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Ownership Structure Indicators and their Impact on the Efficiency of Corporate Diversification Strategies

Student: Voronina Mariia

Supervisor: Alexey S. Makarov

Faculty: Faculty of Economics

Educational Programme: Finance (Master)

Year of Graduation: 2019

This paper is devoted to the study of the mergers and acquisitions effectiveness determinants. Nowadays, M&A deals are one of the most popular ways to implement corporate diversification strategies. They allow the enterprises to develop dynamically, to enter new geographic markets, to expand the range of goods produced and services rendered. It is worth noting that the implementation of these processes requires less time and financial resources compared to internal diversification methods. However, current statistical observations show that a significant part of these transactions does not lead to the achievement of the stated goals and does not contribute to an increase in the companies’ value. Thereby, the search for the determinants of M&A deals effectiveness is a relevant research question. The main objective of this paper is to investigate the influence of the ownership structure indicators of the acquiring companies on the effectiveness of mergers and acquisitions made for the purpose of corporate diversification. Special attention in this study is paid to the state as a separate type of owners, as well as its way of participation (direct or indirect) in the shareholder structure. To achieve this goal, systematization of theoretical material was carried out and a review of empirical works devoted to this topic was provided. In the framework of the practical part, an investigation on the effectiveness of mergers and acquisitions made by Russian companies was conducted. To accomplish this task, a sample of 119 observations covering the period from 2010 to 2017 was compiled. Free cash flow to equity growth rate and the amount of cumulative abnormal return were used as M&A effectiveness indicators. This study contains event and regression analysis using multiple regression. The analysis revealed a statistically significant effect of the ownership structure of acquiring companies on the M&A performance indicators. The use of the FCFE model showed that enterprises with indirect state participation, which are part of state-controlled holding structures, have higher performance indicators for M&A transactions.

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