A nexus between mergers & acquisitions and financial performance of firms: A study of industrial sector of Pakistan

Mergers and Acquisitions (M&As) have gained considerable interest in the last few decades and the purpose behind these events is to increase revenues, gain market share, achieve competitive edge and aimed to diversify the risk. This study aims to investigate the role of mergers and acquisitions on the financial performance of firms in the industrial sector of Pakistan. Financial Performance is measured on the basis of the stock market performance of the firms, which has been measured using the event study methodology as this is one of the recognized techniques in the conditions of M&As. Stock market performance is measured in the short as well as long term. In the short term, Abnormal and Cumulative Abnormal Returns are measured and in the long-term Buy-and-Hold Abnormal Returns (BHAR) are assessed. Furthermore, for robustness, the financial performance is analyzed by using accounting method in which Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin (NPM) and Earning per Share (EPS) has been measured. The results of this study revealed that the occurrence of M&As negatively affected the firms’ financial performance for the industrial sector of Pakistan in the short term and long term as well and the market did not respond to these events and impacted negatively on shareholders’ wealth and financial performance of firms. This study concluded that the Pakistani stock market does not react to the events of M&As in the short and long run as well, it neither created nor destroyed Shareholders’ wealth and no such financial affects for the acquired firms. Further, this study suggested that the industrial sector of the country should adopt different strategies to expand their businesses or to gain competitive advantage