Maximising Firm Value through Mergers and Acquisitions

Mergers and acquisitions, literally, are centred on the objective to create economic value for firms and shareholders. Different mergers and acquisitions strategies would affect the extent of shareholder value. This study seeks to examine the value implications of mergers and acquisitions by studying shareholder value creation for a 60 Malaysian firms which have been actively involved in the cross-border and domestic diversifications during the period 1996 – 2004.Our focus in this study is to compare the value effects of two broad types of mergers and acquisitions, which are cross-border and domestic mergers. The study entails several statistical tests, including Levene’s, Pearson and multiple regressions, to assess the extent of value creation of cross-border and domestic mergers. We find strong evidence that firms with cross-border mergers increase shareholder value measured by ROE. This result is proved to stay in parallel with the theoretical framework that suggested in the finance literature. By contrast, we find that firms with pure domestic mergers have no positive effect on ROE but our results indicate that some productivity results are yielded which means mergers and acquisitions enable domestic firms to improve their operational efficiency, to a certain extent. Further, arguments are presented to analyse the reasons why cross-border firms are able to outperform slightly than the domestic firms on average. Consistent with the prior research and past literature, our results show generally R2 of 50% - 60% are found on cross-border firms across all sets of financial and operational independent variables. Comparatively, although firms with pure domestic mergers show higher R2 on operational variables, overall results is biased. Negative earnings result is associated significantly with the ROE. By integrating these results, we noted that cross-border firms are performed better with a stable and persistent pattern of earnings performance if compares to the biased and unstable results which are found on domestic firms