impact of mergers and acquisitions on operating...

Impact of Mergers and Acquisitions on Operating Performance of

Firms: Evidence from Pakistan

Muhammad Ahmed

ROLL NO. L1F10PCOM0009

Session: 2010 – 2013

Faculty of Commerce

University of Central Punjab

Lahore, Pakistan

Impact of Mergers and Acquisitions on Operating Performance of

Firms: Evidence from Pakistan

Submitted to University of Central Punjab, Lahore, Pakistan

as partial fulfillment of the requirements

for award of the degree of

Doctorate of Philosophy

In

Commerce (Finance)

Muhammad Ahmed

ROLL NO.: L1F10PCOM0009

Session: 2010 – 2013

Faculty of Commerce

University of Central Punjab,

Lahore Pakistan

RESEARCH COMPLETION CERTIFICATE

It is certified that the research work contained in this thesis titled “Impact of Mergers and

Acquisitions on Operating Performance of Firms: Evidence from Pakistan “has been

carried out and completed by Mr. Muhammad Ahmed, Roll No. L1F10PCOM0009

under my supervision during his PhD in Commerce (Finance) studies

Dated: 15-10-2015

Supervisor

____________________________

Dr.Zahid Ahmad

Associate Professor,

Faculty of Commerce,

University of Central Punjab, Lahore (Pakistan)

CERTIFICATE OF EXAMINERS

Certified that quantum and quality of the research work contained in this thesis titled

“Impact of Mergers and Acquisitions on Operating Performance of Firms: Evidence from

Pakistan“ is adequate for the award of degree of Doctor of Philosophy in Commerce.

Internal Examiner External Examiner

Signature: __________________

Signature: __________________

Name: __________________ Name: __________________

Date: __________________ Date: __________________

Dean, Faculty of Commerce

Signature: __________________

Name: __________________

Date: __________________

i

DECLARATION

I, Muhammad Ahmed Roll No. L1F10PCOM0009, Student of PhD in Commerce,

Session: 2010-2013, hereby declare that the matter printed in this thesis titled “Impact of

Mergers and Acquisitions on Operating Performance of Firms: Evidence from Pakistan”

is my own work and has not been printed, published, submitted as research work, thesis

or publication in any form in any University, Research Institution etc. in Pakistan or

abroad.

Dated _________________ ___________________

(Signature of Deponent)

ii

ACKNOWLEDGEMENT

All and every praise be to Allah Almighty, Who guides us from darkness to light and

help us in difficulty. I am greatly thankful to Allah Almighty, whose blessings and grace

enabled me to complete this study.

It is a matter of great honor for me that Allah Almighty has given me a golden chance to

carry out my PhD studies and research under learned, noble and kind person Prof.

Muhammad Azhar Ikram Ahmad, Dean Faculty of Commerce UCP Lahore.

I would like to say words of heartiest gratitude for the encouragement, guidance, and

profound inspiration provided by my most competent and learned supervisor Prof. Dr.

Zahid Ahmad, Faculty of Commerce, University of Central Punjab, Lahore, whose

indispensable guidance, deep consideration affection and thought provoking criticism

enabled me to complete this work. I am also grateful to Prof. Ather Azim Khan, Prof.

Abdul Karim.

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TABLE OF CONTENTS

DECLARATION ................................................................................................................. i

ACKNOWLEDGEMENT .................................................................................................. ii

List of Acronyms ............................................................................................................. viii

LIST OF TABLES ............................................................................................................. xi

LIST OF FIGURES .......................................................................................................... xv

Abstract ............................................................................................................................ xvi

CHAPTER ONE: INTRODUCTION ................................................................................. 1

1. Introduction ..................................................................................................................... 1

1.1 Meaning of Mergers and Acquisitions ...................................................................... 5

1.2 Mergers...................................................................................................................... 8

1.3 Acquisition .............................................................................................................. 11

1.4 M&A Process .......................................................................................................... 12

1.5 History of Mergers .................................................................................................. 13

1.5.1 First Merger Wave 1897 to 1904 .......................................................................14

1.5.2 Second Merger Wave 1916 to1929 ...................................................................14

1.5.3 Third Merger Wave-1965 to 1969 .....................................................................14

1.5.4 Fourth Merger Wave 1981 to 1989 ...................................................................15

1.5.5 Fifth Merger Wave -1993 to 2000 .....................................................................15

1.6 History of Mergers and Acquisitions in Pakistan.................................................... 17

1.7 History of Development of Pakistan’s Financial Sector ......................................... 18

1.8 Mergers and Acquisitions of Banking Sector ---A Global Scenario ....................... 19

1.9 Mergers and Acquisitions Banking Sector in Pakistan – A Scenario ..................... 19

1.10 Requirements of Successful Mergers and Acquisitions ........................................ 20

1.11 Mergers or Acquisitions and human element ........................................................ 20

1.12 Barriers to Merger and Acquisition Activity in Pakistan ...................................... 27

1.13 Motives behind Mergers ....................................................................................... 28

1.14 Regulations and Statutes of Merger and Acquisitions .......................................... 29

1.15 The Legal Procedure of Mergers in Pakistan ........................................................ 30

1.16.1 Profitability ......................................................................................................33

iv

1.16.2 Impact of Merger on Profitability ....................................................................34

1.16.3 Efficiency .........................................................................................................34

1.16.4 Liquidity ..........................................................................................................34

1.16.5 Asset Quality ...................................................................................................35

1.17 Problem Statement ................................................................................................ 35

1.18 Significance of the Study ...................................................................................... 37

1.19 Value of the Study ................................................................................................. 38

1.19.1 Policy Makers ..................................................................................................39

1.19.2 Investors and Customers ..................................................................................39

1.19.3 Researchers ......................................................................................................39

1.19.4 Organization ....................................................................................................40

1.19.5 Academics .......................................................................................................40

1.19.6 Contribution to the Society ..............................................................................40

1.19.7 Contribution to the Industry ............................................................................40

1.20 Research Objectives .............................................................................................. 41

1.21 Limitations of the study......................................................................................... 42

CHAPTER TWO: LITERATURE REVIEW ................................................................... 43

2. Literature Review.......................................................................................................... 43

CHAPTER THREE: THEORETICAL FRAMEWORK .................................................. 86

3. Theoretical Framework ................................................................................................. 86

3.1 Non-Synergistic Theories ........................................................................................ 96

3.1.1 Agency Problems Theory ..................................................................................96

3.1.2 Signaling Theory .............................................................................................100

3.1.3 Market Power Theory ......................................................................................101

3.1.4 Managerial Hubris Theory of Mergers ............................................................103

3.2 Synergistic Theories .............................................................................................. 104

3.3 Efficiency Theory .................................................................................................. 105

3.4 Synergy.................................................................................................................. 106

3.4.1 Operational Synergies ......................................................................................109

3.4.2 Financial Synergy ............................................................................................110

v

3.4.3 Managerial Synergies ......................................................................................111

3.4.4 Strategic Synergies ..........................................................................................111

3.5 Profitability Theory ............................................................................................... 112

CHAPTER FOUR: RESEARCH METHODOLOGY.................................................... 114

4. Research Methodology ............................................................................................... 114

4.1 Variables of Study ................................................................................................. 114

4.1.1 Return on Assets (ROA) ..................................................................................115

4.1.2 Current Ratio ...................................................................................................115

4.1.3 Sales to Net Working Capital ..........................................................................116

4.1.4 Debt –Equity Ratio ..........................................................................................116

4.1.5 Interest Coverage Ratio ...................................................................................116

4.1.6 Net Profit Ratio ................................................................................................117

4.1.7 Cost Efficiency ................................................................................................117

4.1.8 Fixed Assets Turnover .....................................................................................117

4.1.9 Assets Turn Over .............................................................................................117

4.1.10 Sales Growth..................................................................................................118

4.1.11 Non-Markup/Interest Income to Total Assets ...............................................118

4.1.12 Bank Size .......................................................................................................118

4.1.13 Total Equity to Total Assets ..........................................................................119

4.1.14 Cash and Balances with Banks to Total Assets .............................................119

4.1.15 Investment and Total Assets ..........................................................................119

4.1.16 Advances and Total Assets ............................................................................119

4.1.17 Total Liabilities to Total Assets .....................................................................120

4.1.18 Total Deposits to Total Assets .......................................................................120

4.2 Data Collection ...................................................................................................... 120

4.3 Target Population .................................................................................................. 121

4.4 Selection of Sample:.............................................................................................. 121

4.5 Nature of the Study ............................................................................................... 121

4.6 Sample Size ........................................................................................................... 122

4.7 Statistical Methods ................................................................................................ 123

vi

4.7.1 Paired Sample t- Statistics ...............................................................................124

4.7.2 Performance Measurement Variables ofPaired Sample t- Statistics ...............127

4.7.3 Data Envelopment Analysis (DEA) ................................................................131

4.7.4 Panel Data Analysis .........................................................................................134

4. 8 Empirical Panel Regression Model ...................................................................... 135

4.8.1 Manufacturing Sector ......................................................................................136

4.8.2 Banking Sector ................................................................................................137

4.9 Hypothesis of the Study ........................................................................................ 138

CHAPTER FIVE: RESULTS AND DISCUSSIONS/EMPIRICAL FINDINGS .......... 142

5. Results and Discussions/Empirical Findings .............................................................. 142

5.1 Analysis of Individual Companies (Analysis 1) ................................................... 142

5.1.1 Paired Sample t-Statistics of Manufacturing Undertakings ............................142

5.1.2 Paired Sample t-Statistics of Individual Banks ...............................................193

5.1.3Analysis of Individual -Financial Sector (Modaraba) Companies ...................221

5.1.4 Analysis of Individual -Financial Sector (Insurance) Companies ...................224

5.1.5 Analysis of Individual-Financial Sector (Investment Banking) Companies ...... 228

5.1.6 Analysis of Individual -Financial Sector (Leasing) Companies ......................231

5.1.7Analysis of Individual -Financial Sector (Mutual Funds) Companies .............232

