Using managerial and market tools to measure the impact of acquisition operations on firm performance

Abstract

This paper aims to investigate and evaluate the effect of pre- and post-mergers and acquisitions (M&A) on non-financial Egyptian firms’ performance using a balanced scorecard (BSC), as well as to empirically investigate the impact of M&A on shareholder wealth using cumulative abnormal returns (CAR). The paper is limited to non-financial firms listed on the Egyptian stock market (EGX) that have undergone acquisition operations during the time specified in the paper from 2003 to 2016. Four perspectives for the BSC are assessed before and after the acquisition operations to evaluate performance. The final sample for the BSC appraisal is 12 companies for 12 acquisition operations, while the sample for shareholders’ wealth consists of 10 companies. The difference in the sample is that some companies became out-of-counter after the M&A process. Cumulative differential analysis and graph observation show preferable values for post-acquisition operations versus pre-acquisition operations for the three non-financial perspectives, namely Customer satisfaction, Learning and growth, and Internal business process, and for two financial perspectives, namely Sales and Profitability. The results show preferable values for pre-acquisition operations for two financial perspectives: Liquidity and Market value. The T-test results failed to establish a relationship between M&A and enhancing BSC perspectives. The results could not find any evidence to support the impact of pre-post M&A on the shareholders’ wealth. The relationship between BSC before and after M&A and CAR is tested using a multiple regression model. The results show a significant relationship only between shareholder wealth and the Learning and growth perspective.