Examining Firm Performances of M&As with IT-

firms versus M&As with Non-IT firms

i
Examining the firm performances of M&As with IT firms versus M&As
with Non-IT firms

Prepared for
The Chairman
Department of Finance & Banking

Prepared By

Ishrat Jahan Ripa

Student ID: 20191024
Program: Major in Finance & Banking
Fall 2020 Semester

Jahangirnagar University
Savar, Dhaka-1342

Date of submission: December 19, 2020

ii
LETTER OF TRANSMITTAL

December 19th, 2020

The Chairman
Department of Finance & Banking
Jahangirnagar University
Savar, Dhaka-1342Faculty of Business Studies
Jahangirnagar University

Through: Dr Mohammed Sawkat Hossain, Thesis Supervisor

Subject: Submission to the master thesis

Dear Sir,
With due respect, I would like to thank you for the guidance and support you have provided to
complete the Thesis Report on “Examining the firm performances of M&As with IT firms
versus M&As with Non-IT firms”. To prepare the report, I collected what I believe to be most
relevant information to make my report as analytical and reliable. The practical knowledge and
experience gathered during report preparation will surely help in my future professional life.

I gave my outmost effort to prepare this report. I would be grateful for any assessment or
rectification given on mistakes arising from the report. Thank you once again for your support
and guidance.

Yours Sincerely,

Ishrat Jahan Ripa

ID No: 20191024
Major: F&B
EMBA Program, FBS
Jahangirnagar University

iii
 CERTIFICATION

19th December, 2020

This is to certify that Ishrat Jahan Ripa, ID: 20191024, 23rd Batch, EMBA Program, Department
of Finance and Banking, Faculty of Business Studies, Jahangirnagar University. His thesis has
successfully been completed and the Study titled “Examining the firm performances of M&As
with IT firms versus M&As with Non-IT firms”, has been prepared under my supervision and
guidance. He collected the required information by consulting with me.

I wish him every success in all his future endeavors.

________________________
Supervisor
Dr.Mohammed Sawkat Hossain
Chairman, Department of Finance & Banking,
Faculty of Business Studies
Jahangirnagar University,
Savar, Dhaka-1342, Bangladesh

iv
 DECLARATION

I declare that “Examining the firm performances of M&As with IT firms versus
M&As with Non-IT firms” is my own work that all the sources used or quoted have
been indicated and acknowledged by means of complete references and this research
paper was not previously submitted by me for any other purpose.

Yours Sincerely,

_______________
Ishrat Jahan Ripa
ID No: 20191024
Batch: 22th
EMBA Program,
Major in Finance and Banking
Faculty of Business Studies,
Jahangirnagar University
Savar, Dhaka-1342, Bangladesh

v
 ACKNOWLEDGEMENT

All gratitude and thanks to almighty “ALLAH” the gracious the most merciful and beneficent
who gave me courage, knowledge, strength, and ability to undertake and complete this task
towards success. I am very much obliged to my ever caring and loving parents whose prayers
have enabled me to reach this stage.

I express my sincere and gratitude, deep sense of appreciation, best regards and profound
indebtedness to my honorable research supervisor Dr. Mohammed Sawkat Hossain, Associate
Professor, Department of Finance and Banking, Faculty of Business Studies, Jahangirnagar
University for his constant supervision, Scholastic guidance, encouragement, co-operation,
constructive suggestions and valuable advice to conduct my research work and prepare this
report successfully. He is my mentor to be always remembered.

And last but the least I would like to express my gratitude to all of my respectful respondents for
giving me the necessary data and information for my research program that I have completed,
who help me without considering any business purpose and also sharing this practical
experience.

My special thanks go to my family and friends for their overall support during the preparation of
this project.

I feel a great pride and pleasure on the accomplishment of this report.

vi
 ABSTRACT

This paper aims to study and provide empirical evidence on the impact of mergers and
acquisitions (M&A) on the value of IT and non-IT firms. Using the regression models, we
investigate the effect of such strategic alliance announcements on firm value. The results show
that such strategic alliance announcements create significant gains in firm value. When the
sample is divided into IT and non-IT firms, we find stronger support for positive impact on gains
in firm value among IT firms than among non-IT firms. We also find that the smaller strategic
alliance partners perform better than their larger partners. ‘M&As with IT firms are likely to
provide better performance than that of M&As with Non-IT firms when both options are
available to them’. However, our examination of these firms’ long-term performance suggests
the initial reaction is not fully supported. The findings suggest improved (declining) operating
performance for (M&A) firms, and evidence to conclude joint venture firms achieve superior
long-term performance changes for both accrual- and cash-based measures. To explain these
inconsistencies, we employ a set of control variables previously documented as determinants of
the innovation ownership decision. These are ultimately key indicators of their future
performance. The findings of this study could be important for the policy maker market
practitioner for considering the financial investment decisions.

Keywords:
High-tech acquisitions, M&A IT, Non-IT

vii
 TABLE OF CONTENTS

Topic Page
No.
Letter of Transmittal iii
Certification iv
Declaration v
Acknowledgement vi
Abstract VII
Chapter 1: Introduction
1.1 Introduction 2
1.2 Significant of the Study 3
1.3 Objectives of the Study 4
Chapter 2: Literature Review
2.1 Literature Review 3
2.2 Mergers and acquisitions (M&A) 7
2.3 IT versus non-IT firms 7
2.4 Different approach 9
2.4.1 Horizontal Integration and M&A 9
2.4.2 Vertical Integration 9
2.4.3 Cultural Integration 10
2.4.4 Congeneric merger Integration 10
Chapter 3: Research Methodology
3. Method and Data 12
3.1 Dependent variables 12
3.2 Independent variables 12
3.2.1 Testing market and corporate financial performance 12
3.2.2 Control variables 12
3.4 Sample and data 14
Chapter 4: Result & Analysis
4. Results and Discussions 19
4.1. Comparative performance of IT and NIT linked M&As: 19
4.1.1. Univariate regressions 19
Conclusion 21
Appendix 22
References 27

