A Study on The Impact of Mergers and Acquisitions on Financial Performance and Shareholders Wealth with Respect to Pharmaceutical Industry in India

Abstract

Mergers and Acquisition is one of the important subjects from the perspective of finance and strategy and are the results of inorganic growth process, used as an instrument for business growth and are accepted by business entities as a critical tool of strategy. India has witnessed M&A deals worth $138 billion in 2022. Strategic M&A deal volume and value reached all-time highs in India in 2022, while dealmaking dropped off in much of the rest of the world. Several factors have converged to create a robust environment for M&A. Mergers and acquisition are the solutions for major strategic challenges like economies of scale, economies of scope, vertical and horizontal integration, development of complementary resources, effective application of surplus funds and enhancing managerial effectiveness. M&A improves the performance of the company because of synergy effect, it increases market power, operational performance, financial performance, and economy of scales. In the recent years, the importance and value of Mergers and Acquisitions has reached enormous proportions. Some studies reported beneficial influence of M&A on companies‘ success, the others are found to be neutral or even negative. Further, not many studies have been found for Indian context. Therefore, the lack of studies conducted in the Indian context regarding the impact of Mergers and Acquisitions on the financial performance and shareholders wealth in Indian pharmaceutical companies serves as a motivation for the current study. The study applies the financial and operating performance model to examine the impact of mergers and acquisitions on financial performance in Indian Pharmaceutical Sector through 32 financial indicators for 30 renowned Pharmaceutical Companies. The study uses paired sample t-test, paired sample correlation for the purpose of analysis and examines the pre-merger (-3 years) and post-merger (+3 years) impact in Indian pharmaceutical company. The study also examines the impact of mergers and acquisitions on stock prices to find whether there are significant abnormal returns to shareholders using t-test by examining Abnormal returns, t-statistics of Abnormal returns, CAR, t-statistics of CAR, Average Abnormal Return and CAAR, t-statistics of CAAR for Pre-Event Period and Post Event Period (-30, + 30), showing the significant impact for -2days, - 5days, -11 days and +2days, +5 days +11days and for Combined number of days 5 days ( -2 +2), 11 days (-5+5) and 23 days (- 11+ 11 days) and concludes whether there is a significant change in the financial performance and shareholders wealth of the acquiring Pharmaceutical companies in India.