.1 and the
summary of the result for operating performance has been presented in Table 5.1.2.2 Both the
models were significant at p<0.001. The columns for both the tables exhibit the results of prior
performance of the same performance measure and the alternative performance variables used for
each of the two categories of performance variables. Wald chi-square and first-order
autocorrelation statistics are depicted in the end of the tables.

In the Arellano-Bond regression estimation, three lags of each dependent variable (i.e.
financial & operating) were used in the models for the performance equations. For both the
equations only the first lags of dependent variables were significant. And for this reason, the
second and third lags of dependent variables were not included in the models.

122
Results for Financial Performance

The Table 5.1.2.1 presents the Arellano-Bond regression estimation results for the
financial performance equation. The Cash generating abilities (CFA) of the acquirer firms’ post
the M&A, was positively & significantly affected by the preceding periods cash flows (CFAp).
Whereas, for the other financial performance measure i.e. growth in sales (GS), the results
showed a significant negative impact. The results here depicted that the acquirer firms’ which
were doing well in generating cash continued their performance. However, the firms’ which
undergone growth prior the M&A, appeared to lose their competitive capabilities after the
transaction. The event effects became insignificant for growth in sales. The CFA for the firms’ in
M&A1 event was significantly negative, which depicts that M&A1, failed to generate enough
CFA for the acquirer firms’. The trends in cash flow generation for the M&A2 & M&A3 indicate
the acquirer firms’ intention to increase their market powers. The insignificance of GS after the
M&A’s disclosed the lack of synergies in the acquirer firms’, that in turn again, builds up the
market power intentions of the acquirers’.

The financial performance variables had no significant effects on the operating

performance variables. The MCFA specified a positive influence of industry development on
acquirer firms’ capabilities to generate cash in the subsequent periods. Size (S) was an essential
control factor that influences the cash flow and sales growth positively. The Debt (D) of the
acquirer firms’ had a negative effect on the firms’ CFA’s. The results overall showed that M&A
events did not add value to the acquirer firms’ and the deteriorated the financial performance.
The deteriorated financial performance hence supported H01 i.e. M&A’s leads to a significant
deterioration in financial performance of acquirer firms’ in the Telecom Industry, if undertaken to
enhance market power.

Results for Operating Performance

The Table 5.1.2.2 presents the Arellano-Bond regression estimation results for the
operating performance equation. The results of the current total assets turnover (ATR) and
creditor’s turnover (CTR) were affected by the prior period’s ATRp and CTRp. The results stated
that the ATR and STR were significant and negative. The results indicated the acquirer firms’
inefficient management of the resources and that firms’ are not growing into its capacity i.e.

123
M&A’s did not appear to contribute the recovery of inefficient management of the acquirer
firms’.

The results for financial performance variables depicted that CFAp & GSp had an
insignificant impact on the efficiency of the firms’ in the post-M&A. The MCFA had an
insignificant impact on acquirer firms’ operating efficiency. The acquirer firms’ that were bigger
in size (S) had a high debtor’s turnover in the subsequent period. This indicated that the acquirer
firms’ which were previously bigger in size had enough long-term competence, before a further
need came forth for engaging in M&A transactions. An increase in advertisement (A) costs
resulted in high assets turnover. The significant amount of debt (D) decreased the turnovers post
the M&A transactions. As expected, a high amount of debt decreased the investment levels of the
acquirer firms’ in subsequent period after the transaction. The decreasing efficiency ratios
implied that M&A’s lead to a decrease in efficiency improvements of the acquirer firms’ rather
than enhancing them via strong synergistic effects. Therefore, the above results suggested the
market power desires of the acquirer firms’. The deteriorating operating performance hence
supports H02 i.e. M&A’s leads to a significant deterioration in operating performance of acquirer
firms’ in the Telecom Industry, if undertaken to enhance market power.

The primary reason of this objective was to discover evidence whether M&A's affect the
firm’s performance in the Indian Telecom Industry. For this purpose, it was theorized in this
objective that Indian Telecom Firms’ undertake M&A transactions with the main purpose to
increase their market power. As mentioned earlier a trade off assumption is studied in this
objective i.e. whether there are no efficiency gains due to increased market power, or there is no
market power improvement but there is an efficiency improvement post the M&A activity.

Overall, results of this exhaustive analysis of the M&A impact on the Indian
Telecommunications Industry on the acquirer firms’ financial and operating performance
demonstrate a robust propensity for various performance measures used. The analysis in Tables
5.1.2.1 & 5.1.2.2 established the substantial spur for the firms’ to engage in M&A transactions.
The outcomes showed that the motivation for M&A's surface from the organization’s goal to
expand their market power and form oligopolies and not for value creation through
accomplishing synergies from the consolidated firms'. For both financial and operating

124
performance analysis, coefficients, t-values and standard errors of the M&A1, M&A2 and M&A3
that the acquirer firms’ engage in are demonstrated.

In case of financial performance of the acquirer firms’, after the results were analyzed,
using the Arellano-Bond regression estimation, it was found that there was a significant negative
effect of the first M&A transaction followed by significant positive effects of the M&A1 &
M&A2 transactions. Arellano-Bond results showed, that M&A1 activity did not improved the
CFA’s of the Indian Telecommunication firms’, whereas, the M&A2 & M&A3 activities showed
a significant and also steady improvements for all the other variables suggested the increase in
market power for the acquirer firms’ through M&A activities. GS was not affected by either of
the M&A transactions. The outcomes of the financial performance equation depicted that the
M&A transactions did not added value to the acquirer firms’ through the enhancement of
financial performances of the firms’. The results are in-line with Farrell et al. (2001) and Gugler
et al. (2003) findings that stated majority of M&A’s are induced by increasing cash at first, but
then leads to a decline in cash levels, as the quantity of M&A deals increases [80] [96].