viii
ix
 Chapter 1
Introduction

1
1.1 Introduction
Mergers and acquisitions (M&A) activity is perceived by top executives and firms as an
important mechanism to realize cost savings and growth opportunities (Schoenberg 2006). M&A
allow firms to achieve cost-based synergies through economies of scale and scope. M&A also
enable firms to achieve revenue-based synergies by leveraging core competencies (Capron
1999). The value generating potential of M&A explains the number and size of M&A deals
(Cartwright and Schoenberg 2006). However, a large body of evidence suggests that there is
significant variance in the returns generated from M&A (Jensen 1988). King et al. (2004), for
example, find that M&A activity has a positive impact on acquirer´s performance in the short-
term, no effect in the medium-term, and a negative impact in the long-term.

IT may provide the business flexibility to discover and seize M&A opportunities before
competitors. Similarly, resource redeployment is a key goal in M&A (Capron et al. 2001). IT
may enable firms to redeploy information and knowledge assets such as customer base and
process innovations and help to derive value from M&A (Swanson and Ramiller 2004).
However, though practitioners seemed to have recognized the importance of IT in integrating
targets and realizing value from M&A (e.g., Blatman et al. 2008), academic research has largely
ignored the role of IT in M&A (Tanriverdi and Uysal 2011).

To examine the role of IT in M&A, this study examines the following research questions: (1)
does IT influence the development of business flexibility to sense and seize M&A opportunities,
(2) do IT and business flexibility affect the development of post-M&A IT integration capability
(in short, IT integration capability) to assimilate acquisitions; and (3) does IT integration
capability affect acquirers’ post-M&A performance? Drawing on the resource-based and
dynamic capabilities theories (Barney 1991; Teece 2007) and the perspective of IT-enabled
organizational capabilities (Tippins and Sohi 2003), this paper posits a model in which IT
infrastructure flexibility enables the development of business flexibility and IT integration
capability that help in the search, selection, and assimilation of M&A opportunities. he findings
indicate that IT infrastructure flexibility facilitates the development of business flexibility and IT
integration capability, where IT-enabled business flexibility helps firms to sense and seize M&A
opportunities, and IT integration capability helps acquirers to assimilate acquisitions and
improve their M&A performance.

2
The impact of mergers and acquisitions (M&As) and joint ventures on the value of information
technology (IT) and non-IT firms. Using technology-motivated transactions, we examine
whether there are differences in market response to the announcement of M&As and joint
ventures, and we consider the long-term performance of such firms. We also present new
evidence suggesting the market reacts more favorably to the announcement of technology M&As
relative to joint ventures for our full sample, IT sample and non-IT sample.

When the sample is divided into IT and non-IT firms, we find stronger support for positive
impact on gains in firm value among non-IT firms than among IT firms. We also find that the
smaller strategic alliance partners perform better than their larger partners. However, we fail to
find any significant difference in impact on firm value between merger/acquisition and joint
venture announcements. This study examines the post-M&A innovative performance of
acquiring firms in four major high-tech sectors. Non-technological M&A appear to have a
negative impact on the acquiring firm's post-M&A innovative performance. The findings suggest
improved (declining) operating performance for joint venture (M&A) firms, and evidence to
conclude joint venture firms achieve superior long-term performance changes for both accrual-
and cash-based measures.

1.2 Significant of the Study

Though mergers and acquisitions (M&A) are a common strategy to reduce costs and pursue
growth, the variance in returns from M&A is very high. This research explores how information
technology (IT) affects firms’ ability to sense and seize M&A opportunities and assimilate
acquisitions. Using a combination of secondary as well as matched-pair survey data from 49
firms from different countries, the empirical analysis suggests that through the development of
business flexibility and IT integration capability, a flexible IT infrastructure enables firms to
pursue M&A opportunities and facilitates the integration of IT and business resources of the
merged firm, to help realize the economic benefits of M&A activities. M&As with IT firms are
likely to provide better performance than that of M&As with Non-IT firms when both options
are available to them.

3
1.3 Objectives of the Study
To investigate the firm performances of M&As with IT firms versus M&As with Non-IT firms

4
 Chapter 2
Literature Review

5
2.1 Literature Review
The impact of mergers and acquisitions (M&A) on shareholders' wealth effect has been a subject
of much discussion and empirical analysis in both the economic and financial literature. Indeed,
there has been a long-running debate on the performance of bidders acquiring high-tech targets

Regarding high-tech M&A, this has been studied using different approaches that have generated
a considerable amount of empirical and theoretical studies, resulting in high fragmentation of
points of view

One strand of literature has placed emphasis on the enigma of high-tech M&A. The idiosyncratic
high-growth and high-risk nature of high-tech industry raises a question on the wealth creation in
technology firms' acquisitions. It is argued that the market tends to exhibit excess enthusiasm
about the expected benefits of certain high-tech acquisitions. Such a tendency for increasing
M&A activity in high-tech sectors is mainly driven by small and young start-up acquisitions. The
M&A phenomenon has significant relationship to the core business firms, as Kohers and Kohers
(2000, p.315) stated: ‘the nature of high-growth technology-based industries distinguishes them
from other types of industries. In addition to their high-growth potential, however, another
distinctive feature of high-tech industries is the inherent uncertainty associated with companies
whose values rely on future or developments in unproven, unchartered fields’.In a seminal study,
Ahuja and Katila (2001) report two types of acquisitions in technology-driven acquisitions; high-
tech companies' acquisitions, and acquisitions, where the technology is the target's only asset
component. Similarly, Kohers and Kohers(2001) indicate that the term ‘high-tech’ covers a
number of different industries from biotechnology to electronic devices, which are mainly
characterized by the term “innovation”. They also argued that the complexity of high-tech firms
leads to uncertainty and misperception of the market. In another study, Daniel, Hirshleifer, and
Subrahmanyam (1998) suggest that this condition might lead to investors' overconfidence. High-
tech driven firms are also characterized by important patenting activity.