5.2 An Overall Analysis of Individual Sector (Analysis 2) ........................................ 235

5.2.1 Paired Sample t-statistics of manufacturing undertaking ................................236

5.2.4 Paired Sample t-Statistics of Modaraba Sector ...............................................242

5.2.5 Paired Sample t-Statistics of Investment Banks. .............................................244

5.2.6 Paired Sample t-Statistics of Mutual Fund Sector ...........................................246

5.3 Data Envelopment Analysis (DEA) Analysis ....................................................... 248

5.3.1 Data Envelopment Analysis of Banks ...........................................................248

5.3.2 Data Envelopment Analysis of Insurance Companies ..................................251

5.3.4 Data Envelopment Analysis of Investment Banks ........................................255

5.3.5 Data Envelopment Analysis of Leasing Sector ...............................................257

5.3.6 Data Envelopment Analysis of Mutual Fund Sector .......................................258

5.4 Panel Data Analysis (Analysis 4) .......................................................................... 260

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5.4.1 Panel Data Analysis of Manufacturing Sector ................................................260

5.4.2 Panel Data Analysis of Banking Sector ...........................................................268

CHAPTER SIX: CONCLUSION AND RECOMMENDATIONS ................................ 274

6. Conclusion and Recommendations ............................................................................. 274

6.1 Conclusion ............................................................................................................. 274

6.2 Recommendations ................................................................................................. 275

Bibliography ................................................................................................................... 278

Appendix ..................................................................................................................... 314

viii

List of Acronyms

AT Assets Turnover

BPP Brierley Price and Prior

BSC Banking Services Corporation

BUV Break- up value per share

CAARS Cumulative Average Abnormal Returns

CAMEL Capital Adequacy, Assets Quality, Management, Earnings, and Liquidity

CBN Central Bank of Nigeria

CLA Corporate Law Authority

CR Current Ratio

CRS Constant Returns to Scale

D Dummy Variable

DE Debt equity

DEA Data Envelopment Analysis

DFI Development Financial Institution

DMU Decision Making Units

DR Debt Ratio

EBIT Earnings before Interest and Taxes

EMH Efficient Market Hypothesis

EPS Earnings Per share

ix

FAT Fixed Assets Turnover

GDP Gross advances to deposits

GP Gross Profit

GP Gross profit

HDFC House Development Finance Corporation

HR Human Resource

HRM Human Resource Management

ICICI Industrial Credit and Investment Corporation of India

LSDV Least Square Dummy Variable

M&A Mergers and Acquisitions

NIBAF National Institute of Banking and Finance

NP Net Profit

OGDC Oil Gas Development Company

OP Operating profit

QR Quick Ratio

RBS Royal Bank of Scotland

RI Return on Investment

ROA Return on assets

ROA Return on Assets

ROCE Return on Capital Employed

ROE Return on Equity

ROTA Return on Total Assets

x

Rs Rupees

RTS Return to Scale

SBP State Bank of Pakistan

SE Scale Efficiency

SECP Securities Exchange Commission of Pakistan

SG Sales Growth

TE Technical Efficiency

TE Total equity

TFP Total Factor Productivity

TL Total Liability

TLTA Total liability to total assets

UK United Kingdom

USA United States of America

VRS Variable Returns to Scale

xi

LIST OF TABLES

Table 1. 1 Historical Mergers and Acquisitions ................................................................16

Table 1. 2 Motives behind Mergers ..................................................................................29

Table 3. 1 Theories of Mergers ..........................................................................................94

Table 5. 1:Paired Samples Statistics Abbot Laboratories Ltd .........................................142

Table 5. 2: Paired Samples Al-Abbas Sugar Mills ..........................................................144

Table 5. 3: Paired Samples Statistics Bannu Wollen .......................................................145

Table 5. 4: Paired Samples Statistics Colony Mills Ltd ..................................................147

Table 5. 5:Paired Samples Statistics Dawood Cotton Mills ............................................149

Table 5. 6: Paired Samples Statistics Dewan Cement Ltd ...............................................150

Table 5. 7: Paired Samples Statistics of Dewan Salman Ltd. ..........................................152

Table 5. 8: Paired Samples Statistics of DG Khan Cement Ltd ......................................153

Table 5. 9:Paired Samples Statistics of Exide Pakistan limited .......................................155

Table 5. 10: Paired Sample Statistics of Ghandhara Nisan Ltd .......................................157

Table 5. 11: Paired Sample Statistics of GlaxoSmithKline (Pakistan) Ltd .....................158

Table 5. 12: Paired Samples Statistics Ibrahim Fibers Ltd ..............................................160

Table 5. 13: Paired Samples Statistics Javaden Cement ..................................................162

Table 5. 14: Paired Samples Statistics JDW Sugar Mills Ltd..........................................163

Table 5. 15: Paired Samples Statistics Jubilee Spinning .................................................165

Table 5. 16: Paired Samples Statistics Kohinoor Textile Mills Ltd ................................167

Table 5. 17: Paired Samples Statistics Lafarge Pakistan .................................................168

Table 5. 18: Paired Samples Statistics Millat Tractors ....................................................170

xii

Table 5. 19: Paired Samples Statistics Nagina Cotton Mills Ltd .....................................172

Table 5. 20: Paired Samples Statistics Nimar Resins Ltd ................................................173

Table 5. 21: Paired Samples Statistics Nishat (chunian) Ltd ...........................................175

Table 5. 22: Paired Samples Statistics Nishat Mills ........................................................177

Table 5. 23: Paired Samples Statistics Oil Gas and Development Company ..................178

Table 5. 24:Paired Samples Statistics Packages Ltd ........................................................180

Table 5. 25: Paired Samples Statistics Pak Suzuki ..........................................................181

Table 5. 26: Paired Samples Statistics Pakelektron Limited ...........................................183

Table 5. 27: Paired Samples Statistics Shahzad Textile Mills .........................................185

Table 5. 28: Paired Samples Statistics Siemens Pakistan Limited ..................................186

Table 5. 29: Paired Samples Statistics Thal Limited .......................................................187

Table 5. 30: Paired Samples Statistics Hub Power ..........................................................189

Table 5. 31: Paired Samples Statistics World Call Telecom Ltd .....................................190

Table 5. 32: Paired Samples Statistics Zeal Pak Cement.................................................192

Table 5. 33: Paired Samples Statistic Al-Faysal Bank Limited .......................................194

Table 5. 34: Paired Samples Statistic AL Baraka Islamic bank ......................................196

Table 5. 35: Paired Samples Statistic Allied Bank ..........................................................198

Table 5. 36: Paired Samples Statistic Askari Bank..........................................................201

Table 5. 37: Paired Samples Statistic Atlas Bank ............................................................203

Table 5. 38: Paired Samples Statistic of Bank Alfalaha ..................................................206

Table 5. 39: Paired Samples Statistic of J.S Bank ...........................................................208

Table 5. 40: Paired Samples Statistic Kasb Bank ............................................................211

Table 5. 41: Paired Sample Analysis NIB .......................................................................213

xiii

Table 5. 42: Paired Samples Statistic Standard Chartered ...............................................216

Table 5. 43: Paired Samples Statistic Summit Bank........................................................219

Table 5. 44: Paired Samples Statistic BRR Guardian Modaraba.....................................221

Table 5. 45: Paired Samples Statistic Fidelity Leasing Modaraba .................................223

Table 5. 46: Paired Sample Analysis of Efu Life Assurance ..........................................225

Table 5. 47: Paired Samples Statistic TPL Direct Insurance ...........................................226

Table 5. 48: Paired Samples Statistic of First Dawood Investment .................................228

Table 5. 49: Paired Samples Statistic of Invest Capital Investment ...............................229

Table 5. 50: Paired Samples Statistic Orix Leasing Pakistan .........................................231

Table 5. 51: Paired Samples Statistic PICIC Investment Fund .......................................233

Table 5. 52: Paired Samples Statistic UTP Growth Fund ................................................234

Table 5. 53: Overall Paired Samples Statistic Manufacturing Sector ..............................236

Table 5. 54: Banks Overall Paired Sample Analysis .......................................................238

Table 5. 55: Insurance Sector Overall Paired Sample Analysis ......................................241

Table 5. 56: Modaraba Overall Paired Sample Analysis .................................................242

Table 5. 57: Investment Banks Overall Paired Sample Analysis ....................................244

Table 5. 58: Mutual Funds Overall Paired Sample Analysis ..........................................246

Table 5.59: Measurement of Efficiency of Banks ..........................................................248

Table 5. 60: Measurement of Efficiency of Insurance Companies ..................................251

Table 5. 61: Measurement of Efficiency of Modaraba Companies ................................253

Table 5. 62: Measurement of Efficiency of Investment Banks .......................................255

Table 5. 63: Measurement of Efficiency of Leasing Company ......................................257

Table 5. 64: Measurement of Efficiency of Mutual Fund Companies ............................258

xiv

Table 5. 65: Panel Data Regression Estimates for Performance of Manufacturing Sector

Measured by Return on Assets. .......................................................................................261

Table 5. 66: Panel Data Regression Estimates For Performance of (Banks) Measured By

Return on Assets. .............................................................................................................269

xv

LIST OF FIGURES

Figure 1. 1 The meaning of mergers & acquisitions ...........................................................7

Figure 1. 2 Forces of M&A. ..............................................................................................12

Figure 1. 3 Merger & acquisition process. ........................................................................13

Figure 3. 1: Theoretical framework of operating performance after mergers and

acquisitions. .......................................................................................................................95

Figure 4. 1 Control Firm. .................................................................................................125

Figure 4. 2. The concept of performance measurement (Non-financial sector) ..............127

Figure 4. 3 The concept of performance measurement (Banking sector). ......................128

Figure 4. 4 The concept of performance measurement (Modaraba sector) .....................129

Figure 4. 5 The concept of performance measurement (Insurance sector) .....................129

Figure 4. 6 The concept of performance measurement (Investment banking sector) .....130

Figure 4. 7 The concept of performance measurement (Leasing sector). .......................130

Figure 4. 8 The concept of performance measurement (Mutual fund sector) .................131

xvi

Abstract

This dissertation is a study on the objectives of mergers and acquisitions as to

why organizations undertake the inorganic mode of expansion. To conduct a uniform

research and arrive at an accurate conclusion this study is restricted to only Pakistani

companies. To get broader perspective on Pakistan this study is divided into two main

sectors of Pakistani economy namely manufacturing and financial sector. This research

study is conducted to find the impact of mergers and acquisitions on operating

performance of acquiring firms in different industries by examining pre-merger and post-

merger financial ratios, with a sample of firms chosen from all mergers involving public

limited and traded companies belonging to manufacturing and financial sector. In this

study the impact of merger and acquisition on profitability, efficiency, liquidity, leverage,

and capital performance variables is measured by using statistical and econometrics

techniques such as paired sample t-statistics, data envelopment analysis (DEA) and panel

regression analysis. Sample of this research consists of thirty-two manufacturing and

twenty non-manufacturing companies involved in the process of merger and acquisition

during 1998-2012.Sample firms are selected from Karachi stock exchange (KSE) and

Lahore stock exchange (LSE). It is a secondary data based research. Three years pre and

post-merger data is used to test the significance of study. Paired sample t-test statistics is

applied on accounting ratios with the help of statistical software SPSS. In this study fixed

effect panel data regression is used to test the impact of mergers and acquisitions on the

operating performance of companies. The result of this study shows that Pakistani

companies are no different than the companies in other parts of the world. On the basis of

findings it is concluded that overall operating performance of acquiring manufacturing,

xvii

modaraba companies, insurance corporations, investment banks and mutual funds

corporations significantly improved in the post- post-merger period. On the other hand

findings also reveal that post-merger performance of banks improves and leasing sector

insignificantly deteriorated.