In case of operating performance of the acquirer firms’, after the results were analyzed,
using the Arellano-Bond regression estimation, it was found that while only total assets turnover
was positively affected as a result of first M&A transaction, other ratios namely CTR and STR
had a negative effect due to any the second M&A transaction. DTR did not get affected by either
of the three M&A transactions. The M&A1 activity appeared to increase only the ATR of the
firms’. No visible improvements were observed in the M&A2 and M&A3 transactions either.
These insignificant effects following the M&A activities falsifies the synergistic gains of the
firms’ by picturing that there is no progress in efficiency improvements of the acquirer firms’ of
the Indian Telecommunications Industry. Thus the results for both the performances indicated
that M&A’s were followed by considerable decline in the profitability and operational
performances. From the outcomes, it can be concluded that the M&A’s in the Indian
Telecommunications Industry generally takes places for market power enhancements and not for
value creation purposes for the combined firms’.

125
5.2 RESULTS FOR EFFECT OF SIZE OF ACQUIRING FIRMS ON ITS POST-
MERGER & ACQUISITION PERFORMANCE

5.2.1 ANALYSIS OF THE DIFFERENT TYPES OF FIRMS ON THE BASIS OF

MARKET CAPITALIZATION (Tables 5.2.1.1 (a), 5.2.1.1 (b) and 5.2.1.1 (c) of
Annexure B)

This section presents the results of analysis of different types of firms individually to
investigate the effect of Market Cap on post-M&A performance of the acquiring firms’.

A. Large Cap Firms’: The Comparative mean pre and post-M&A performance and outcomes
from tests for statistical significance for Large Cap Firms' have been encapsulated in Table
5.2.1.1 (a).

The outcomes showed that there was a decline in the mean CR from 1.14 times to 0.91
times amid the post-merger period which was measurably insignificant. This indicated that there
was a decline in the liquidity & financial position of the large cap firms following the M&A but
this decline was not significant. The mean PAT increased significantly from Rs. -1519.86
Millions to Rs. 23113.07 Millions, which indicated that M&A transaction lead to an
improvement in the profitability of the large cap firms (t-value of -3.978). There was a significant
decline in the mean D/E ratio in post-merger period (t-value of 7.449), which means there was
less debt financing and the firms’ were perhaps being financed by internal positive cash flow,
which signifies a safe trend for the firms.

There was a significant elevation in the mean RONW and mean ROCE with t-values of -
3.875 and -4.582 respectively. The increase in RONW suggested that the M&A’s improved the
financial health of the large cap firms over time. The ROCE also increased significantly, which
showed that the large cap firms’ were able to successfully and efficiently use their capital in
generating profitability following the transaction. There was also a statistically considerable rise
in the mean STR after the merger i.e. from 5516.27 to 57521.51 times. There was a insignificant
rise in the mean DTR and mean asset turnover ratio with t-values of -3.593 and -1.005. The mean
CTR also increased insignificantly from 0.79 to 1.14 times, verified by the low t-value of -3.918.

126
Apart from the ATR, no other operating indicators showed any significant differences for the
large cap firms on a whole post the M&A deal.

The results indicated that there were some noteworthy improvements in the financial and
operating performance of the large cap firms’ in the post merger scenario.

B. Mid Cap Firms’: The comparative mean pre and post-M&A performance and outcomes from
tests for statistical significance for mid cap firms’ have been encapsulated in Table 5.2.1.1
(b).

The results from the analysis suggested that there was a decrease in the mean CR from
2.19 times to 1.05 times in post-merger period for the mid cap firms’ which was significant (t-
value of 3.148). A significant decrease in CR suggested that M&A lead to decrease in mid cap
firms’ capacity to meet its current financial obligations i.e. the transaction obstructed the firms’ to
grow into its capacity. There was a rise in the mean PAT from Rs. 12898.47 Millions to Rs.
77777.12 Millions and the increase was statistically large (t-value of -4.208). There was also a
reduction in the mean D/E ratio during post-M&A period which was also statistically significant.
There was a statistically significant enhancement in the mean RONW from -40.30 to 836.15 %
which depicted that the deal improved the financial health of the mid cap firms over time and a
insignificant increase was observed in mean ROCE from -11.07 to 11.07 % which indicated that
the M&A’s improved the ability of the mid cap firms’ to earn a return on all of the capital that the
firms’ employed.

A statistically insignificant increment in the mean STR after the merger was seen in the
results. There was a insignificant decline in the mean DTR from 12.71 to 10.68 times. The mean
CTR increased insignificantly in post M&A with t-value of -0.291 and mean ATR showed a
statistically insignificant decrease in the post-M&A scenario confirmed with t-value of 0.141.
The operating performance indicators showed an insignificant differences in case of mid cap
firms’ post the M&A transaction.

From the above outcomes, it is seen that in the case of mid cap firms’, there were
inconsequential decreases and negligible enhancements in the financial and operating
performance in the post-M&A period.

127
C. Small Cap Firms’: The comparative mean pre and post-M&A performance and outcomes
from tests for statistical significance for small cap firms’ have been encapsulated in Table
5.2.1.1 (c).

The evaluation of the mean pre and post-M&A performance ratios denotes that the mean
CR declined significantly and there was an increase in the mean PAT which indicated the M&A’s
improved the small cap firms’ profit margins i.e. the small cap firms’ were able to maximize their
profitability post the transaction, however it was statistically immaterial with a t-value of -2.094.
The mean D/E ratio has increased insignificantly with t-values -3.287 during the post-M&A
period which suggested that the firms’ had a lot of obligation and were consequently exposed to
more risk as far as interest rate increases or credit rating are concerned. Mean RONW increased
significantly in the post-M&A period; while the mean ROCE decreased insignificantly in the
post-M&A period with t-values of -5.163 and 3.535.

There was an increase in the mean STR from 1668.73 to 5214.86 times in post M&A
period, but the increase was not considerable. There was an immaterial increase in mean DTR
with t-value of -0.852 showing that the firms’ collection of accounts receivable were inefficient
post the M&A, the CTR also increased insignificantly from 7.16 to 8.90 times depicting that the
small cap firms’ were able to pay off its suppliers quickly to an extent than it was before the
M&A and the ATR also denoted an insignificant minor increase from 0.81 to 0.99 times with a t-
value of -3.928.

