Financial Perspective of Mergers and Acquisitions- A study from Indian Pharmaceutical Sector

Abstract

It is an attempt to analyze the financial effectiveness of acquisition decisions in Indian pharmaceutical sector during 2002-2004. The performance impact of acquisition decisions on acquirer firms is viewed from shareholders' as well as firms' perspective. Event-study approach is used to analyze accumulation of shareholders'-wealth, considering -60 +60 days event-window and a clean period of 200 days. For the longterm performance impact, comparative analysis for three-yearly pre and post-period performance is attempted considering profitability, liquidity, solvency and growth parameters. Relative efficiency of the sample firms to utilize the pooled resources is further attempted, using data envelopment analysis (DEA), to ascertain whether acquisition decisions uniformly affect all acquirers or the effect differs from firm to firm. Findings appear to be on expected lines. Abnormal returns are observed around announcement date with no negative impact on profitability, liquidity, solvency, efficiency and growth parameters in the long run.