6
2.2 Mergers and acquisitions (M&A)
Mergers and acquisitions (M&A) are defined as consolidation of companies. Differentiating the
two terms, Mergers is the combination of two companies to form one, while Acquisitions is one
company taken over by the other. M&A is one of the major aspects of corporate finance world.
The reasoning behind M&A generally given is that two separate companies together create more
value compared to being on an individual stand. With the objective of wealth maximization,
companies keep evaluating different opportunities through the route of merger or acquisition.

2.3 IT versus non-IT firms

In addition to factors influencing the market’s response to ownership structure, prior literature
points to several considerations about firm-type that suggest technology-motivated partnerships
may be more favorably priced for IT firms relative to non-IT firms. Kallunkiet al. (2009) discuss
that the characteristics of the firm are considered by investors when pricing news about such
partnerships. This suggests investors may perceive technology firms to have a better capability to
successfully absorb the external technology knowledge gained from the partnership. Moreover,
technology partnerships have become imperative in IT industries where rapid pace of technology
development, product complexity and the high cost of product development make cooperation
beneficial (Das et al. 1998). Finally, transactions involving IT may be accorded more market
transparency because technology partnerships are more prevalent in such high growth sectors
(Hagedoorn 1993; Chan et al.1997; Das et al. 1998). These factors suggest that partnerships for
IT firms may be more favorably perceived as value-increasing (Das et al. 1998)

Literature identifies several formidable barriers to the implementation success of technology

M&As. First, such M&As bear the unique complexity of requiring innovation assimilation in
addition to the typical integration issues. In addition to a high failure rate of M&As, de Man and
Duysters (2005) stress that even when the merger is successful in integrating R&D departments,
it may face difficulties in other business areas, prompting lower overall performance or
disintegration of the company. Another complicating factor is that extraneous knowledge must
be absorbed by the business, and resulting performance may suffer if the firm cannot assimilate
this knowledge (Kallunki et al. 2009). Post-merger integration management is, therefore, simply
not an easy task, and often limits future firm success (Chakrabarti et al. 1994). Similarly, Ghosh

7
(2001) finds no evidence that cash-based operating performance improves after acquisitions.
Ornaghi (2009) and Danzon et al. (2007) find that technology M&A firms in the pharmaceutical
industry perform worse than non-merging firms in the years after the transaction. In addition,
Ramaswamy and Waegelein (2003) find that merger firms do not increase their performance in
more recent years, while Tsung-Ming and Hoshino (2000) report declining post-merger
performance for a sample of Taiwanese firms. Hence, despite their success potential, the barriers
may be too formidable.

Hi-tech innovative acquirers can benefit from buying small, start- up firms by adding valuable
resources, increasing market power and initiating strategic renewal. It is proposed that in
addition to the traditional critical success factors (CSFs) identified as the most influential
variables on M&A performance, attention needs to be given to the acquired firms’ motivation to
succeed and to the performance of start-ups in the hi-tech sector

Based on the findings from a set of interviews with M&A practitioners in the high-tech field, due
diligence, post-closing integration planning and identity are viewed as important factors to the
acquisition outcome. They appear not to be considered for the target firm valuation, which may
result in an acquirer paying an excessive premium.

Non-technological M&As appear to have a negative impact on the acquiring firm's post-M&A
innovative performance. With respect to technological M&As, a large relative size of the
acquired knowledge base reduces the innovative performance of the acquiring firm. Hi-tech
innovative acquirers can benefit from buying small, start- up firms by adding valuable resources,
increasing market power and initiating strategic renewal. Acquiring firms in service information
technology industries where post-acquisition autonomy is more important in value creation
outperform those in manufacturing industries where post-acquisition integration is preferred.

A set of interviews with M&A practitioners in the high-tech field, due diligence, post-closing
integration planning and identity are viewed as important factors to the acquisition outcome. The
findings indicate that synergy potential (similarities and complementarities) between high-tech
merging firms, effectiveness of post-acquisition integration, and organizational cultural
differences positively influence the overall acquisition performance merging high-tech firms.

8
The study extends existing knowledge of cross-cultural management in international high-tech
mergers by analyzing the effects of cultural differences on the effectiveness of the symbiosis
integration approach.

2.4 Different Approach

Regarding high-tech M&A, this has been studied using different approaches that have generated
a considerable amount of empirical and theoretical studies, resulting in high fragmentation of
points of view. One strand of literature has placed emphasis on the enigma of high-tech M&A.
The idiosyncratic high-growth and high-risk nature of high-tech industry raises a question on the
wealth creation in technology firms' acquisitions. It is argued that the market tends to exhibit
excess enthusiasm about the expected benefits of certain high-tech acquisitions. Such a tendency
for increasing M&A activity in high-tech sectors is mainly driven by small and young start-up
acquisitions. The M&A phenomenon has significant relationship to the core business firms, as
Kohers and Kohers (2000, p.315) stated: ‘the nature of high-growth technology-based industries
distinguishes them from other types of industries. In addition to their high-growth potential,
however, another distinctive feature of high-tech industries is the inherent uncertainty associated
with companies whose values rely on future or developments in unproven, unchartered fields’.