IMPACT OF MERGERS AND ACQUISITIONS ON PERFORMANCE 1

CHAPTER ONE: INTRODUCTION

1. Introduction

This research is conducted to explore the effects of mergers and acquisition on the

operating performance of bidder in case of mergers and acquirer in case of acquisitions.

Empirical studies on merger and acquisitions transactions reveal that work has done on

this global issue in United States, Europe and Asia. In Asia research on the merger and

acquisition effect on company’s performance has already been done in South Asia, but

this research is very limited. In South Asia the research on this global business strategy

has already been done in emerging economies such as in India, but this research is still

nominal. Pakistan economy is still in the stage of developing and the business

consolidations are new idea for this economy. When businesses engaged in the merger

and acquisition activities, after the merger mostly new technologies are get by the new

business. To the best of researcher knowledge still nothing has done on this world wide

issue in Pakistan. By taking into consideration no or little research on this global issue,

the present study is conducted to analyze the significance of mergers and acquisition on

the operating position of firms engaged in the merger and acquisition in Pakistan. This

study is an attempt to investigate and test if there are any changes in the post-merger

results achieved by financial and non-financial sectors of Pakistan economy. In Pakistan

business consolidation happened in both financial and non-financial sectors. It is very

important to find out the impact of merger on firm performance because after the merger


some employee are to the laid off, then employees will not well come the business

combinations. In Pakistan due to high unemployment rate, it is very difficult to get new

jobs and this might adversely effects on employee and the firm performance. The present

study evaluate whether the business combination can contribute anything to this

developing economy. In this study financial and manufacturing sectors of Pakistan are

selected to find out the post- merger impact on profitability, liquidity, efficiency, growth,

and wealth of shareholders of acquiring companies.

Business combination is a very broad, attention able and modern trend of business

world. The kind and category of business consolidation and selection of methods based

on a number of conditions such as present market environment, state laws and regulation,

pattern of investment, chances and probability of growth, control requirements of bidder

and acquirer, choice between method of accounting, liquidity pattern of cash flow and

taxation matters, capable team of management (Manne, 1965).

Operationally merger & acquisition are changes in control of company where

acquirer gets controlling interests affecting the strategic and operational decision of target

whether merging into existing or existing as a separate entity. Mergers and acquisition are

used interchangeably by business and financial executives (Chandra, 2001). In lay

parlance, both are viewed as the same because the net result is often the same. Two

companies (or more) that had separate ownership are now operating under the same roof,

usually to obtain some strategic or financial objectives (Sudarsanam, 2003). An

acquisition may be only very minor different from a merger. In fact, it may be different in

name only. Like merger and acquisition are actions through which companies seek

economies of scale, efficiencies and enhanced market visibility.


Though the term merger and acquisition are always use together in a business setting.

There are similarities between the two business actions, and these results in a grouping of

the words mergers and acquisitions (Bahtiyar, 2012). The two words mergers and

acquisitions are often spoken in the same breath and are also used in such way as if they

are synonymous. It’s quite rare to find actual mergers in practice. In majority of the cases,

when one company buys another, according to the terms of the deal, it allows acquired

company to proclaim that it’s a merger, in spite of the fact that, it’s actually an

acquisition. Being bought out may send negative impression about the company, and

hence the acquired company prefers to call it merger (Bharara, Vikas, & Latwal, 2013). A

buyout agreement known as a merger when both owners mutually decide to combine

their business in the best interest of their firms (Vyas & Vijay, 2008)

In merger two or more firms combine together, while in acquisition, the acquirer

get control over the assets and assume obligation of the acquired company (Brealey,

Myers, & Marcus, 2001). In merger two or more firms mutually decides to become one

entity and lost separate identities of each combining firm (Bayer, 2000). Now days the

financial sector of Pakistan, especially, the banking industry is also engaged in the

combination of banking operations. The underlying objectives behind the banking

consolidation are to reduce the risk, getting the economies of scope and scale, improving

market share and profit margins, savings in taxation, achieving operating and financial

synergies. State bank of Pakistan (SBP) is the financial regulatory authority in Pakistan

has taken certain regulatory measures to improve the financial system in Pakistan. In

order to beat the financial crisis and improve the business environment several merger

and acquisition deals have taken place in Pakistan. The financial industry entire structure


will change with the increase of business restructuring in Pakistan, which will result in

converting the financial industry of Pakistan into sound and less risky (Kemal, 2011).

Corporation now engaged in the domestic and cross border merger and acquisition deals

in order to improve the efficiency and profitability (Roades, 1993). The financial sector

especially the banking sector is the blood of any country trade and commerce industry.

Banks has certain basic responsibilities to be performed for the public. Banks act as

financial intermediary between the savers and user of funds and banks has to perform this

function efficiently in order to gain the trust of customers. Banks must be aware of the

needs of public and maintain the trust and confidence of the public by fulfilling and

meeting all the liabilities which are due without disturbing the entire financial system.

The changing environment around the world has highlighted the value of merger and

acquisition particularly in the banking industry (Nzotta, 2004).

The growth of an economy depends on the rate at which banks convert the

resources to more productive use to produce more output. Merger and acquisition

increases the size and capacity of the banks which results in improving the efficiency of

the system. Business consolidations have made the financial markets more strong and

provide more opportunities for investment. Banks hunted rapid improvement in the

operating performance due to merger and acquisition activities started from United State

of America, Europe and then scattering throughout the world (Focarelli, Panetta, &

Salleo, 2002). Organizations can gain synergistic benefit by combination of businesses.

Merger and acquisitions often yield one plus one equal three (Reeves, 2000). Although

different organization have various causes to indulge in the merger and acquisition

activity, but the prime objective is to produce the wealth for the shareholder of both the


target and bidding firm more than that sum of the two firms operating separately. The

main objective of engaging in merger and acquisition deals is the improvement in the

wealth of shareholder, improved and better competition edge, increase in the operating

assets of bidder and increase in revenue and market share (Sudarsanam, 1995). Brealey,

Myers, and Allen (2006) explained that in the past merger and acquisition was not on the

headlines as much as is now a day. The velocity of business combination is unexpectedly

at the highest peak at present around the world. Gosh and Das (2003) presented that any

organization exist in the market is characterized by the owners to earn absolute profits

and increase shareholders value. Organizations can run on the path of growth by the

launching of new products and services or by expanding their current activities to their

present products. Organizations can grow internally or externally. Internal growths

through the introduction of new products while external growth by entering into business

consolidation in the form of merger and acquisition can be achieve. Consolidation of

businesses through mergers and acquisitions (M&A) have constantly increase the

transactions of tender proposals, leveraged buyouts from various sectors of financial and

non- financial sector of economy (Chatterjee, Lubatkin, Schweger, & Weber, 1992).

1.1 Meaning of Mergers and Acquisitions

Mergers and acquisitions from the broad perception, might point toward a number

of different dealings starting from the actual buy and sale of business units, alliances,

collaborations and mutual projects to the creation of corporations, corporate chains/ make

sure the freedom of business, management buy outs and buy in due to change of legal


system, initial offering to public and even reorganization (Picot, 2002). Researcher

Nakamura (2005) describes that by using a wide-ranging meaning of mergers and

acquisitions might lead to misperception and misinterpretation as it requires the whole

thing from pure to strategic coalition. Consequently, this study uses the meanings of

merger and acquisitions in a narrower sense.

Merger is the mixture of two or more corporations in formation of a new body or

creation of a holding company (European Central Bank, 2000; Gaughan, 2002;

Jagersma, 2005).

Acquisition is the buying of shares or assets of another corporation to attain a

managerial power or effect not essentially by means of mutual arrangement

(Jagersma, 2005).

In addition to this Nakamura (2005) advanced a model to present and understand

the clear narrow meanings of mergers and acquisitions, which is shown in the given

below figure


Source: (Nakamura, 2005)

Figure 1.1The meaning of mergers & acquisitions

The combination of businesses can take two forms, one is merger by

absorption and the second is the merger by establishment (Chunlai & Findlay, 2003;


Nakamura, 2005).The first form of merger, which is the absorption merger, is the type of

merger in which one corporation purchases 100% shares of one or more corporations,

those corporations which absorbed 100% with another corporation come to an end. On

the other hand in case of merger of establishment, two or more corporations dissolved

and create a new corporation either with new name or with the name of any existing firms

or a combination of names (Chunlai & Findlay, 2003). In case of acquisition, the

acquiring corporation may pursue to secure a major percentage of shares or assets on the

target corporation. As a result there are two types of acquisitions; asset purchase and

share purchases (Chen & Findlay, 2003). An acquisition takes place when a corporation

buys full or major portion of the target corporation’s assets and target corporation

leftover as a legal entity following the deal. While in a share acquisition a corporation

purchases a major share of stocks in the target corporation in order to effect the decision

making power of the management of the target corporation. Acquisitions are then

categorized into three types namely full control (100% purchase of target’s shares), the

greater part (50%--90%) and minority (less when compared with 100%) (Chen &

Findlay, 2003; Nakamura, 2005).

1.2 Mergers

Merger or business combination is taken to develop strong association between

the two particular organizations together with different cultural values, personality and

cultures (Sudarsanam , 2003). A merger is a combination of more than one company into

one company where all merging companies agree to share the powers to hold and control


of merged entity with the owners of other company or companies. Stated phrase “merger

or acquisitions” are mostly used interchangeable (Chiplin & Wright, 1988). A merger is a

situation in which the stockholders of each merging firms becomes the combined

stockholder in the same enterprise (Vaara, 2000). Through merger, two or more business

entities combine their consolidated assets and liabilities in one of the merging businesses

or a newly decided company. But in mostly cases merging businesses start a new

business with a new name in a particular market. It is also noticed that the merger of two

or more than two businesses takes place when two or more than two companies are

equals. It means that the merger may have two strong or two weak firms of the market.