The outcomes showed the changes for the different size of firms individually, involved in
M&A transactions in Indian Telecom industry. Assessment of pre and post-M&A financial and
operating ratios for the three types of firms’ separately, revealed that the large cap firms’ showed
the highest improvement than the mid cap firms’ and small cap firms in the post-M&A period. In
view of the outcomes, the alternate hypothesis (H13) is acknowledged. This implies null
hypothesis is rejected i.e. the Market Capitalization has no noteworthy impact on the post M&A
performance of firms’. Since, some noteworthy changes were found after the measurable
investigation of the pre and post financial and operating variables of the large cap firms’ amid the
period 2000-01 to 2009-10.

128
5.2.2 COMPARISON OF TYPES OF FIRMS’ BASED ON MARKET
CAPITALIZATION (Refer Tables 5.2.2.1 (d), 5.2.2.1 (e) and 5.2.2.1 (f) of Annexure C)

The distinctions in mean pre and post-M&A financial and operating performance ratios
for every combination of the type of firms’ based on the market capitalization were assessed and
measurably tested for differences using paired sample t-test for means.

D. Large Cap vs. Mid Cap Firms’: The distinctions in mean pre and post-M&A financial and
operating performance ratios for large cap and mid cap firms’ and the results from t-tests is
encapsulated in Table 5.2.2.1 (d).

The evaluation of the distinctions in mean pre and post-M&A financial and operating
ratios revealed that the there was a higher inconsequential decrease in CR in case of mid cap
firms’ than large cap firms with t-value of 1.856. The mean PAT showed a significant higher
improvement in the case of large cap firms (Rs. 24632.93) as compared to mid cap firms’ (Rs.
4878.65) which is statistically considerable with t-value of 4.835. The D/E ratio depicted a higher
insignificant decline in the case of mid cap firms’ (-19.45 times) with t-value of 2.235. Mean
RONW where significantly increased in both the cases, higher improvement was seen in large
cap firms’ with t-value of 5.736.

The ROCE increased in both large and mid cap firms’ which was insignificant and
confirmed by low t-value of -0.233. The operating ratios decreased significantly for the mid cap
firms’. The STR indicated a higher significant increased in large cap firms’ (52005.24 times) than
in mid cap firms’ (6360.55 times). The DTR and CTR suggested insignificant changes in both
large and mid cap firms’. The ATR however, depicted a higher significant improvement in case
of large cap firms’ (t-value of 4.481). The results in this pair of comparison showed that Large
Cap Firms’ to an extent outperformed Mid Cap Firms’ with some significant improvements in the
financial ratios and operating ratios between the two. Large Cap firms’ seemed to have gained
better due to the M&A transaction by enhancing profits and operating performance which was
also statistically significant as per the results.

129
 Subsequently, in view of the above outcomes the hypothesis (H14) is accepted. This
implies the null hypothesis is rejected i.e. there is no noteworthy distinction between the impacts
of Large Cap and Mid Cap firms’ in post M&A execution. It can be suggested from the outcomes
that large cap firms' have improved profits and operating performance for the organizations.

A. Mid Cap vs. Small Cap Firms’: The comparison in mean pre and post merger financial and
operating performance ratios for mid cap firms’ and small cap firms’ and the results from t-
tests for statistical significance is exemplified in Table 5.2.2.1 (e).

The assessment of the differences in mean pre and post merger financial and operating
ratios depicted that the there was a high insignificant decline in CR in case of mid cap firms’ (-
1.14 times) than small cap firms’ (-0.58 times) with t-value of -1.804. A significantly high boost
in the mean PAT in mid cap firms’ in contrast to small cap firms’, confirmed by t-value of 3.60
was seen in the results. The D/E ratio decreased significantly in case of mid cap firms’ while
increased significantly in case of small cap firms’ post the M&A. The RONW insignificantly
increased more in mid cap firms’ than in small cap firms’. The ROCE increased in mid cap firms’
(22.25%) and decreased in vertical mergers (-3.56%) which was inconsequential. The STR
immaterially improved in both the cases with t-value of 1.024. There was also an inconsequential
decline in DTR in mid cap firms’ (-2.03 times) while; it increased insignificantly in small cap
firms (1.99 times). There was also a higher insignificant increase in CTR in small cap firms’
(1.74 times) with t-value of -0.317. The ATR insignificantly increased in small cap firms’
whereas insignificantly decreased in mid cap firms’. Though, the differentiations involving the
two types of firms’ were statistically inconsequential. Mid cap firms’ displayed some marginal
changes in the post M&A period; but none exhibited statistically major differences in
performance.

Hence, in view of the above outcomes the hypothesis (H15) is rejected. This implies the
null hypothesis is acknowledged i.e. there is no critical contrast between the impacts of Mid Cap
and Small Cap firms in post M&A performance.

130
B. Small Cap vs. Large Cap Firms’: The distinctions in mean pre and post-merger financial
and operating performance ratios for small cap and large cap firms’ and the results from t-
tests for statistical significance is exemplified in Table 5.2.2.1 (f).

The evaluation of the differences in mean pre and post-merger financial and operating
ratios demonstrated an insignificantly high decrease in CR in case of small cap firms’ (-0.58
times) than large cap firms’ (-0.24 times) with t-value of -1.357. A higher increase in PAT was
observed in large cap firms’ as compared to small cap firms’ that was also statistically
noteworthy with t-value of -5.188. The D/E ratio increased slightly in small cap firms’ and
decreased trivially in large cap firms’. The mean RONW showed a significantly higher
improvement in large cap firms’ (233.09 %), than small cap firms’ (11.47%) with t-value of -
5.196. The ROCE where signaled a significant increase in large cap firms’ (20.13%), showed a
significant decrease in small cap firms’ in the post-M&A phase. The stock turnover ratio depicted
a significantly higher increment in large cap firms’ than small cap firms’ with t-value of -5.902.
The other operating ratios showed insignificant changes for both the types of firms’ when
compared with each other.