2.4.1 Horizontal Integration and M&A

Horizontal integration refers to combinations between competitors as opposed to those who have
a buyer-seller relationship. Essentially, it means buying or merging with your rivals. There are
several reasons why companies might pursue horizontal deals including gaining competitive
advantages and market power over their rivals as well as seeking consolidation economies of
scale. In this chapter, we explore the evidence that exists regarding the extent to which these
types of mergers and acquisitions (M&A) generate benefits.

2.4.2 Vertical Integration

A vertical integration is when a firm extends its operations within its supply chain. It means that
a vertically integrated company will bring in previously outsourced operations in-house. The
9
direction of vertical integration can either be upstream (backward) or downstream (forward).
This can be achieved either by internally developing an extended production line or by acquiring
vertically.

2.4.3 Cultural Integration

Organizations pursue mergers and acquisitions (M&As) for a variety of reasons, including
growth, to access intellectual property or to gain market access, among others. Properly
executed, an M&A deal can generate significant value for an organization; however, there are
also challenges to overcome in any deal. While traditional due diligence will highlight financial
or legal issues, for example, a larger problem is often overlooked – cultural integration.

2.4.4 Congeneric merger Integration

A congeneric merger is a type of merger where two companies are in the same or related
industries or markets but do not offer the same products. In a congeneric merger, the companies
may share similar distribution channels, providing synergies for the merger. The acquiring
company and the target company may have overlapping technology or production systems,
making for easy integration of the two entities. The acquirer may see the target as an opportunity
to expand their product line or gain new market share.

10
 Chapter 3
Research Methodology

11
3. Method and Data

In this section, we discuss the research methods, data and sampling strategy of the study. To
address the research issue, we created ‘M&As with NON-IT Specialized Firm (NIT) = 0’; and
‘M&As with IT Specialized Firm (IT) = 1’- as dummy variable in all the test models. As
discussed and assumed earlier that M&As with IT based firms may accelerate relatively higher
firm market value and thereby generate shareholders wealth maximization than the counterpart
NIT firms. In concomitant to the study, we examine the firm performance of M&As with IT
based firms as opposed to M&As with NIT based firms based on regression models.

3.1 Dependent variables

In the first stage, we examine two categories of firm performances, such as market value
performance and corporate financial performance. We measure market value performance by
Tobin’s Q, price per share and price-earnings ratio. Tobin’s Q is calculated as the market value
of the equity plus the book value of debts divided by the book value of total assets, Price per
share is calculated as the total market price divided by total outstanding shares. Return on asset is
calculated as the net income divided by total assets whilst price-earnings ratio is calculated as the
market price per share divided by earnings per share. We use return on assets, return on equity
and earnings per share as the measures of corporate financial performance. The return on assets
is calculated as the net income divided by total assets, return on equity is calculated as the net
income divided by total equity and earnings per share is calculated by net earnings divided by the
total outstanding shares.

3.2 Independent variables

3.2.1 Testing market and corporate financial performance

To examine the market and corporate performance of M&As with IT Firms in comparison to
that of Non-IT firms, we specify a dummy independent variable IT= 1 if the study observation is
for a M&As with IT firm, and otherwise 0.

3.2.2 Control variables

We identify several firm and country level control variables for this study based on literature.
The firm-level controls include market capitalization of firm(size), total debt to total
equity(leverage), time span between the incorporation of firm and the last day of sample

12
period(age), net income to total asset (return on asset), net income to total equity (return on
equity), net income divided by total shares outstanding (earnings per share), net cash flow
divided by total share outstanding(cash flow per share), total sales to total assets(asset turnover),
net income to total revenue(profit margin), and total operating costs to total revenue(cost to
revenue). The country-level controls include the natural log of the gross domestic product per
capita of issuing country (GDP_per cap), the annual rate of inflation of issuing country
(inflation), the corruption rate of issuing country (Corruption), the market interest rate in the
sample country (Market Interest). Finally, by following Hossain et al. (2020), we add three sets
of dummies such as year, country, and industry to capture the unknown fixed effects. In which,
year and country dummies directly control for the time and country fixed effects while the
industry dummies capture the time-invariant fixed effect of the firms since the industry
affiliation of firms usually remains fixed. Let us now discuss the firm- and country-level control
variables in testing the performance of firms and probability of stronger firms for M&As with IT
specialized companies.

In the regressions that examine market performance, we apply size, leverage, age, return on
asset, return on equity, earnings per share, and cash flow per share as firm-level controls. On the
other hand, we use size, leverage, age, asset turnover, profit margin, and cost to revenue as firm
level controls in the models examining the financial performance of firms. The effect of firm size
on the market and financial performance is well established in literature (Kim et al. 2016;
Canback et al. 2006; Ramasamy et al. 2005; and Banz 1981). The earlier studies find that
leverage can adversely affect firm performance (Vithessonthi and Tongurai, 2015; González,
2013; Ghosh, 2008; Opler and Titman, 1994), because market and financial performance
generally decline with the increase in financial leverage due to financial distress effect.
Researchers find that age of the firm in same business negatively affect its performance (Pervan
et al., 2017; Loderer and Waelchli, 2010; Majumdar,1997), because of business saturation and
market competition. Since corporate financial results determine the value of firm, we use the
return on asset, return on equity, earnings per share, and cash flow per share as the firm-level
controls in the models testing for market performance. It is understandable that a firm has higher
turnover and more net income for every dollar of revenue if it manages the assets, costs, and
earnings more efficiently. Hence, we add asset turnover, profit margin, and cost to revenue as
firm-level controls for financial performance.