Strong company will not prefer a weak firm to be merged with. In merger the shareholder

of the merging firms usually take the same or more number of shares in the new firm.

Cost benefit analysis basically plays a key role for companies to decide that either they

should go for the option of merger or not. The positive difference of pre-merger and post-

merger value is the actual benefit for the entities whereas cost is that extra amount which

any acquirer is ready to bear in this regard. Taking all these into the account, entities

should go for the option of merger, if the benefit outweighs the cost (Brealey, Myers, &

Allen, 2006). A merger is basically of four types that are horizontal, vertical, concentric,

and conglomerate mergers (Gaughan, 2005). If a merger takes place between two entities

that are doing same type of business activities in the market then it is a horizontal merger.

This type of business merger is prevailing in the present modern world (Brealey et al.,

2006). A business combination is said to be horizontal where merging firms operate in

the same kind of business line and business industry. Horizontal merger is an event in

which merger happened between two firms which are dealing in similar products or


related to the same industry. The aim of horizontal merger is to achieve economies of

scale in production, marketing, distribution, research and development and management

(Gaughan , 2005). A vertical merger happens between firms who are doing the same

production line (Gaughan , 2005). When the firms involved in the merger transaction

have the relationship as buyer-seller, this kind of merger is called vertical merger. A type

of merger is vertical in which the merging companies are involved in the various stages

of marketing, production, and distribution. When the merging firm have link at different

point of production and distribution it is called vertical merger. In vertical merger

merging companies’ deals in the similar industry but worked at different stages of

production. The major purpose of vertical consolidation is to guarantee the availability of

raw material (Babu, 2005). Vertical merger can be divided into upstream mergers and

downstream mergers. If a company merges with the company supplying the material then

it is called upstream vertical merger. In other words the merger is called upstream merger

when it extends to those who are supplying raw materials (Geddes, 2006). Another

category of merger is the conglomerate mergers. In conglomerate merger the merging

firm will always belongs to different economic sectors, different sort of businesses and

unrelated business combinations. Motive behind this type of merger is the possible

diversification of risk (Coyle, 2000). Conglomerate mergers based on that there should be

a single head office rather than separate units. This will reduce the operating cost. One

head office with knowledge and experience can better assign capital and run business

than each unit run separately (Bruner, 2004). When firm engaged in the merger are not

from business line but are same in production and marketing activities then it is called


concentric merger. To achieve maximum benefits if a firm move from its core business

line to related business then this is also called concentric merger (Ayadi & Pujals, 2005).

1.3 Acquisition

Basically acquisition means “to acquire” or “to takeover”. It is a name of a

process in which comparatively a dominant or bigger company as compare to other and

that dominant company acquire the assets of the other smaller company and takes over

the control its whole management (European Central Bank, 2000). When a company

wants to make on another organization and for this reason purchase the outstanding

ordinary shares or assets of that organization then this act is called an acquisition (Chen

& Findlay, 2003; Jagersma, 2005). Business acquisitions can be friendly, hostile and

reverse. An acquisition in which both enterprises without any force voluntarily with some

terms and conditions agree for the acquisition process is known as friendly acquisition.

When a private firm takes control over the public firm then it is a reverse acquisition.

This type of acquisition happens to get public status and to avail the benefits of public

company without being listed as a public company in the market. But if a dominant

company leaves no room for smaller company and smaller company finds acquisition as

a last option then it called hostile acquisition (Pervez, 2011).


1.4 M&A Process

Merger and acquisitions transaction procedure all the time begins with the seller's

intention to sell and/or the purchaser intention to buy and finalize with either accepting a

proposal or refusing it (Lee & Colman, 1981).

Source (DIBC, 2003)

Figure 1.2 Forces of M&A

The above figure 1.2 shows that major forces that drive the mergers and acquisitions

activities like scale of economies, scope of economic, human, financial and distribution

resources can be achieved by relaxing regulations and softening the strictness,

transferring or shifting the customers to those service providers whose businesses are

large, reducing the rate of mark up, improving the share prices by promoting stock

exchanges and by dissolving the capital base.


Figure 1.3 Merger & acquisition process.

The organization of the deal construction procedure modified from (Lee & Colman,

1981).

1.5 History of Mergers

The history of merger can be described with the help of merges waves, as many of

researchers and economists argued that the history of mergers and acquisitions in United

States can be classified into five merger waves beginning from 1890s.The starting and

duration time period of each merger wave takes place were not accurate (Depamphilis,

2001).


1.5.1 First Merger Wave 1897 to 1904

Throughout the period from 1897-1904, the period of 1st merger wave, the

average mergers deals was 301 per year. The peak period of this wave was year 1899 in

which 1,028 enterprises were merged. Mergers in the first wave were largely horizontal

and resulted in greater concentration in primary metals, transportation and mining. The

benefits obtained in this period was economies of scale, due to horizontal mergers per

unit cost decline and drawback was the domination issue as due to strong market control

after merger, corporation can alter a price over and above the equilibrium price.

Numerous experts believe that period of first merger wave could be delayed if First

World War was not started (Nelson, 1959).

1.5.2 Second Merger Wave 1916 to1929

The main reason of second merger wave was the entry into world war first by

United States and another cause of second wave of merger was the after world war

economic boom in the United States. Mergers of the second merger waves can be

classified into horizontal and improved business attentiveness (Depamphilis, 2001).This

second merger wave was the phase of vertical mergers. The leading automobile

companies were engaged in merger during this period. This second merger wave arrives

at closure because of the 1929 fall down and the incredible sadness (Nelson, 1959).

1.5.3 Third Merger Wave-1965 to 1969

The types of mergers belonging to third merger wave were the conglomerate

mergers. It was the first run through of unique thoughts and ideas that made firms to take


the danger of broadening by merging their businesses with distinctive lines of business

(Depamphilis, 2001). The wave finished in 1969-70 because of stocks collision. (Martin,

2007).

1.5.4 Fourth Merger Wave 1981 to 1989

This merger wave is renowned worldwide for takeovers. Mergers of this period

were more expansive from prior waves as billion-dollar mergers were normal. The

prevailing attributes of this tenor are dangerous takeovers; private transactions for

example leveraged buy outs (LBOs) and Management buy outs (MBOs) and expansion.

In the light of aforementioned situations of former wave, the fourth wave was

additionally joined with a great deal of problems e.g. bargaining problems between firms

(Rajan, Servaes, & Zingales, 2000), lease-looking for conduct by divisional directors

(Scharfstein & Stein, 2000) and bureaucratic inflexibility (Shin & Stulz, 1998). The wave

finished with the breakdown of saving and banks (Gaughan, 1996).

1.5.5 Fifth Merger Wave -1993 to 2000

The fifth merger wave was popular due to mega merger transactions. The primary

attributes of fifth wave were its size which is more than all valuable waves; the merger

happened throughout this period was well willing and worldwide in nature as most

mergers were international and cross- border. The major drawback of this wave was its

monopolistic nature. The distinctive feature of fifth wave of merger was that it provides

additional US $20 trillion to the economy which is five times more than the joined


together merger esteem of the fourth wave. The notable headline of this wave is its

globalization which was demonstrated by such a variety of cross border business

combinations. Martynova and Renneboog (2005) explained that fifth wave has the

anticipated effects on: globalization, privatization, innovative enhancement, and

deregulation. Fifth merger wave finishes because of equity market crash in 2000.

Table 1.1

Historical Mergers and Acquisitions

Era Motivating Forces kind of M&A major Influence Underlying Reasons

Leading to end of

Wave

1897-

1904

Thrust and effort for efficiency,

Developments and evolution of

technology

Horizontal

type of

business

combinations

Growing trend of

combinations in

the Metal,

transportation and

mining industry

Collapse of stock

exchange in 1904,

deceitful financing

1916-

1929

Entry into world war first by

united states and after world war

economic boom in the united

states

mainly

horizontal

combinations

Greater than

before industry

focus and

attentiveness

Stock exchange

crash 1929

1965-

1969

Stock exchange intensified,

affirmed economic boom

Development

of

conglomerates

and

conglomeratic

growth

Financial

organizing and

conglomeration

rising

bought/purchase

prices, unnecessary

and higher leverage


1981-

1989

Growing stock exchange, boom in

economy, conglomerates not

performing well

Rise of

aggressive

Annexations or

takeovers

Conglomerates

break up, more

use of junk bonds

to push financial

dealings

Economic slump,

insolvencies

,business failures

and bankruptcies

1992-

2000

Economic revival, flourishing

stock exchange, info media, less

barriers for trade ,

internationalization

Tactical and

megamergers

Transactions (in

numbers and

prices) at the

highest level

Recession in

economy and stock

exchange

2003-

2007

Decreasing rate of interest, rise

in stock exchange, Globalization,

inequality in price and value

International

transactions,

Horizontal

megamergers,

private equity

effects

Increasing trend

that the world’s

economies

operates

simultaneously

(world economies

synchronization)

Economic slowdown

in developed

countries

Source: own source based on (DePamphilis, 2011)

1.6 History of Mergers and Acquisitions in Pakistan

In Pakistan M &A are a most recent events and this movement is motionless. It

has been noticed that the total number of mergers in Pakistan are relatively insignificant

as compared to the developed countries of the world. History of mergers started in

Pakistan at the end of the fifth merger wave. In the financial sector, around the world,

majority of mergers are in the banking sector. One of the primary objectives at the back

of the business alliances in the banking sector is to obtain the benefits of economies of


scale. With the aid of business combinations in the banking sector, banks can attain

considerable expansion in their operations and reduces their expenses to a significant

level. When banks involved in the mergers the competition is eliminated because mergers

reduced the competitors from the banking industry. The speed of mergers and

acquisitions activity in Pakistani business in picked up in reply to a variety of financial

reforms and legal requirements introduced by the government of Pakistan since from

1995, in its move in the direction of liberalization and inter nationalization.