Concisely, there were colossal contrasts in the level of changes of financial and operating
ratios between the two sorts of firms'. Large Cap Firms' delineated some huge changes in a
couple of critical financial and operating performance pointers. Along these lines, in light of the
above outcomes, the hypothesis (H16) is accepted. This implies the null hypothesis is rejected
i.e. there is no critical distinction between the impacts of Small Cap and Large Cap Firms’ in post
M&A execution. Therefore, it can be finished up by shaping the above outcomes that large cap
firms' gave to some degree better outcomes when contrasted with small cap firms' in the post-
M&A period.

The outcome demonstrates that there was a colossal contrast in the execution of firms’ in the
post-merger period in the Indian Telecom Sector. The evaluation of pre and post-M&A financial
and operating ratios for all the three Large Cap, Mid Cap and Small Cap Firms’ exclusively,
displayed that Large Cap Firms' demonstrated the most elevated change than the mid cap firms'
and small cap firms’ in the post-M&A period. Then again, the distinction of pre and post-M&A
financial and operating performance, for the diverse sorts of firms’ (Large Cap, Mid Cap and

131
Small Cap) likewise proved that Large Cap Firms' demonstrated the most astounding change than
the mid cap and small cap firms’ in the post-M&A period.

5.3 RESULTS FOR ANALYZING THE EFFECT OF M&A ON THE SHAREHOLDERS

WEALTH OF THE ACQUIRER COMPANIES (Tables 5.3 (a), 5.3 (b), 5.3 (c), 5.3 (d),
5.3 (e), 5.3 (f), 5.3 (g), 5.3 (h) and 5.3 (i) of Annexure C)

Table 5.2 below gives the summary of the results for all the event windows combined, for the
short-term event study of the acquiring firms’ in the Indian Telecommunication Industry. This
study is based on Fama-French three-factor model Eq. (3) and covers a period from 2000-01 to
2009-10. The abnormal returns have been estimated for nine diverse event windows constructed
in the study extending to over a year to examine the prior and post M&A short-term stock price
response to M&A announcements on the shareholders’ wealth of the acquirer companies.

a. Results of event window (-1,-250) & (-31,-250): It is apparent from the table that there are
significantly different announcement effects on the stock prices of the acquiring firms’ in
different event windows. The results for event window (-1,-250) and (-31,-250) in the table
indicated that there was a statistically insignificant positive abnormal returns for the acquirer
firms’ before the merger or acquisition. The findings depicts that the abnormal return to
acquirer firms’ throughout the 250 days of estimation period was relatively stable with
insignificant returns prior to the month before the M&A.

b. Result of event window (-30,-1): As the event window approached further, and to especially
the event day, abnormal returns increased significantly. The result for event window (-30,-1)
depicted a positive and also statistically significant abnormal return for the firms’. The results
here suggested that the news for the upcoming merger and acquisition created short-term
abnormal returns for the acquiring firms preceding the M&A. This may also suggest that
acquirer firms’ shareholders were aware and very much positive about the M&A transaction
before the announcement date and took it as a good investment. This in turn was reflected on
share prices that were increased and eventually created an overall gain in abnormal returns for
shareholders of the acquirer firms’.

132
c. Results of event window (-1, 0), (-1, +1) & (0, +1): The result for windows (-1, 0), (-1, +1)
and (0, +1) also depicted a positive and significant abnormal returns for the acquiring firms’.
The result here revealed that the shareholders of the acquiring firms’ had statistically
significant abnormal returns both prior and post the announcement day of the event.

d. Results of event window (+1, +30), (+31, +250) & (+1, +250): The result for window (+1,
+30) was also positive and significant, which depicted that significant abnormal returns for
the acquiring firms’ continued till a month from the announcement day. While it was
observed through the results that when the event window further extends to (+31, +250) and
(+1, +250) covering over a year after the event, the result demonstrated a negative but an
insignificant abnormal returns for the acquirer firms’. The researchers found that the
acquiring firms’ shareholders received positive and significant abnormal returns a month
prior to the announcement date and till a month after completion of the deal. In other words,
the results depicted that there was a positive and significant abnormal return for the acquirer
firms’ in the event window which indicated that stockholders being aware about merger and
acquisition proposal conveyed their reactions through share prices in hope to get best results
continually after the M&A.

The outcomes proposed that M&A's made short-term abnormal returns for the acquiring
firms' i.e. M&A's positively affect wealth creation for firm shareholders' for a short-term period
in the Indian Telecom Sector. The outcome displayed above are in-line with Park and Hitt (1997)
which was performed in telecom industry and archived negative abnormal returns to the
acquirers’ after the M&A declarations because of long haul coordination costs, contrasts in
corporate culture and agency-problems [186]. The results were in contrast with Petkova, M. and
Do, T.Q. (2012) which was conducted in the similar sector on European acquirers where the
results stated that the acquirers failed to convey value to their shareholders’ in the post-M&A
phase in both the short as well as long term.

133
 Table 5.2: Summary of Abnormal Returns using Fama-French Three Factor Model
Event Window αi βi si hi
(-1,-250) 0.07 1.67 -0.08 0.59
t 0.80 23.998** 0.89 1.38
(-31,-250) 0.09 1.47 0.09 0.20
t 1.76 19.327** 0.79 0.94
(-30,-1) 0.06 1.09 -0.10 0.12
t 5.577* 14.703** 4.932* 1.35
(-1,0) 0.10 1.23 0.20 0.13
t 6.330* 5.928** 0.65 0.62
(-1,+1) 0.36 1.25 -0.19 0.14
t 5.520* 6.343** -0.67 0.51
(0,+1) 0.16 0.96 0.29 0.28
t 4.454* 4.076** 0.90 1.29
(+1,+30) 0.05 1.10 0.00 -0.04
t 6.466* 16.789** -0.03 -0.45
(+31,+250) -0.04 0.69 0.03 0.00
t 0.70 26.742** 0.65 -0.12
(+1,+250) -0.09 0.73 0.05 0.04
t 0.65 29.621** 1.20 1.12
**Significant at 1 percent level
*Significant at 5 percent level

5.4 RESULTS FOR ANALYZING THE ACQUIRER FIRMS’ PERFORMANCE IN

CREATING SHAREHOLDERS VALUE IN THE POST-M&A SCENARIO WITH
RESPECT TO UTILIZING CAPITAL BEFORE THE M&A (Tables 5.4.1 and 5.4.2 of
Annexure D).