13
In addition, we include GDP_per cap, inflation, Market Interest, corruption as country-level
control variables in all test models across Model 1 through 6 of testing firm performance. It is
documented that firm performance in emerging and developed countries varies due to business
competitiveness environment (Goldszmidt et al., 2011; Seifert and Gonenc, 2018). Therefore,
GDP_per cap captures the effect of the level of economic development of country. Prior studies
find that inflation affects economic growth of a country (Chu et al., 2017; Eggoh and Khan,
2017) due to its effect on the production costs and purchasing power. We assume that the market
interest also influences corporate governance system and trade policy of a country that may
affect the performance of firms. The prior studies find that corruption negatively influences the
sales growth and efficiency of firms (Kim et al., 2017; Ayaydın & Hayaloglu, 2014), and thereby
affect the corporate performance.

Next, in testing probability of merger with IT based firms, we apply size and age as firm-level
control variables. We assume that there is a likelihood that M&As with IT are generally stable
having better market and financial performance than the counterpart firms. In this respect, we
also add same country level control variables such as GDP_per cap, inflation, Market Interest,
corruption as country-level control variables in all models 1 through 6 of testing probability of
M&As with IT based firms.

3.4 Sample and data

At first, we prepared the list of all notable merger and acquisitions (M&As) across different
countries. After carefully checking the available data-source of Thomson Reuters Eikon and
Bloomberg, we consider all the merger and acquisitions (M&As) that belong to USA, UK,
Australia, Germany, China, and Canada. To simplify our study samples, we only consider those
countries having minimum five samples of M&As between Jan. 2000 and Dec. 2019. Hence as
an initial attempt, we examine the important research issue based on developed country
perspectives only. In addition, we carefully checked and included only those M&As having the
required test data of minimum three years over the period Jan. 2000 to Dec. 2019 period. To
address our research issue, we classified our sample into two broad catagories: (a) merger with
IT based firms (IT), and (b) merger with Non-IT based firms (NIT). After the final data mining,
the study sample is reduced to 28 for merger with IT firms, and the remaining 21 merger with
Non-IT firms. To avoid biased Stata results, we excluded sample having data set of less than one

14
year. We believe that the sample is relevant, representative and appropriate for this study;
because we intend to examine the research issue in a cross-country setting. This is because
selection of merger with IT versus Non-IT specialized firms provides a homogeneous group of
samples belonging to different countries. In addition, we find that dollar denominated required
financial data set for the minimum period is available for the selected firms of the study sample.
Hence, we did not consider any firm where data set is not available in dollar denominated.
Finally, we download the required market and corporate financial performance dataset of merger
with IT versus Non-IT firms between over Jan. 2000 to Dec. 2019 period.

Table 1: Sample of M&As with IT Firm (IT) and Non-IT Firm (NIT)
Parent Country NIT IT
USA 14 10
UK 11 14
Australia 11 11
Germany 12 10
China 5 6
Canada 7 9
Total 21 28
This table shows the distribution of sample across different countries areas over January 2000-
December 2019 period.

The details of sample distribution across different countries are presented in the above Table 1.In
summary this table shows that a total of 28 merger with IT firms and 21 merger with Non-IT
firms belong to six countries such as USA, UK, Australia, China, Canada and Germany. Next,
we process the test data after adjusting outliers and report descriptive statistics in Table 2. From
the dependent variable statistics, we find that the mean of Tobin’s Q of merger with IT firms
(0.641) is significantly higher than that of the merger with Non-IT firms (0.351). Likewise, the
mean of Price earnings ratio of merger with Non-IT firms (20.98) is insignificantly lower than
that of merger with IT firms (25.49). In addition, we find that the average return on asset of
merger with Non-IT firms (0.024) is significantly lower than that of merger with IT firms
(0.047). The average return on equity of merger with Non-IT firms (0.019) is lower than that of
merger with IT firms (0.095). Finally, the average earning per share of merger with Non-IT
firms (0.203) is significantly lower than that of merger with IT firms (0.267).

15
Table 2: Descriptive Statistics
1. Leading and NON-IT 2. Leading and IT 4. Difference (2-
Variable Specialized Firms (N=21) Specialized Firms (N=28) 1)
Mean Std. Min Max Mean Std. Min Max Differenc t-
Dev. Dev. e Stat
Tobin’s Q 0.351 0.36 0.012 4.21 0.641 0.51 0.05 12.4 0.29*** 6.26
1 4 0
Price 20.98 38.0 1.14 295. 25.49 53.37 0.15 875. 4.51** 3.26
earning 7 6 9
Price per 0.203 0.46 -.89 2.89 0.267 1.40 -54.0 35.1 0.064** 2.09
share 8
Return on 0.024 0.07 -.61 0.48 0.047 0.11 -2.28 0.71 0.023*** 7.32
asset 3
Return on 0.019 1.50 - 8.43 0.095 2.23 -115 28.0 0.076* 1.96
equity 40.95 6 6
Earnings 0.203 0.46 -.89 2.89 0.267 1.40 -54.0 35.1 .064** 2.19
per share 8
Size 2.70 0.81 0.01 4.81 2.49 1.04 1.37 5.53 -0.21 -
2 0.71
Leverage 0.808 0.47 -1.65 6.44 0.787 0.62 -5.43 13.1 -0.021 -
6 1.13
Age 28.7 19.0 4.01 113 36.24 22.48 3.05 190 4.12** 11.7
1
Free cash .084 0.43 3.66 4.31 0.008 1.82 -53.0 26.8 -0.093** -
flow 2.58
Cost to 0.84 4.51 -23.5 74.9 1.22 11.07 - 501. 0.37 1.17
revenue 153. 4
4
Asset 0.26 0.31 -.06 2.26 .806 3.05 -.23 88.1 .545*** 8.9
turnover 7
Profit 1.16 16.1 -55.3 271. .22 13.97 - 205. -1.38 -
margin 3 606. 1 1.62
9
In this table, asterisks ***, **, * denote the level of significance at respectively one, five and
ten percent levels. Tobin’s Q ratio is calculated as the market value of the equity plus the book
value of debts divided by the book value of total assets. Price earnings ratio is calculated as the
market price per share divided by earning per share. Price per share is calculated as the total
market price divided by total outstanding shares. Return on asset is calculated as the net
income divided by total assets. Return on equity is calculated as the net income divided by