1.7 History of Development of Pakistan’s Financial Sector

Yaseen Anwar Governor of the State Bank of Pakistan in his address to the

Commandant of PAF air war explains that the significance of financial institutions cannot

be overstated. Financial institutions carry out the important task of intermediation

between providers of investable capitals and the users of such capitals. No economy can

grow unless its financial sector assists its business activity regularly, and in the situation

of a developing economy like Pakistan, these financial institutions doing as an essential

facilitator for economic development as well. The State Bank of Pakistan (SBP) as the

central bank of an evolving country has performed two very important functions with

regard to the financial sector. Firstly it makes certain trustworthiness of banks and

development financial institutions with the help of prudential oversight with a view to

sustain financial strength; next it chases a progressive objective in which it facilitates

financial markets growths and improvement of access to finance. The banking system,

which captures eighty eight percent share of the entire financial sector, is consisting of


thirty four commercial banks and four specialized banks. The stake of non-bank financial

institutions is just about twelve percent, and comprises leasing, modaraba, insurance,

investment banks, housing finance, venture capital, and mutual funds (Anwar, 2011).

1.8 Mergers and Acquisitions of Banking Sector ---A Global Scenario

Mergers and acquisition practices were started in USA since 1980 and took pace

in 1998. It has been used for cutting cost and increasing revenue in banking industry. But

now it has spread to other economies of the world because of its benefits like economies

of scale and diversification. The reason for mergers in Japan was adaption of technology

by the banks (Akhil, 2009). Large number of domestic and international banks is

involving themselves in mergers and acquisitions. With the help of mergers the market

reduces the number of competitors and bank achieve maximum operation capacity and

with minimum cost. Other benefits are enhanced customer base and better strategic

management. The mergers and acquisition in the banking sector increases the shareholder

value and ensure efficiency, synergy and profitability.

1.9 Mergers and Acquisitions Banking Sector in Pakistan – A Scenario

Merger activity in banking sector of Pakistan picks up by the liberal reforms

announced by State bank of Pakistan in 2002. The Pakistan banking industry showed

drastic changes from the past few years due to the liberal reforms taken by SBP. There

are various factors which are responsible for mergers and acquisitions in Pakistan

including regulatory capital requirements, changes in legal framework and profit seeking


.Central bank of Pakistan announces at different times the minimum paid up capital

requirements for locally and foreign incorporated banks in Pakistan. When the State bank

of Pakistan increases the minimum paid up capital requirements, ordered to increase the

number of branches and also to maintain capital adequacy ratio at certain level, then it

becomes very difficult for banks to meet these criteria alone and the banks started to

combine together equal level banks merged and larger banks acquire the certain smaller

banks (Anwar, 2011).

1.10 Requirements of Successful Mergers and Acquisitions

Presently Growth in business is an ongoing course of action that reflects a variety

of issues pertaining to a range of dimensions of business. A great number of mergers fail

in producing the expected results, because the factors that are need to be addressed before

the finalization of merger deals are ignored. These important considerations are called the

emerging issues of mergers and acquisitions. Goyal and Joshi (2012) explain the

emerging issues which must be considered for the successful operation of the merger

process like Employee’s attitude and sensitivity towards business combinations, customer

perception of merger deal, effective communication, managing the people.

1.11 Mergers or Acquisitions and human element

Gains from mergers could arise from a variety of sources, such as operating

synergies, tax savings, transfer from employees. No acquisition works unless people in

the acquiring company respect the products, the markets and the customers of the


company they acquire. For employees their professional career is very important for

them and it is generally seen that the employees takes mergers as a threat.

Wickramasinghe and Chandana (2009) examined the merger of two banks in Sri Lanka

and through survey examined their employee’s views and concluded that employee’s

perception is dependent on their age, gender and marital status and concluded that

employees are more satisfied in extension of business as compared to collaborative

mergers. Similarly Mylonakis (2006) explained that employees take mergers as a threat.

Bryson (2003) examined the role of human resource management on the merger success

and found that several mergers failed because of poor human resource policies. Hence in

the process of merger human resource management has a vital role and this is an

important factor to be considered at the time of merger.

In consolidation process of corporate sector, human resource management is

considered to be important and critical issue. It is noticed that layoffs takes place

whenever there is an acquisition of organization. In acquisition if acquiring company is

efficient in business then less labor will be acquired to get the same work done. In this

situation, the organization tries to downsize its labor force. If the laid off employees

possess extraordinary skills then they may be benefited from this layoffs and move

towards the best opportunity. Usually it is observed that the laid off employees found

difficult to play a key role in a new set up and loosed their jobs. In these cases, jobless

individuals search for reemployment and have to work with low pay package as compare

to previous jobs. The entire stated scenario does not affect the unemployment rate

drastically but it affects the earning capacity of laid off employees, which cannot be

ignored.


In acquisition, the acquired business includes all the assets (tangible and

intangible). Tangible assets are transferred in connection with ownership. Here,

intangible assets comprise of intellectual property of employees and their knowledge

related to field, but it also comprised of employee’s special nature gifted characteristics

which he possess(Golbd & White, 1988). Employee’s knowledge and characteristics

could be underestimated where organization takes wrong steps. Knowledge management

research is doing efforts to capture and to secure this employee’s tacit knowledge

(Krishnaveni & Sujatha, 2012). Sometimes the organization totally controls key

employee’s knowledge for their sake through contract with them (Bendapudi & Leone,

2002). But, whenever there is a merger of a company, key employee’s value found

reduced (Wulf & Singh, 2011). If with the behaviors of new hierarchy the loyalty of

existing employees is shaken then company’s value can be compromised. In acquisitions,

or when an organization shift from private to public ltd, leadership focus could be

changed and it could divert the new leadership focus from basic mission which will lead

to the damage of intangible assets of acquired company. Integration after the acquisition

is essential; it may be completely on process, ignoring the people working in the

business. It is noticed that the organization with not a proper integration after merger,

found ending up the business being divestitures within two financial years (Buono &

Bowditch, 1989).

For the success or failure in merger of any organization, corporate culture is taken

as a key for it. When corporate culture shifts, employees trust on company reduce, job

insecurity is created and security compromised. Persistently corporate culture have a

strong influence on all the organizations and it can increase or unfortunately decrease the


worth of an organization, it affects same as the other intangible assets do such as

reputation of the organization, loyalty of customers, and confidence on analyst. And

when finding the human element of a particular merger, the trust on company and job

insecurity becomes discussable topics. These interfering human elements are closely

connected with the cultural change in organization. Employee fear to loose, trust on

organization and different security issues could be better understand with the help of

literature related to change management (Deal & Kennedy, 2000). Whenever there is a

merger, psychological challenges of employees: job security and trust on organization

arises. This research study will be comprised of different human behaviors related to the

business. These human behaviors are within organizational transition, management level

resistance, resistance by employee, communication with each other and role of

leadership.

History provides that after merger, the acquiring company never be benefited

significantly as compare to pre-merger conditions (King, 2004). Despite of pre-merger

goals established by the organization like increase in the shareholder value, getting major

market share, and efficient flow of operations, the basic key success element of a merger

is often ignored and that key success element is human capital. Feldman and Spratt

(1999) presented that the key success employees often leave the organization with basic

technology, in depth customer relationship, vendor and within the industry relationships

and the concerns of other related employees who actually always follow them. This type

of departures from organization disrupts business, causes the distraction of the

organization, create uncertainty with the vicinity, and lower down the productivity

(Feldman & Sprat, 1999).


An acquisition or merger takes place with the expectation to add value to the

business and to get a reasonable return on the investment done. It can only be possible

through the efforts done by two sets (post and pre mergers) employees. But reactions of

employees towards change are uncertain and difficult to predict. Employee’s behavior is

influenced by psychological as well as sociological factors. The merger causes important

changes in employee’s behavior, which may either help or can obstruct the progress of

the organization. According to Bruner (2005), managing the number of employees in an

organization is already difficult task and it is even more difficult to do when a merger

takes place in which two sets of employees with two different histories and experiences

join hands to work with each other.

Historically, 30-40% mergers and acquisitions around the world are found to be

successful, despite of that the companies stating about their successful merger, all the

organizations was unable to get the synergy that were expected before merger. This

situation arises out a question that why these companies are not achieving the expected

results (Ajjarapu, 2004). Ajjarapu (2004) presented that negligence towards human

resource management could be a reason which cause failure of a merger. The

organizations, which do not recognize the human resource power and importance in their

setup as well as in their job role, have failed to achieve success.

Employee’s psychological and social issues are found to be very sensitive and

critical but generally ignored during mergers (Giles, 2000). When it is decided to merge

or acquire any organization, a feasibility report along with financial and legal procedures

reports are prepared, but unfortunately human resources in the organizations and their

importance are ignored. Organizations do not realize the fact that employees have the


power and capability to make or retain the employee’s union of the two organizations.

Ajjarapu (2004) reported that before merger there should be a human resource integration

feasibility report by the concern department. Further, the study showed that during

merger activities just 35% of HR executives were taking apart (Giles, 2000; Liberatore,

2000). The study reported that almost 80 % business combinations became at their

implementation phase. It is due to a weak road map, no involvement by the HR

professionals, or HR professionals do not have either business or global experience to

cope up with the situation (Charman, 1999; Greengard, 1999).

Still many organizations didn’t realize that function related to human resources is

a key success element for the success of any merger done. By keeping in view the

intensive marketplace, acquisition of employees is essential and it must be at the top

priority of merger objectives (Buono& Bowditch, 1989). In the light of above stated, key

goals for the success is employee’s satisfaction and it requires more focus throughout the

merger process.

Basically all the organizations failed to know the fact that risk associated with the

human resources other than tangible goods were important to achieve the merger

objectives. Dixon and Nelson (2005) stated that the key success depends upon managing

human resources in addition to legal and finance matters. Human resources are managed

by the HR department but this department is usually overlooked and that is the basic

reason that mergers lead to the unsuccessful step for the organization.

Low morale due to insecurity can lower down the employee’s performance and

commitment which may negatively affect the product or service offered in the market,

and it can cause of losing the customers to which the organizations serve. Bohl (1989)


stated that the poor morale is like an infection. It may starts from one of the insecure and

dissatisfied employee and will spread from one department to another department and

finally it will infect the whole organization.

Quantitative impacts on turnover should be a preference but the employees having

extraordinary skills and knowledge and leaving are also important and should be taken

generously. According to Abrahamson (2004), the loss which an organization suffers due

to loosing skillful and expert employees is more than the monetary loss which an

organization faces. Normally, those skillful employees leaving the organization are one

of the most valued employees of the organization. Al the monetary means an organization

used to make their employees more efficient and skillful are considered to be wasted. In

addition, when a new employee starts the learning process from the scratch, it affects

directly on the bottom line of organization, and lead to be effected in customer service.