Eq. (4) is the measure of shareholder value creation which is the residual from regressing
excess earnings on the current and lagged invested capital, controlling for firm size, financial
constraints and age. The regression analysis of Eq. (4) gives the residual estimates that are the
firm-specific measure of value added in a given year. The regression is run for 3 years preceding
to the M&A deal. This regression was run to attain the residual estimates of each acquirer firms’
individually to test the hypothesis (H07) that the value added measure taken for before the M&A
deal can predict the firms’ post-M&A operating performance.

134
5.4.1 Univariate Analysis Eq. (4)

Univariate Analyses is used to compare the operating performance (ROA) for the low
residual and high residual firms’ versus the non-low residual firms’ and non-high residual firms’
in the sample. This analysis is done in order to compare the relative operating performances of
the selected groups with those of the other acquirers to examine the differences in the
performance of the two sets (Table 5.4.1). As discussed earlier, the low residual firms are those
whose residuals fall in the bottom quintile of all the acquirers’ residual estimates at the yearend
before the M&A deal announcement. High residual firms are those who’s residual falls in the top
quintile of all the acquirers’ residual estimates at the year-end preceding to the M&A deal
announcement. The medium residual firms are those whose residuals fall in the middle three
quintile of all the acquirers’ residual estimates at the yearend preceding to the M&A deal
announcement. The results from the univariate analysis depicted that low residual acquiring
firms’ demonstrated a significant decrease in the post-M&A operating performance than the non-
low residual firms’. The gaps in the ROA for the three-year post operating performance were
7.4%, 7.9% & 7.6% respectively and all the deviations in the performance were significant. On
the other hand, high residual firms’ showed a significantly higher post operating performance
(ROA) than the non-high residual firms’. The gaps in the ROA for the high residual firms’ were
6.8%, 5.3% and 7.2% respectively. In other words, the results reported that, the low residual
firms’ underperformed relative to the other acquirers, while high residual firms’ gave a superior
performance in relation to the other acquirers in terms of post operating performance. These
outcomes, hence affirms the hypothesis that the market & investors before the
mergers/acquisitions do not fully recognize the capability of the firms’ to create shareholders
value after the transaction and are thus thwarted by the reduced post operating performance of the
low residual acquiring companies’.

Next, on the basis of the calculated residual estimates from eq. (4), the firms’ were then
classified into three groups (low residual firms, medium residual firms and high residual firms) in
order to investigate the hypothesis (H07) i.e. Acquirers that generated high residuals are expected
to deliver high returns to their shareholders in the new M&A deal, whereas the acquirers that

135
generated low residuals are expected to repeat their poor performance in the new transaction
through a multivariate analysis from eq. (5).

5.4.2 Multivariate Analysis Eq. (5)

Table 5.4.2 (a), 5.4.2 (b) and 5.4.2 (c) reports the results from regressions Eq. (5) for
long-run operating performance (ROA) of the merged/acquired companies’ for all the three
years’ post the M&A transaction. The table 5.3 below also gives the summary of the results of
multivariate regression analysis for acquirer firms’ ROA for the three years’ (i.e. +1, +2 & +3
years) post-M&A operating performance on the variables. The results depicted that the long-run
operating performance of the companies’ in the Telecom Sector was worse if the acquirer firms’
were small in size. The reported results are in contrast with Moeller et al. (2004) which stated that
small acquirers’ tend to show high post M&A performance [175]. The long-run performance of
the firms’ was worse if the firms’ had large cash holdings during the M&A announcement. The
results were compatible with the findings of Oler (2008) which stated that the acquirer firms’
with large cash holdings have lower long-run post M&A performance [183].

The long-run performance of the firms’ was also worse if the firms’ used stock as the
major method of payment. The results were in contrast with Healy et al. (1992) which suggested
that if an M&A deal is financed by debt and cash, the post-M&A income of the firms’ will be
lower than if its financed by stock, since income is calculated after subtracting the interest
expenses [109]. On the other hand, the reported result were similar to the findings of Loughran &
Vijh (1997), Antoniou and Zhao (2004), Moeller et al. (2005) and Bhagat et al. (2005) suggested
that stock-based transactions showed a worse long-run post-M&A performance [146] [11] [174]
[23]. The long-run performance of the firms’ was improved significantly if the acquirer firms’
had high pre-M&A M/B ratio whereas, the firms’ with low pre-M&A M/B ratio performed
significantly worse following the M&A transaction. The above results were different from the
findings of Rau & Vermaelen (1998) that showed high M/B acquirers’ performed worse as
compared to low M/B acquirers’ [198].

The operating performance of the acquirers’ was also significantly better if the acquiring
firms’ used pooling method. When one firm merges/acquires another firm, two methods of
accounting for the transaction, the purchase method or the pooling of interests method are used.

136
In the "pooling of interests strategy" the balance sheets (assets and liabilities) of the two joining
entities are just added on the whole, item by item. In such case, any premium paid over the
market value of the assets or "goodwill" is not considered in the new merger or acquisition
transaction and as such, doesn't need to be amortized and expensed on a going concern premise.
Though, in the "purchase method", any premium paid over the fair market value is contemplated
on the acquirer or targets balance sheet as goodwill which would according to the accounting
guideline be amortized and expensed throughout the years.

As a consequence, the "pooling of interests method" will have no effect on the new
entities accounted earnings, whilst the purchase method would create goodwill amortization
expense and in turn a subsequent burden on accounted earnings of the new entity. Therefore, the
pooling of interests method was extensively preferred by the business concerns. The use of
pooling accounting therefore, normally produces higher accounting earnings than the use of
purchase accounting. Hence, with a specific end goal to guarantee that the consequences of the
M&A execution were not affected by the accounting methods, pooling strategy, as a control
variable, was incorporated into the regression model. The outcomes in the study proposed that
acquirers' performed essentially better in all the three years after the M&A transaction, if the
acquiring firms' utilized pooling method. The result is consistent with the above discussion but,
were dissimilar with the findings reported by Hong et al. (1978) who found that pooling of
interests method of accounting does not lead to higher returns for the acquiring firms’ post the
M&A transaction [111].