16
 total equity. Earnings per share is calculated as net earnings divided by total outstanding
shares. Size is the market capitalization of the firm. Leverage is calculated as total debt divided
by total equity. Age is the business firm existing years. Free cash flow per share is calculated
as the free cash flow divided by total outstanding shares. Asset turnover is calculated as sales
divided total assets. Profit margin is calculated as net income divided by revenue. Cost to
revenue is calculated as total cost divided by total sales.
The statistics for firm level control variables show that the log of total asset (size) varies from
0.01 to 5.53 with an average of 2.55. Leverage differs from negative 5.43 to 13.17 with an
average of 0.79. Age ranges from 3 to 110 years with an average of 34.91. Free cash flow
fluctuates from negative 53 to 26.8 with an average of .0043. Asset turnover varies from negative
0.23 to 88.17 with an average of 0.73. Profit margin ranges between negative 606 to 271.3 with
an average of negative 0.024. Cost to revenue varies from negative 153.4 to 501.4 with an
average of 1.18. From the statistics for country-level variables presented in Table 2, we find that
the log of GDP per cap ranges from 2.69 to 4.94 with an average of 4.10. The inflation rate
fluctuates from negative 4.86 percent to 44.9 percent with an average of 4.72 percent. The
corruption indices for sample countries vary from 0.45 to 9.76 with an average of 3.51 out of 10.
The Market Interest population in these countries varies from 31 percent to 69 percent.

17
 Chapter 4
Result & analysis

18
4. Results and Discussions

We execute empirical tests to examine if the performance of M&As with IT firms perform better
than that of counterpart Non-IT firms, and present results in this section. First, we present the
findings on comparative performance of M&As with IT and Non-IT firms based on regression
estimates. Next, we present the probit model findings on the probability of better performance by
M&As with IT firms in the market. Finally, we provide a discussion to reflect on the academic
and practical implications of the study findings.

4.1. Comparative performance of IT and NIT linked M&As:

4.1.1. Univariate regressions

The univariate regression estimates reported in Table 3 below show that the coefficient of IT
dummy (for M&As with IT firms) is positive for both the market and corporate financial
performance measures. For the market performance measures, the IT dummy is statistically
significant at one percent level for Tobin’s Q (Model-1), Price Per Share(Model-2), and price
earnings variable (Model-3). For corporate financial performance measures, the IT dummy is
significant at one per cent level for return on asset (Model-4), return on equity (Model-5) and
earnings per share (Model-6). The coefficient of IT dummy in Model-1 shows that the market
valuation of the assets of M&As with IT firms (measured by Tobin’s Q) is about 49 percent
higher than that of the M&As with Non-IT firms. Similarly, the coefficient of IT dummy in
Model-3 shows that the return on assets of M&As with IT firms is about 2.9 per cent higher than
that of M&As with Non-IT firms. These two results provide initial support to our hypothesis that
M&As with IT firms perform better than M&As with Non-IT firms counterparts in terms of both
market valuation of assets and earning capacity.

Table 3: Market valuation and corporate financial performance of M&As with IT firms
We test Performance it =α + β IT it +ε it -where market performance is determined by Tobin’s Q,
Price Per Share, and Price earnings ratio, while corporate financial performance is estimated
by Return on asset, Return on equity and Earnings per share; IT =1 if M&As with IT firms, and

19
ε is the error term. We estimate the model that controls for the endogeneity bias and provides
efficient estimates.
Market valuation measures Corporate financial performance
Variable Model-1 Model-2 Model-3 Model-4 Model-5 Model-6
Tobin’s Price Per Price Return on Return on Earnings per
Q Share earning asset equity share
IT-Dummy 0.49*** 0.81*** 0.044** 0.029*** 0.775** 0.089***
(7.78) (4.10) (2.19) (7.19) (2.05) (6.72)
Constant 1.23*** 0.82*** 6.14*** 0.03*** 0.056* 0.86***
(11.45) (2.48) (6.87) (4.11) (2.14) (3.08)
Observation 2350 2530 2450 2240 2410 2330
Asterisks ***, **, * denote the level of significance at respectively one, five and ten percent
levels. The figures in the parenthesis show t values of the corresponding parameters.

20
Conclusion
Based on the about discussions and conclusion we find that performance of merger and
acquisition with IT firms is better than merger and acquisition with non IT firms. While this
study helps rectify the gaps in existing literature on the performance of bidders acquiring high-
tech targets in the short- and long-term periods, it highlights a number of other gaps for further
research. The most possible immediate expansion would be to perform the study on domestic
acquisitions in other countries, as they would have felt the spillover effect. In addition, the
definition for high-tech industries could vary in each of the previous studies. This may lead to
different conclusions. Another avenue for research would be to study the behavior of bidders to
determine the sort of firms that acquired high-tech target and how their firm characteristics
impact on high abnormal returns for merger firms. M&As with IT firms are likely to provide
better performance than that of M&As with Non-IT firms when both options are available to
them.