Basically, mergers and acquisitions are the name of change, and that change

generates emotions in employees related to their jobs. Employees of acquiring company

may feel more determined for the challenges of new environment. There may be different

reactions by the employees of an acquired organization. Reactions may include feeling

anxious, insecurity of job as they about to adapt major organizational changes

(Machiraju, 2003). In fact they could not perform well with these emotions where there is

an uncertainty of job and their future with the organization (Daniel & Metcalf, 2001)

Wasserstein (2001) acknowledged that when there comes an uncertainty of job

without being informed of upcoming changes related to job roles, it will definitely affect

the employee’s performance negatively. Organizational changes, being a rumor will flow

towards employee and it will affect their morale badly and lead to the shift of job by


employee. For example, merger announced by Hewlett Packard (HP) with Compaq

forced employees to become more focused on saving their jobs or shifting to the new

opportunities in the market instead of serving company’s customers. Consequently,

company lost its customers to other competitors in the market (Nguyen &Kleiner, 2003).

In a situation where two organizations are going to be combined, changes are considered

to be inevitable and can be shared with employees. This type of information sharing will

make employees’ mind acceptable before any happening and can help them to prepare

their selves.

Different studies results indicated negative relationship between merger and the

morale of employees. Basic reasons found behind employees’ low morale are job

insecurity, changes in organizational management and the labor contract including pay

structure.

Change in employees’ way to think about job leads towards the increase in

turnover. All this is due to problems prevailing in organizational structure, changes in

hierarchy and downsizing of employees. Studies tend to acknowledge that human

resource management should be taken into the account in pre-merger stage to be aligned

with problems related to it and to make all the process of transition smoother.

1.12 Barriers to Merger and Acquisition Activity in Pakistan

A merger is said to be successful if it increase the wealth of shareholders faster

than if the companies were operate independently. The mergers are least successful if it

prevents the deterioration of shareholders value more than if the companies were operate.

The main barriers to mergers in Pakistan are non- significant operational economies,


absence of motivation from the standpoint of shareholders, informational constraint,

insider trading, complicated and very difficult process of mergers and acquisitions,

deficiency in leveraged buyouts and narrow industrial base (Jalil, 2001).

1.13 Motives behind Mergers

Mergers and acquisitions are general reasons for the growth of a company. In fact,

no suitable reason yet found of mergers and acquisitions (Andrade, Mitchell, & Stafford,

2001). The major motives at the back of mergers and acquisitions are to promote the

business or to achieve the market extension, economics of scale, economies of scope,

operating efficiencies and revenue enhancement (Bakker & Helmink, 2004). The major

cause at the back of every merger and business combination is different but one thing

which is common in every merger is to achieve the synergistic benefits. Normally it is

said that one plus one equals to two but in mergers this equation becomes one plus one

equals to three, this is due to the presence of synergy. Synergy is the improvement in the

competition and cash flows over and above both corporations are anticipated if both

operate alone. In case of synergy the sum of two firms is greater than the sum of two

firms operate individually1+1=3. The total value achieved after merger between two

companies having asset equal to two is three, this additional value which is created is due

to the synergy value (Evans, 2000).


Table 1. 2

Motives behind Mergers

Factors

Operating Synergy

Results and Effect

Degree of operating economies Improved value, access human capital,

proficiencies, skills, move in new region

Scope/extent of operating economies Profile, expand product/services offering

Financial synergy Cost competency ,reduced cost of capital

Variation and market, product/service

development and market mix

Steady and sustainable returns

Innovative product/services – new markets,

Existing products/services – new markets,

Innovative products/services -existing

markets

More market power and authority Anti-competitive impact/ Against-

aggressive effect

Customer center/market orientation delivery channel optimization (“below

One roof”)better move toward clientele,

divisions

Source: (Pinter, 2007; DePamphilis, 2011; Piloff & Santonero, 1997).

1.14 Regulations and Statutes of Merger and Acquisitions

The following acts, ordinances and regulations are involved in governing merger

and acquisitions in Pakistan


Banking Companies Ordinance, 1962

Companies Ordinance 1984

Competition Commission Ordinance 2007

Contract Act 1972

Competition Merger Control Regulation Act 2007

Foreign Exchange Regulation Act 1947

Income Tax Ordinance 2001

Listed Companies Ordinance 2002

Registration Act 1872

1.15 The Legal Procedure of Mergers in Pakistan

The competition commission of Pakistan (CCP) was established on October 02,

2007 under the competition Ordinance, 2007. The ordinance was enacted as the

competition Act in October 2010. The commission is an independent quasi-regulation ,

quasi-judicial body that is exclusively mandated under the competition Act, 2010 and the

Rules, Regulations, directives, and guidelines issued thereunder to ensure that

competitive forces and unhindered in all spheres of commercial and economic activity to

enhance economic efficiency and to protect consumers from anticompetitive behavior

across Pakistan. Competition commission of Pakistan has mandatory/statutory role to

supervise all the mergers and acquisition transaction in Pakistan. Its special focus is to

curtail the monopolistic elements and ensure play of market competition in the best


interest of economy and consumers. There are laws, rules and guidelines which need to

be followed by the merging entities (Competition Commission of Pakistan, 2007).

Section 284 and 287 of the companies’ ordinance 1984 are the two main statutory

provisions which govern mergers and acquisition in Pakistan. These two provisions,

while providing a basic framework for the regulation of amalgamation activities, entrust

the Pakistan courts with the responsibility of overseeing proposed mergers and

acquisitions. The amalgamation of banking companies is regulated by section 48 of the

banking companies 1962. Section 284 essentially lays down two criteria for mergers and

acquisitions in Pakistan. Firstly, three-quarters of all are voting members of the

companies wishing to amalgamate. Secondly, the court must section the proposed plan of

amalgamation. Secondly, the Court must section the proposed plan of amalgamation.

Section 284 gives no guidance to the judiciary as to what criteria should be used when

deciding whether to grant sanction, and merely states that no sanction should be given if

all material facts relating to the company are not provided (Companies ordinance, 1984)

The preparation of a scheme of amalgamation/merger by the companies, which

have arrived at a consensus to merge, is the most critical step towards undertaking the

activity. There is no specific form but it generally contains rationale for activity, financial

information, valuations of shares and involved determinations, and any pending

litigation. Another focus area for the companies, is the valuation and pricing of shares

that must be fair and reasonable. The purpose of valuation of shares of companies is to

ascertain the swap ratio to be used for the exchange of shares of the merging company or

companies with the surviving company (Ali, 2006).


Although Pakistan courts usually decline to look into the commercial merits of the

proposed scheme was put into place. Thus, if the shareholders voted by a three-quarters

majority to implement a scheme presented by management the court will simply and

whether management acted fairly and transparently. While the regulatory framework

places the court in charge of protecting the rights of shareholders there are mechanisms

by which the public at large is also protected from potentially dis advantageous mergers.

The monopoly control authority (the Authority) was created by the Monopolies and

restrictive trade practice (control and prevention) ordinance of 1970.

The review or mergers and acquisitions of shares or assets, including joint

ventures, pursuant to section 11 of the act are among the function and responsibilities of

the mergers and acquisition department. To assist undertaking contemplating a merger or

acquisition that desire to get an information and non-binding view of the commission, the

department operates the acquisitions and mergers facilitation office (AMFO), which

plays an advisory role and guides and undertaking for undertaking that are foreseeing a

merger acquisition activity. The procedure adopted by the department for examining the

application and issuance of a “no objective certificate (NOC) is detailed in the guideline

on merger, The act gives 30 days for the completing the first Phase review and 90 days if

the matter requires a detailed second phase review (Competition Commission of Pakistan,

2007).

1.16 Determinants of Operating Performance

The effect of the business combination transactions can be investigated by

comparing the post-merger performance of the acquirer with its pre-merger performance.


1.16.1 Profitability

Mergers increase or reduce the gains of the two merging firms from what they

would have been if they had not been merged. The majority of the hypotheses why

mergers take place think that manager’s take full advantage of profits (Muller, 1986;

Schere, 1990). Successful mergers increase the profitability of the combined company. A

different perspective of the impact of mergers about profitability emphasizes selection

from the capital market (Ravenscraft & Schere, 1987; Cosh, Hughes, Lee, & Singh,

1998).

Profitability ratios show the combined effects of liquidity, asset management and

debt management on the results of operations. Profitability ratios measured in relation to

sales, capital employed, total assets and shareholders. In the context of mergers and

acquisitions profitability is the value creation in the form of an increase in the post –

merger wealth of shareholders. The performance of the firms before and after-merger is

usually evaluated by financial indicators of performance signals: current ratio, acid-test

ratio, gearing ratio, debt equity proportions, self-financing ratio, cash flow ratio,

shareholders equity, return on equity, return on asset, gross profit ratio, net profit ratio,

before tax earnings per share, after tax earnings per share, dividend cover ratio, dividend

to equity, overhead and additional expenses as % of sales, finance expenses % of

operating profit, finance expense %of revenue, finance expense of contractual liabilities,

gross profit index, accounts receivables % of revenue, sales as % of total assets,

inventory turnover, stock turnover period, sales to capital employed, length of operating

cycle, sales growth in addition to breakup value of each share (Kishore, 2003).


1.16.2 Impact of Merger on Profitability

In this research profitability is measured with the help of profitability variables

such as (ROE), (ROA), and (EPS). Mergers impact on profitability because due to

merger the profit efficiency increased specially if merger occurred in between weak and

healthy corporations and this increase is statistically significant.

1.16.3 Efficiency

Efficiency is defined as the value addition in different perspective. Value addition

can be in three forms: improvement in revenue, cost reduction and growth opportunities.

Synergy taken through mergers is basically an efficiency. Synergy comes into four

different types: improvement in sales, cost reduction, lower taxes and lower cost of

capital. Synergistic effects can arise from four sources: operating economies, financial

economies, differential economies and increase market power. Activity or turnover ratios

are measure of efficiency and generally, “the higher the better”. Efficiency ratios measure

how effectively the firm employs its resources (Roades, 1993). Efficiency or asset

management ratios are used to know about the pace of converting different accounts into

cash or sales (Muller , 2003).