Previous studies like Asquith et al. (1983) had reported that the relative size of the M&A
transaction to the size of the acquiring firms’ affects the acquirers’ post-M&A performance [15].
An insignificant decrease was seen in the present results initially, but a significant effect of the
relative size was witnessed in the third year of the M&A transaction. The outcome for pre annual
returns depicted an insignificant decline in the post-M&A operating performance for the
acquiring firms’ in the beginning but demonstrated a significant decline in the third year. As far
as the impact of low-residual firms’ was concerned, the results suggested that the performance of
the firms’ after the M&A was significantly worse in all the three years after the transaction, if the
acquirer firms’ belonged to the high residual group underperformed initially in the first two years

137
after the M&A but performed better in the third year post the M&A deal. Louis (2004) stated that
high accruals are related to lower post-M&A performance for the acquirers’ [147]. Similar to
these results are the findings of this study where accruals lead to a significant low post-operating
performance of the acquiring firms’. All the results were significant at 5% confidence interval.

The ROA’s of matching non-acquirer firms’ in the post-M&A period is positively and
significantly (at 95% confidence level) related to the acquirer firms’ post-M&A ROA, which
exemplifies the success of the matching procedure and hence, concludes that the earnings of the
acquiring firms’ are not goaded by any possible mean reversion properties as such of long-run
post-operating performance. As talked about before, Knapp et al. (2004) suggested that when an
adjustment is made for the mean inversion trend, post-M&A results essentially outperforms those
of the industry peers in the initial five years after the transaction has been made and that, the
positive outcomes in post-M&A execution only appears when the adjustment for mean inversion
is made [135].

In summary, the results from both the regressions Eq. (4) and (5) depicted that the ex-ante
value creation measure strongly anticipated the post-M&A operating performance of the acquirer
firms’ in the Indian Telecom Sector. The results of the univariate analysis for the acquirer firms’
depicted that low residual acquiring firms’ depicted a significant deterioration in the post-M&A
operating performance than the non-low residual firms’ whereas, high residual firms’ showed a
significantly higher post-operating performance (ROA) than the non-high residual firms’. In
other words, the results reported that, the low residual firms’ underperformed relative to the other
acquirers, while high residual firms’ gave a superior performance in relation to the other
acquirers in the post-operating performance. The results of the Multivariate Regression Analysis
documented that the firms’ with low residual earnings prior to the M&A transaction continued to
repeat the poor post-M&A performance in the long-run while the firms’ with high residual
earnings performed better after a certain period of time in the post-M&A scenario.

These outcomes, hence affirms the hypothesis (H07) that the market & investors before
the mergers/acquisitions do not fully recognize the capability of the firms’ to create shareholders
value after the transaction and are thus thwarted by the inferior post operating performance of the
low residual acquiring firms’. Therefore, it can be concluded that the acquirer firms’ before

138
utilizing capital for large-scale M&A’s as a part of their strategic decision process, do not
rationally acknowledge whether the firms’ are capable of creating or rather protecting the
shareholders value or not.

Table 5.3: Summary of Multivariate Regression Analysis for ROA +1, ROA +2 and ROA +3
Years
VARIABLES ROA ROA ROA
Post 1 Year Post 2 Years Post 3 Years
Α 0.269 0.309* 0.356*
t 1.958 6.393 4.879
Low Residual -0.167* -0.327* -0.234*
t -6.674 -6.349 -5.167
High Residual -0.533 0.406 0.323*
t -1.913 2.697 5.541
Small Acquirer -0.094* -0.094* -0.077*
t -6.587 -5.028 -4.526
Relative Size -0.084 0.086 0.089**
t -0.928 1.133 2.776
Pre Annual Return -0.044 -0.051 -0.058*
t -1.097 -0.541 -6.172
Pooling 0.046* 0.061* 0.064*
t 5.668 6.698 6.684
Stock -0.084* -0.066* -0.085*
t -5.648 -4.697 -5.037
High M/B 0.077* 0.079* 0.082*
t 6.828 6.368 6.858
Low M/B -0.243* -0.148 0.351
t -1.167 -2.386 2.783
Accruals -0.083* -0.059* -0.053
t -4.178 -1.428 -1.026
NOA 0.008 -0.003 0.008*
t 1.596 -0.493 1.694
Acquirer Cash -0.141* -0.137* -0.147*
t -7.033 -5.017 -6.651
Matching ROA Year +1 0.392*
t 8.006
Matching ROA Year +2 0.081*

139
 t 4.659
Matching ROA Year +3 0.078*
t 7.423
Adjusted R-Square 0.79 0.83 0.81
*Significant at 5 percent level
**Significant at 1 percent level

5.5 RESULTS FOR IMPACT OF TYPES OF MERGERS ON POST-MERGER

PERFORMANCE OUTCOMES OF THE ACQUIRING FIRMS

5.5.1 ANALYSIS OF THE DIFFERENT TYPES OF MERGERS (Tables 5.5.1.1 (a),

5.5.1.1 (b) and 5.5.1.1 (c) of Annexure E)
This segment depicts the outcomes of the analysis of different types of mergers
individually.

A. Horizontal Mergers: The relative mean pre and post-merger performance and consequences
from tests for statistical significance for horizontal mergers have been encapsulated in Table
5.5.1.1 (a).

The results proposed an increment in the mean PAT from Rs. 8963.90 Millions to Rs.
10067.89 Millions, which demonstrated that horizontal mergers prompt to a change in the
profitability of the organizations, however the profitability was not statistically noteworthy (t-
value of -1.916) and rise in the mean CR from 2.32 times to 2.64 times amid the post-merger
period which was additionally statistically immaterial. This demonstrated flat mergers hardly
enhanced the liquidity and monetary position of the organizations however not to a degree to
enhance the overall management of the firms’. There was an increase in the mean D/E ratio amid
post-merger period and the increase was likewise statistically noteworthy (t-value of -2.196),
which implies there was more obligation in connection to equity and the firms’ were maybe
being financed by creditors as opposed to by internal positive cash flow, which might be a risky
pattern for the firms’. A high D/E ratio reduces the value of owners’ stake in a business as a
proportion of its assets.