21
Appendix-1: Sample Summary of Meta-Analysis
SL Author Year Journal Purpose Methodology Type Key Finding Comment (If any)

01 Thomas G. 2013 Review of Examine whether there Data analysis Qualitive Finding the market provides no we find that, while the market
Canace Quantitative Finance are differences in market measured by study with (positive) reaction to joint fails to consider the
and Accounting response to the policy-related event ventures (M&As) at the importance of the firms’ R&D
announcement of M&As economic analysis. announcement. intensity and growth prospects
and joint ventures, and uncertainty. in its initial reaction, these are
we consider the long-term The findings suggest improved ultimately key indicators of
performance of such (declining) operating their future performance
firms performance for joint venture
(M&A) firms, and evidence to
conclude joint venture firms
achieve superior long-term
performance changes for both
accrual- and cash-based
measures.

02 Sang-Yong 2006 Review of This paper aims to study Using the event Qualitive find stronger support for The results show that such
Tom Quantitative Finance and provide empirical study study with positive impact on gains in firm strategic alliance
Lee&KimSe and Accounting evidence on the impact of methodology event value among non-IT firms than announcements create
ng Lim mergers and acquisitions analysis. among IT firms significant gains in firm value
(M&A) and joint ventures
on the value of IT and
non-IT firms.

03 OferZaks 2012 Economics and This paper presents a An Qualitive Hi-tech innovative acquirers In addition to the traditional
Business Review theoretical framework for interdisciplinary study with can benefit from buying small, critical success factors (CSFs)
investigating M&A approach empirical identified as the most
performance in the hi- analysis. start- up firms by adding influential variables on M&A
tech area valuable resources, increasing performance, attention
market power and initiating
needs to be given to the
strategic renewal acquired firms’ motivation to
succeed and to the
performance

of start-ups in the hi-tech

sector

04 HongZhu&J 2015 Journal of World Propose that industry Using the event Quantitative Acquiring firms in service Institutional distance and
unXia Business characteristics are very study study with information technology language differences

22
 important to an acquiring methodology empirical industries where post- strengthen this relationship; in
firm's actions, suggesting analysis. acquisition autonomy is more contrast, diplomatic
the existence of important in value creation relationships weaken the
systematic differences in outperform those in relationship.
post-acquisition value manufacturing industries where
creation in different post-acquisition integration is
industries. preferred

05 AniDeshmuk 2012 Undergraduate This paper aimsisability Using an event- Quantitative Find that acquirers and targets Overall, high-tech transactions
h Economic Review to measure post- study approach study with both realize statistically are value-additive for both
acquisition empirical targets and acquirers
analysis. significant day-0 abnormal
performance returns (1.23% [p<0.1] and
8.1% [p<0.01], respectively)

06 DeviLusyana 2016 The Journal of High This study examines the use event study Quantitative Find positive abnormal returns Overall, our results suggest
a&Mohamed Technology performance of bidders methodology study with for the domestic bidders during that investors and bidders are
Sherif Management acquiring high-tech US empirical 2007–2014, thereby implying overoptimistic about the
Research targets in the short run analysis. that the domestic bidders earn future performance of high-
and long run. more wealth than the cross- tech mergers, and have
border bidders. increased their expectations
overtime, in particular for
Additionally, we find that domestic bidders and
abnormal returns are higher investors during the bubble
after the dotcom bubble period and short-term periods
of 1997–2002: in particular
during the period 2007–2014
for short-term domestic
performance.

07 Lemieux, 2007 Management This paper examines how Survey Study Qualitive Based on the findings from a This project is raising the
Odilon Decision in addition to the high- study with set of interviews with M&A importance of due diligence
Patrick; tech M&A strategic event practitioners in the high-tech and post integration strategy
Banks, John objective, the decision on analysis. field, due diligence, post- in relation to other factors that
C the post-closing closing integration planning impact transaction outcome
integration strategy and identity are viewed as such as intellectual capital
should be considered as important factors to the retention and valuation.
part of a target's firm acquisition outcome.
valuation.

08. Shlomo Y. 2017 Group & The aim of the article is Survey Study Qualitive The findings indicate that Overall indicate that
Tarba&Moh Organization to examine the factors study with synergy potential (similarities organizational cultural
ammad F. influencing the overall event and complementarities) differences also positively

23
 Ahammad Management acquisition performance analysis. between high-tech merging moderate the relationship
of the companies firms, effectiveness of post- between autonomy granted
acquiring the high-tech acquisition integration, and and the overall acquisition
firms organizational cultural performance
differences positively influence
the overall acquisition
performance merging high-tech
firms

09. MyriamCloo 2006 Research Policy This study examines the Survey Study Qualitive Non-technological M&As The relatedness between the
dt, post-M&A innovative study with appear to have a negative acquired and acquiring firms’
JohnHagedo performance of acquiring event impact on the acquiring firm's knowledge bases has a
orn&HansVa firms in four major high- analysis. post-M&A innovative curvilinear impact on the
nKranenburg tech sectors. performance. acquiring firm's innovative
performance. This indicates
that companies should target
M&A ‘partners’ that are
neither too unrelated nor too
similar in terms of their
knowledge base.

10. Yaakov 2012 World Review of The present paper cross-cultural Case Study The study extends existing
Weber Entrepreneurship, presents a case study of a management knowledge of cross-cultural
Management and merger between Israeli management in international
Sustainable and British high-tech high-tech mergers by analyzing
Development companies and illustrates the effects of cultural
the effect that the choice differences on the effectiveness
of post-merger of the symbiosis integration
integration approach has approach.
on the success or failure
of a cross-border merger
and acquisition

11. 2020 The Indian This article analyses the Difference-in- Quantitative an overwhelming majority of Firms from the drugs &
Economic Journal post-merger profitability differences study with acquirers have performed better pharmaceuticals and
S. Shekhar of acquirers for a sample (DID) method empirical than the benchmark firms in electronics industries have
Singh of mergers and analysis. their respective industries. performed better than those
acquisitions (M&As) that from chemicals, electrical and
did take place during the non-electrical industries.
period 1999–2011 in
Smaller firms, being more
certain high technology
inclined to go for horizontal
industries in India.
M&As, have fared better than

24
 their larger counterparts.