1.16.4 Liquidity

Mergers also influence the liquidity shocks. Huson and Mackinnon (2003) explain

that “firm level diversification” results in improved liquidity while the views of (Gilson,

Healy, Noe, & Palepu, 2001) are quite opposite to (Huson & Mackinnon, 2003). A firm


with short of liquidity might merge with one which is surplus in liquid assets with the

purpose that the joint short-term financial condition will get better (Lipson & Mortal ,

2007). Liquidity ratio examines the firm’s capability to meet its present/ongoing short

term liabilities. The higher liquid the firm prior to the merger, the more expected it will

not face liquidity troubles if it assumes additional post-merger costs, such as higher

interest/mark up payments. If however, the firm is only slightly liquid at the time of

merger, it may experience liquidity problems following the merger, unless it can rely on

the other merger partner for additional liquidity (Tzoannos & Samuels, 1972).

1.16.5 Asset Quality

Assets quality is an alternative significant feature of the assessment of bank’s

performance. The key aim in measuring asset quality is to determine the percentage of

non-performing assets to total assets (Saluja, Sharma, & Lal, 2012).

1.17 Problem Statement

Mergers and acquisitions is another and mostly preferable option a firm adopts for

recapitalization. The question that arises is whether all companies merged or purchased at

the end result in maximizing shareholders capital and improving operational

performance? In some cases shareholders wealth is reduced after it is merged or acquired.

The present study aims to find answers to these questions by analyzing the effects of

mergers on the financial performance of chosen companies in Pakistan. Central bank of

Pakistan announces at different times the minimum paid up capital requirements for


locally and foreign incorporated banks in Pakistan. When the State bank of Pakistan

increases the minimum paid up capital requirements and ordered the banks to increase the

number of branches and also to maintain capital adequacy ratio at certain level, then it

becomes very difficult for banks to meet these criteria alone and the banks started to

combine together. As a consequence of State banks requirements equal level banks

merged and larger banks acquire the smaller banks. This has sent some of banks on the

move to consider merger and acquisition as a survival strategy. There is a whole list of

the challenges the banks encounter after the consolidation which is also a source of

increasing unemployment in the country which hampers the growth of economy largely.

The challenges are listed as; inappropriate corporate governance practices, insufficient

risk management, non-durable infrastructure, extra dependence over public financial

means, improper regulations, insufficient credit assessment skills and techniques, lack of

professional behaviors and poor skills and training. All these factors become the reason

of illiquidity in the banking sector and hampering its prosperity even more. These causes

have provided the ground for this research and it aims to go deep in all these problems

and digging out the reasons behind the failure of banks in achieving the profit levels they

intend to reach and how these reasons can be avoided and changed to others that can

make the flow of growth smoother. The completion of this research would cater all these

problems. To cater this problem of banking systems, particularly of Pakistan, I intend to

study that how much and in what way mergers and acquisitions have contributed towards

the inclination of financial performance of banks.

The researches on the issue of merger and acquisition in the area of

manufacturing companies concentrated on the post-merger employee’s morale and


turnover intensions, employee’s commitment and management style has already done. It

is important to note that no broad was conducted to measure the operating performance of

the bidding corporations in the before and after merger periods. It is also realized that no

comprehensive analysis attempted from the view point of acquirer firms belong to the

financial and non-financial sector of Pakistan. This is big gap which needs to be filled.

The present research is conducted to fill this gap by analyzing the impact of mergers on

the financial and operating position of both the financial and manufacturing sector of

Pakistan in the before and after merger periods. Merger and obtaining is executed to

upgrade financial power and deflect operational hardships.

1.18 Significance of the Study

Pakistan economy is currently witnessing a sea change from the controlled to the

market driven environment. Increasing shareholder values is the golden rule which

Pakistani corporations are increasingly focusing on, as a means and end to survive and

grow under the fast changing scenario. Mergers and acquisitions activity has become a

part and parcel of the corporate and professional life. Present study is mainly quantitative

in nature because a merger and acquisition phenomenon is examined numerically by

correlating the operating performance of financial and non-financial (manufacturing)

sector of Pakistan in both pre-merger and post-merger situations. This study is unique in

nature. A little or no research is available regarding mergers and acquisitions in Pakistan

especially all sub sectors of manufacturing sector and all sub sectors of financial sector.

This study will be very beneficial for researchers. Mergers and acquisitions are very


important events in corporate finance, both for the firm and the economy. Many research

findings have shown that mergers and acquisitions provide benefits to the company and

other stakeholders. However, a lot of businesses in Pakistan are not fully aware of these

huge benefits. By highlighting the impact of mergers and acquisitions on the operating

performance of Pakistan acquiring companies, interested parties such as shareholders,

investors, workers, speculators, analysts and the company itself may find this study

useful. The University of Central Punjab may make the findings available to the public

through the university library among other avenues. Shareholders and investors are

normally interested in return on their investment, which is achieved through capital gain

and dividends payouts. The analysis in the study will therefore provide a basis for them to

make informed decisions. Additionally, the study will augment other research work on

mergers and acquisitions and thus contribute to knowledge on the topic of mergers and

acquisitions.

1.19 Value of the Study

The research is rigorous in nature because this study is based on sound theoretical

foundation and methodology. Study is rigorous because conclusion regarding the impact

of mergers on firms performance is based on data collected from reliable audited

accounts, sample size is the complete population of all mergers of all sectors of economy

of Pakistan. A study is rigorous in nature if it is based on established methodology and

theoretical foundation. A variety of financial and non-financial resources are indulged in

order to carry out M&A and to make this M&A successful a huge effort is called out


from both acquirer and target firms. When such huge quantity of financial and

nonfinancial resources and assets are committed it is very important to carry this out very

carefully and to know the aspects of this M&As. This research is beneficial to multiple

parties who are stakeholder also.

1.19.1 Policy Makers

This research work is of particular importance for policy makers as it can aid

them in shaping new standards of mergers and acquisitions. The results can also be used

to discover new and more efficient methods of maintain appropriate levels of liquidity of

a firm.

1.19.2 Investors and Customers

This piece of research is of equal importance to commercial bank customers and

investors. This may enlighten them with the importance of mergers and also can aid tem

in knowing its benefits to the banks itself and to the industry at large.

1.19.3 Researchers

This study may give base to potential researchers to dig this topic further to

extend the knowledge on effects of mergers and acquisitions to the banks and to the

industry. This may also give them a better idea of already present researches and also the

present condition and situation of the industry in this regard.


1.19.4 Organization

This research would give an insight to the managers and other executives of the

commercial banks about the present scenario on mergers and acquisitions and how well

the recently merged banks are performing in terms of finance.

1.19.5 Academics

This study would add more knowledge to the already present paradigm on how

investors react to mergers and acquisitions. This study would also help in identifying the

gaps present in this particular topic which need to be addressed. This study would also

serve as a guideline and reference point to the next researches in the same endeavor.

1.19.6 Contribution to the Society

Through this research society will be able to know the real situation of the

liquidity and profitability position of selected units before and after merger and

acquisition.

Through this study creditor, employees and other parties can take proper

investment decisions.

Employees will be able to take proper decision regarding job (work).

1.19.7 Contribution to the Industry

Industry may be able to maintain their liquidity and profitability position during

post- merger and acquisition.


Industry may be able to know the effects of business combinations on the

financial position of concerned industry.

1.20 Research Objectives

1. To examine the before-after merger performance indicators of manufacturing

companies in Pakistan by using financial ratios.

2. To study the before-after merger performance indicators of commercial banks in

Pakistan by using financial ratios.

3. To examine the before-after merger performance indicators of modaraba


4. To analyze the before-after merger performance indicators of insurance


5. To examine the before-after merger performance indicators of investment banks

in Pakistan by using financial ratios.

6. To study the before-after merger performance indicators of leasing companies

in Pakistan by using financial ratios.

7. To examine the before-after merger performance indicators of mutual fund


8. To study which commercial and investment banks, modaraba, insurance, leasing

and mutual fund companies after the merger becomes efficient?

9. To analyze the post-merger liquidity and efficiency performance indicators

impact on profitability of manufacturing sector of Pakistan


10. To analyze the post-merger liquidity, assets quality, capital and efficiency

performance indicators impact on profitability of Pakistan commercial banks.

1.21 Limitations of the study

This study ignored the impact of possible differences in the accounting methods

adopted by different companies in the sample.

This study is limited to three years before and three years after mergers.

This study not considered the cross-border mergers in the sample.

Impact of mergers on employees is ignored in this research.

This study is limited to Pakistan only.


CHAPTER TWO: LITERATURE REVIEW

2. Literature Review

In this chapter the literature related to the impact of mergers on the firm

performance variables such as profitability, efficiency, liquidity, leverage and capital are

reviewed. There are numerous studies on mergers and acquisitions and several theories

are proposed and tested for validation. Researchers have studied economic impact of

Mergers and Acquisitions on profitability, efficiency, growth, liquidity, and leverage

before and after Mergers and Acquisitions. Whether or not a merged company achieves

expected performance is the critical question that is examined by most researchers. A

number of studies were done all over the world to evaluate the performance and

determine the impact on profitability and efficiency after mergers and acquisitions.

Healy, Palepu, and Rubak (1990) investigated the effect of business combinations

on the financial position of U.S acquiring firms. The aim of this study is to analyze the

after merger financial position of acquiring undertaking involved in the merger and

acquisition activity in U.S.A. In this study a sample of fifty biggest U.S.A Public limited

listed concerns are chosen that underwent merger and acquisition deals during the year

1979-1983. The post –merger financial performance is measured by using pre-tax cash

flows. The results of this study showed that after merger improvement in cash flows

resulting from operation and the unexpected increase in share prices near the business

consolidation news are significantly correlated, showing the expectation of an increase in

financial evaluation of shares of combined companies.


Agrawal, Jaffe, and Mandelker (1992) examined the influences of business

amalgamations on the operating positions of firms following the merger. The author

analyzed that the post literature shows that acquiring firms significantly underperform

following the merger. The author also explain that the problem yet not solved if the

mergers results in negative results then why firm underwent for mergers deals. The study

measure the impact of merger on the post-merger performance of acquiring firm by

adjusting the firm size and regression coefficient. The results of this study concluded that

post-merger performance of acquiring firms result in loss to the wealth of shareholders of

acquiring firms. It concludes that the post-merger performance is still negative.