140
 A statistically immaterial decline in the mean RONW & an increase in mean ROCE with
t-values of 0.084 and -1.573 were observed in the results. The decrease in RONW suggested that
perhaps the amount of liabilities increased in comparison of the assets of the firms’ following the
merger, but this decrease in net worth was insignificant. On the other hand the ROCE increased
insignificantly, which showed that the firms’ were not able to efficiently use their capital in
generating profitability following the mergers. There was also a statistically inconsequential
increment in the mean STR post the merger from 8834.96 to 20832.50 times. There was a
statistically irrelevant rise in the mean DTR and mean ATR with t-value of 0.555 and 0.320
separately. Though, there was a measurably noteworthy decline in the mean CTR from 5.87 to
3.01 times which was affirmed by the low t-value of -3.187. The operating indicators
demonstrated no critical enhancements for the firms’ in horizontal mergers. The outcomes
demonstrated that on account of horizontal mergers in Indian Telecom industry, there were
inconsequential changes in the financial and operating performance in the post-merger situation.

B. Vertical Mergers: The proportional mean pre and post-merger performance and outcomes
from tests for statistical impact for vertical mergers have been depicted in Table 5.5.1.1 (b).

The outcomes from the examination recommends that there was a measurably high
increment in the mean PAT from Rs. 7835.08 Millions to Rs. 12729.33 Millions (affirmed by the
high t-value of -4.087) and furthermore a measurably noteworthy increment in the mean CR from
2.68 to 3.09 times amid the post-merger period which was statistically irrelevant (t-value of
3.245) for the vertical mergers. A noteworthy change in CR recommended that vertical mergers
prompt to an expansion in firms' ability to meet its financial commitments i.e. vertical mergers
encouraged the organizations' to grow into its ability. There was likewise a lessening in the mean
D/E ratio amid post-merger period and the decline was not statistically noteworthy either. There
was a measurably huge increment in the mean RONW from 37.88 to 187.10 % which portrayed
that vertical mergers enhanced the financial soundness of the firms' after some time and a
unimportant decrease was seen in mean ROCE from 19.35 to 17.39 %.

There was likewise a statistically immaterial reduction in the mean STR after the merger.
There was a statistically inconsequential minor increment in the mean DTR from 17.21 to 17.83
times. Though, the mean CTR demonstrated a noteworthy reduction in post-merger period with t-

141
value of 2.143 and mean ATR demonstrated a measurably inconsequential decrease in the post-
merger execution with a low t-value of 1.480. The operating performance indicators
demonstrated an insignificant contrast in vertical mergers for the firms’,

From the above outcomes, it is seen that in the event of vertical mergers in Indian
Telecom sector, there were noteworthy enhancements in the financial and operating performance
in the post-merger period.

C. Conglomerate Mergers: The comparison of mean pre and post-merger performance and
outcomes from tests for statistical significance for conglomerate mergers have been described
in Table 5.5.1.1 (c).

The comparison of the mean pre and post-merger performance ratios delineates that there
was an increment in the mean PAT which demonstrated the conglomerate mergers enhanced the
organizations' overall revenues i.e. the organizations' could augment their productivity post the
merger, albeit it was statistically unimportant with a t-value of -1.067. The mean CR declined
irrelevantly while; mean D/E ratio has diminished essentially with t-values 1.608 and 2.717 amid
the post-merger period which proposed that the organizations' could keep up a low amount of
debt and were in this manner exposed to less risk as far as interest rate increases or credit rating
are concerned.

Mean RONW and mean ROCE had both increased in the post-merger period, yet the rises
are not statistically significant with t-value of - 1.071 and - 1.284 individually. There was a rise in
the mean STR from 45987.15 to 51390.06 times amid post-merger period, yet the rise was not
statistically huge. There was a noteworthy increase in mean DTR with t-value of -2.650
demonstrating that the firms' collection of accounts receivable were productive post the merger
while there was an immense decline in the CTR from 8.83 to 4.71 times portraying that the firms'
were taking more time to pay off its suppliers than it was before the merger. Be that as it may,
ATR portrayed an insignificant minor rise from 0.83 to 1.62 times in the post-merger period with
a t-value of -0.444.

From above outcomes and study, it appeared that for combining firms’ required in
conglomerate mergers in Indian Telecom industry, generally demonstrated inconsequential

142
changes in the post-merger execution. Comparison of pre and post-merger financial and operating
ratios for all the three sorts of mergers exclusively, showed that conglomerate mergers had
brought on the most noteworthy decrease in the post-merger execution of the consolidating
firms’, trailed by horizontal mergers. Then again, vertical mergers in Indian Telecom sector
delineated some critical enhancements in the financial and operating performance in the post-
merger period.

In view of the outcomes, the alternate hypothesis (H18) is accepted. This implies the null
hypothesis is rejected, that the sorts of mergers (horizontal, vertical and conglomerate) have no
huge beneficial outcome on the post-merger execution of firms’. Since, a significant change was
found after the statistical investigation of the pre and post-merger performance of firms’
undertaking vertical mergers in the Indian Telecom Sector amid the period 2000-01 to 2009-10.

5.5.2 COMPARISON OF TYPES OF MERGERS (Refer Tables 5.5.2.1(d), 5.5.2.1(e) and

5.5.2.1(f) of Annexure E)

. The distinctions in mean pre and post-merger financial and operating performance ratios
for every mix of merger sorts were evaluated and statistically tested for differences utilizing
paired sample t-test for means.

D. Horizontal vs. Vertical Mergers: The distinctions in mean pre and post-merger financial and
operating performance ratios for horizontal and vertical mergers and the outcomes from t-
tests for measurable essentialness are depicted in Table 5.5.2.1 (d).