12. Khurana, & 2019 Journal of Exploiting the staggered DiD model, and Quantitative Analysis reveals a significant It is tough to resolutely assign
Wang Accounting enactment of country- Linear study with increase in the degree of a bearing country that fails to
Research level M&A law as an regression empirical accounting conservatism in expertise the shock, requires
exogenous increase in analysis analysis. firms financial statements after robust test.
corporate takeover threat. merger.

Conditional logit
13. Cao et al. 2019 Review of Examining how model using Quantitative The presence of foreign This finding is contradictory
Quantitative Finance increasing nationality and dummy study of directors could negatively to Data et al. (2020) who
and Accounting cultural diversity variables. cross affect the Cross-Border Merger argued that acquiring firms
influence cross border sectional and Acquisition; hence national with larger boards &
merger and acquisition. analysis. cultural diversity hinders influential outside directors
communication and exhibit better performance in
collaboration within boards. cross-border acquisitions.

14. Deepak 2020 International Our study examines how Survey Study Quantitative Our findings reveal that In addition, our results
K.Datta Business Review acquiring firm board study with acquiring firms having a larger indicate that acquiring firms
characteristics influence empirical board and outside directors with more dominant CEOs
the performance of cross- analysis. with greater influence exhibit perform better in such
border merger and superior post-acquisition acquisitions.
acquisitions (CBMAs). shareholder value creation in
CBMAs.

Our findings suggest that they

stand to benefit from having a
larger board and influential
outside directors who can
diligently monitor and advise
top management in undertaking
CBMAs.

15. HüseyinTanr 2010 Information Systems This study develops and Survey Study Quantitative Acquirers that have high levels The findings have important
iverdi Research tests the idea that the study with of CBITI capabilities receive implications for M&A
cross-business empirical positive and significant research and practice.
information technology analysis cumulative abnormal returns to
integration (CBITI) their M&A announcements
capability of an acquirer
creates significant value
for shareholders of the
acquirer in mergers and

25
 acquisitions (M&A)

16. Sahu,&Agar 2017 Journal of Economic To determine the factors Multivariate Quantitative The success and motives of R&D units lack resources to
wal. Studies affecting M&A activities regression study with M&A notably observed by sell their work and other
in the pharmaceutical techniques: empirical considering the corporate things. Lag and lead effect
sector. panel probity analysis. financial performance of the might be examined.
model, order firm.
probity models.

17. Robert Faff 2019 Research in To determine M&A Descriptive Quantitative The study established that The accounting information
International research conducted in the statistics, paired study with M&A mostly focuses on value does not provide strong
Business and Asia-Pacific region that sample t-test, empirical creation, efficiency gain and evidence for M&A, cross-
Finance gives directions for future Mean group analysis. the role of deal characteristics country analysis with global
areas of research analysis. in a performance gain evidence is required.

18. Khurana, 2019 Journal of Exploiting the staggered DiD model, and Quantitative Analysis reveals a significant It is tough to resolutely assign
&Wang Accounting enactment of country- Linear study with increase in the degree of a bearing country that fails to
Research level M&A law as an regression empirical accounting conservatism in expertise the shock, requires
exogenous increase in analysis analysis. firms financial statements after robust test.
corporate takeover threat. merger.

To examine how each of Event study,

19. Rozen 2018 The Service the types of M&As respondents’ Qualitivestu Success of M&As largely The small sample size of
Industries Journal self-estimated dy with depends on integration, study is a major concern for
affect M&A success. rating method. event economies of scale, integrated generalizing the study
analysis. management, market findings.
and accounting resistance, and strategic
research method dynamism.

To provide a more
20. Hassan et al. 2018 Thunderbird accurate assessment Exploratory Quantitative If appropriately integrated, the Research is done based on
International Research Design study with firms become not only accounting information for a
Business Review of M&A performance empirical profitable but also competitive short period; cross country
analysis. at post-M&As. with global evidence might be
investigated to claim strong
evidence for a M&A.

The above appendix summarizes the authors, publication year, journal name, objective of the study, research methodology, research type, key finding and possible
research avenue of the respective study. In this appendix, in order to maintain the space, we only presented the summary of 20 most relevant and influential papers. The
thematic areas of the study are identified based on content analysis and underlying relationships among the selected sample articles.

26
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Canace, T. G., & Mann, S. V. (2014). The impact of technology-motivated M&A and joint ventures on
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Lee, S. Y. T., & Lim, K. S. (2006).The impact of M&A and joint ventures on the value of IT and non-IT
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Zaks, O. (2016). Success and failure in M&As: Is there a place for a paradigm change? Evidence from the
Israeli hi-tech industry 1.Economics and Business Review, 2(1), 85.

Zhu, H., Xia, J., & Makino, S. (2015). How do high-technology firms create value in international M&A?
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Deshmukh, A. (2012). Is Tech M&A Value-Additive?.Undergraduate Economic Review, 9(1), 3.

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27
Sahu, S. K., &Agarwal, N. (2017). Inter-firm differences in mergers and acquisitions: a study of the
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Khurana, I. K., & Wang, W. (2019).International mergers and acquisitions laws, the market for corporate
control, and accounting conservatism. Journal of Accounting Research, 57(1), 241-290.
Rozen-Bakher, Z. (2018). Comparison of merger and acquisition (M&A) success in horizontal,
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Hassan, I., Ghauri, P. N., &Mayrhofer, U. (2018).Merger and acquisition motives and outcome
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