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The Influence of the Target Firms Characteristics on the Performance of M&A Deals for Acquiring Companies on the US Market
Financial Markets and Financial Institutions
Mergers and Acquisitions, being a very popular instrument of business expansion are found to create negative performance for acquiring companies. However, they are still growing in number and value globally. We doubt whether target firms characteristics influence such performance and investigate the relationship between the returns to the acquiring companies and target firm pre-acquisition performance. In the study based on the 254 M&A deals executed on the U.S. market in 2000-2018 we found that M&A deals create negative effect for the acquirers both on domestic and cross-border markets. We investigate several measures of target firm performance and determine that target firm prior growth and efficiency of cash management are important factors in explanation of the returns to the acquiring companies. The findings show that acquirers benefit from acquisitions of poorly performing targets as further use disciplinary measures and gain from value enhancement. These results support inefficient management hypothesis that is common in the M&A deals where managers take decisions at the expense of the shareholders’ wealth.