The comparison of the distinctions in mean pre and post-merger financial and operating
ratios demonstrated that the there was a higher increment in the mean PAT on account of vertical
mergers (Rs. 4894.25) when contrasted with horizontal mergers (Rs. 1103.99) which is
statistically critical with t-value of 10.356 . The expansion in CR was altogether higher in the
event of vertical mergers than horizontal mergers with t-value of -4.053. The D/E ratio declined
inconsequentially on account of vertical mergers (-1.63 times) with t-value of 1.685 and RONW
where essentially declined in horizontal mergers (-4.62%), henceforth insignificantly increased
on account of vertical mergers (149.22%) with a high t-value of -5.591. The ROCE increased in
horizontal mergers and declined in vertical mergers in the post merger period which was

143
inconsequential and affirmed by t-value of -2.413. The operating ratios likewise declined in the
vertical mergers. The STR fundamentally increased in horizontal merger (11997.54 times) but
declined altogether in vertical mergers (-4620.52 times). There was likewise an immaterial
decline in CTR in both horizontal mergers and vertical mergers. The ATR diminished
inconsequentially in vertical mergers in the post-merger period. The outcomes in this
combination demonstrated that vertical mergers to a degree beat horizontal mergers with some
noteworthy changes in the financial ratios and operating ratios between the two sorts of mergers.
Vertical mergers appeared to have improved in enhancing profitability and operating
performance. In addition, the contrasts between the two mergers were measurably huge.

In this way, in view of the above outcomes the hypothesis (H19) is accepted. This implies
the null hypothesis is rejected i.e. there is no noteworthy distinction between the impact of
horizontal and vertical mergers on post-merger performance of firms’. It can be concluded from
the outcomes that vertical mergers have improved in enhancing profitability and operating
performance for the firms.

E. Vertical vs. Conglomerate Mergers: The distinctions in mean pre and post-merger financial
and operating performance ratios for vertical and conglomerate mergers and the outcomes
from t-tests for statistical significance is outlined in Table 5.5.2.1 (e).

The examination of the distinctions in mean pre and post-merger financial and operating
ratios demonstrated that the there was a higher increment in the mean PAT on account of vertical
mergers when contrasted with conglomerate mergers which is statistically high with t-value of -
6.905. The decrease in CR was significant for conglomerate mergers (-1.84 times) whereas; the
expansion in CR for vertical merger was noteworthy (0.41 times) with t-value of -4.477. The D/E
ratio diminished insignificantly for both the mergers. The RONW fundamentally expanded more
in vertical mergers than on account of conglomerate mergers. The ROCE expanded in
conglomerate mergers (20.3%) and declined in vertical mergers (-1.96%) in the post-merger
period which was likewise insignificant.

The STR inconsequentially declined on account of vertical mergers (-4620.52 times) and
insignificantly expanded in conglomerate mergers, by (5402.91 times) with t-value of -0.079 in
the post-merger period. There was additionally an insignificant increment in DTR in

144
conglomerate mergers when contrasted with vertical mergers with a t-value of -2.411. There was
additionally a higher immaterial reduction in CTR in vertical mergers (- 7.07 circumstances) than
in conglomerate mergers (-4.12 times) which was affirmed by high t-value of - 1.247. The ATR
insignificantly expanded in conglomerate mergers and inconsequentially diminished in vertical
mergers. In any case, the contrasts between the two mergers were measurably insignificant.
Vertical mergers indicated greater improvements in the post-merger period than conglomerate
mergers; by showing statistically significant changes.

In this manner, in view of the above outcomes the hypothesis (H110) is accepted. This
implies the null hypothesis is rejected i.e. there is no huge contrast between the impact of vertical
and conglomerate mergers on post-merger performance of firms’. The outcomes showed that
vertical mergers have prompt to better performance for firms' when contrasted with conglomerate
mergers.

F. Horizontal vs. Conglomerate Mergers: The distinctions in mean pre and post-merger
financial and operating performance ratios for vertical and conglomerate mergers and the
outcomes from t-tests statistical significance is outlined in Table 5.5.2.1 (f).

The comparison of the distinctions in mean pre and post-merger financial and operating
ratios demonstrated that the there was a higher increment in the mean PAT on account of level
mergers when contrasted with conglomerate mergers, however the expansion was measurably
immaterial with t-value of 3.161 . The CR was insignificantly increased in horizontal mergers
(0.82 times) however diminished fundamentally in conglomerate mergers (-1.84 times) with t-
value of 2.728. The D/E ratio rose insignificantly on account of horizontal mergers and
diminished irrelevantly in conglomerate mergers. The mean RONW where immaterially
diminished in horizontal mergers (-4.62%), however increased on account of conglomerate
mergers (148.01%) with a low t-value of -1.191. The ROCE expanded in horizontal mergers and
conglomerate mergers in the post-merger period which was likewise insignificant.

The STR fundamentally expanded in horizontal merger and altogether diminished in

conglomerate mergers with t-value of 16.342. The other operating ratios demonstrated a
insignificant increment/diminish for both the sorts of mergers. There was marginally a high

145
insignificant decline in CTR in conglomerate mergers (-4.12 times) and horizontal mergers (-2.86
times) which was affirmed by low t-value of -2.798. Mean asset turnover ratio expanded
inconsequentially in conglomerate mergers and diminished immaterially in horizontal mergers
with t-value of - 0.950.

In summary, there were insignificant contrasts in the level of changes of financial and
operating ratios between the two sorts of mergers. In this way, in view of the above outcomes, the
hypothesis (H111) is rejected. This implies the null hypothesis is accepted i.e. there is no
significant difference between the impact of horizontal and conglomerate mergers on post-merger
performance of firms’.

The outcome for the comparison of pre and post merger financial and operating
performance, for the diverse sorts of mergers exclusively, demonstrated that Vertical mergers
have demonstrated the most elevated enhancements in both financial and operating performance,
which were likewise evidently significant. Then again, the aftereffects of comparison between
various combinations of mergers (i.e. horizontal, vertical and conglomerate), additionally
suggested that vertical mergers can possibly surpass the horizontal and conglomerate mergers..

146