Block (1997) analyzed the value of expected decrease and later on increase in the

earning of banks involved in mergers. The author also through light that mergers

increasingly important in the financial services sector, and there is also the need for

appropriate sensitivity analysis to assess the financial impact of the merger. The author

also identify the factors that influence the post- merger growth rate, and shows the

comparative importance of the premium paid, the relative size of institutions engaged in

the merger activity, the absence or presence of synergies and a number of other variables.

Rhoades (1998) investigated the impact of merger and acquisitions on the post

mergers efficiency of banks. The author explained the difference between cost reduction

and increase in efficiency that stems from the business combinations. Reduction in cost

can be achieved by reducing staff, reduction in head office expenses by consolidating the

offices, saving in computer expenses. When expenses decrease as a percentage of total

assets or sales, it should improve the efficiency as measured by an expense ratio. The

author also mentioned in this study that efficiency will not improve until reduction in


expense is greater than decrease in assets. Increase in efficiency requires that expenses

should be decrease by more than decrease in total assets or revenue. In this study a

sample of nine mergers and acquisitions are selected that yield efficiency gains. The

author explained financial ratios including Liquidity, profitability, efficiency and capital

ratios. Liquidity ratios are current, quick, debt equity ratio and debt ratio. This study

explained three efficiency measures such as total efficiency, scale efficiency and pure

efficiency. The results of this study indicate that 9 mergers showed considerable cost

reductions match with the forecasts prior to the merger. It concludes that four of nine

mergers are clearly able to improve the cost, but five of nine were not.

Lang and Peter (1999) investigated the impact of size and efficiency on success of

mergers and acquisitions in German banking industry. The author explains the effect of

mergers and acquisition on the Bavarian cooperative banks in Germany. In this study a

sample of 283 Bavarian cooperative banks are taken that underwent mergers and

acquisitions in Germany during 1989-1997. In this study an unbalanced panel data

analysis technique is used to determine the impact of mergers on the Bavarian

cooperative banks. This study also shows that the positive effects of the size and scope of

a merger take place if the merged entity includes part of the former branch network. It is

also concluded that by comparing actual mergers to create a simulation of hypothetical

mergers, size effects observed mergers be slightly cheaper than all possible mergers. For

the post-merger phase, this study results provide no evidence of efficiencies resulting

from the merger, but rather show a leveling of differences between the merging entities.

Lin and Tripe (2001) investigated mergers effect on the operating efficiency of

banks in New Zealand. The previous studies on mergers in New Zealand use the simple


accounting based financial ratios. This study used accounting ratios and data

envelopment analysis (DEA) to study the efficiency impact of six bank mergers in New

Zealand between 1989 and 1998. This is the first study used data envelopment analysis

on the banking sector in New Zealand. DEA uses input and output variables. In this study

three models of DEA are shown. Each model uses same input variables, but output

variables are different in each DAE model to measure efficiency gains for banks engaged

in merger and acquisitions, and also made an effort to explore few costs and gains

associated with mergers and acquisitions in New Zealand.

Worthington (2001) investigated the impact of mergers and acquisitions on

financial position of non-banking financial institutions in Australia. The author described

that up to now no attempt has been made to create the relationship between the mergers

and acquisitions activity and efficiency level of acquiring firms in Australia. This study is

conducted to find out the impact of financial, regulatory and managerial aspects on the

rate of mergers between credit unions in Australia. The study period is divided into pre

and post- merger. Pre –merger period consists of 1993-1995 and the post-merger period

is between 1996 -1997. The post-merger efficiency effect is measured by using the

financial ratios. The several variables that are used to measure the firm performance are

CAMEL analysis. CAMEL was used for financial ratios used to measure the profitability,

efficiency, liquidity, asset quality and capital. C stands for capital adequacy, A means

asset quality, M stands for management, E stands for earnings and L means liquidity. In

this study data envelopment analysis (DEA) technique is also used to measure the

efficiency effect. This study divides the efficiency in to pure technical efficiency and

scale efficiency. In this study the results of merged and non- merged firms are compared


to analyze the efficiency effect of mergers. The results of this study showed that high

performing firms led the process of merger between Australian credit unions. The pure

technical efficiency of acquired firms is not less than the pure technical efficiency of

industry average. It is also concluded that post- merger efficiency of merged credit

unions increases. Finally it cannot be concluded that the efficiency of credit union sector

as a whole increases, but only the efficiency of merged firms increases in comparison

with non- merged firms.

Ming and Hoshino (2002) evaluated the role of business combination on the

wealth of owners of Taiwanese firms. Most of the business in Taiwan is family owned.

Taiwanese people prefer to sole proprietorship business or a company which is to be

control by the family members or sharing with relatives. If the business is owned and

control by the investors themselves then it is very difficult to takeover by other in the

form of friendly or hostile takeovers. It is not possible to acquire the business of other

without their approval. The author explained that in the past the Taiwanese prefer to start

business without forming them as a company or corporation. However in the past decade

there was deregulation in financial structure and liberalization in the Taiwanese business

world. When Taiwanese government encourages the corporate sector over the small scale

and family owned business structure, there was an increasing trend of corporations. This

has increased the competition among the corporations. The corporation started mergers

and acquisition as an internal growth strategy. In the late 1980s business combinations

started among Taiwanese corporations. The aim of this research is to examine the impact

of business combinations in the form of mergers and acquisitions on the shareholders

position. In this study a sample of forth-six acquiring firms are chosen that underwent


mergers and acquisitions during the year 1987 and 1998. The effect of business mergers

on the wealth of acquiring firm’s shareholder was measured by using the standard event

study techniques. The abnormal return on daily basis was calculated from the stock

exchange index. The sample of forty six acquiring firms is further divided into sixteen

sectors of economy. The results of this study show that when press announces the

mergers and acquisitions proposal, the merging firms get abnormal return positively

immediately. In the longer period the acquiring firms gain larger returns. It concludes that

merger positively effect on the wealth of the shareholder. The result of this study showed

an agreement with previous researches on mergers and acquisitions.

Hagedoorn and Duysters (2002) analyzed how the performance is affected by the

merger events in those corporations who are operating in high-technology environment.

In this study the high-technology industry means the international computer industry. In

this research the author tested four research hypotheses. The population of this study

consists of 201 mergers that have happened between 1986—1992. A sample of 35

companies was selected for the purpose of this research. The dependent variable used in

this study is technology performance. The independent variables consists of related of

merger and acquisition, research and development level of company, previous experience

of mergers, cross-border features of mergers and acquisitions, size of companies,

technology related acquisitions. The significance of hypothesis was tested by using

regression model. The results of the test showed an improvement in the post-merger

performance of high-tech companies.

Sharma and Ho (2002) presented the impact of mergers and acquisitions on the

firm performance refer to Australia. The purpose of this study is to evaluate whether


mergers and acquisitions create synergies. The author provided three different theories

related to mergers and acquisitions such as synergy, free cash flow and market theory.

The synergy theory describes the types of synergies such as economies of scale, and

market power. In this study the previous studies of post-merger operating performance is

divided in to two panels. Panel A describes the post-merger financial performance

measure techniques based on financial ratios based on accrual accounting. Panel B

measures discussed the post-merger studies based on cash flow measures. In this study a

sample of 36 Australian manufacturing companies engaged in the mergers and

acquisitions deals during 1986 to 1991 was chosen. The author also explained the accrual

based performance measures such as return on total asset, return on equity, profit margin

and earnings per share, current ratio, quick ratio. Cash flow performance measures

include cash flow return asset, cash flow return on sales and cash flow return on equity.

The result of this study shows that corporate mergers and acquisitions don’t significantly

improve the post-merger operating performance of acquiring firms. The results of this

study also matched with the result of Australian capital markets. The result of this study

also indicates that the merger type and the pattern of merger financing don’t significantly

affect the post-merger operating performance of acquiring firms. It also concludes that

the size of merger and the payment of performance have no impact on post-merger

operating performance.

Gjirja (2003) investigated the efficiency impact of mergers and acquisitions in

general Swedish banking industry and particularly saving banks in Sweden. The author

explained that the banking consolidation wave gains efficiency considerably lower

operating costs, better risk diversification and quality management was affected. In


Sweden like as in many other European countries, the banks involved in acquisitions in

order to exploit possible synergies, economies of scale and other benefits. The purpose of

this study is to evaluate the effects of the efficiency of bank mergers in Sweden. In this

study a sample of 28 Sweden banks that underwent merger during the year 1984 to 2002

are taken. This study used the un-balanced panel data analysis technique to test the

significance. A cost function with a boundary concept time-varying stochastic efficiency

is estimated to find empirical evidence of a role to improve the efficiency of bank

mergers. The results of this study reveals that no solid proof of the hypothesis that

inefficient banks may be captured by other more efficient In addition, the analysis shows

that post-merger, no significant improvement in the technical efficiency of the Bank after

the consolidation. It is also concluded that the analysis of banks involved in the sample

showed that mergers don’t support the hypothesis that generally less efficient banks are

acquired by more efficient banks. The findings also show no significant improvement in

the performance of merged banks. The study ends with the results that mergers don’t

provide any kind of synergy evidence. The results of this study agreed with the findings

of the banking literature on mergers.

King, Dalton, Daily, and Covin (2004) studied Meta analytical procedures used

to find out the effect of commonly past researched variables on the post- acquisition

operating financial performance of the acquiring firms. In this study various research

techniques have been used to empirically find out the past studies that are involved

merger and acquisition activities and impact on the operating performance. The results of

this study strongly show that most of the variables that have been studied in the past to

find out the impact of merger and acquisition activity in the operating performance of


merged firms does not favorably change due to the merger and acquisition rather than

adversely affect. The study showed that the past studies identified variables has no impact

due to merger activity. The study also concludes that there are other variable that were

yet not identified by the past researches may shows significant changes in post merged

operating performance.

Beena (2004) analyzed the post- merger operating performance of acquiring firms

belonging to the different manufacturing sector of India. Indian economy is the hub of

mergers and acquisitions deals in the modern age. In this study the author analyzed the

operating performance of domestic and foreign owned manufacturing firm engaged in the

mergers and acquisitions deals. A sample of 84 domestic merged firms and 31 cross

border acquiring firms are selected which are engaged in the mergers and acquisitions

deals during 1995-2000. In this study financial ratios to measure the profitability,

efficiency, liquidity and capital ratios are used to examine the impact of merger between

pre and post- acquisition phase. In this study the statistical tool t-test is used to test the

significant of post- merger performance of the acquiring firms. The result of this study

showed no significant improvement in the financial performance of the acquiring firms.

The results of this showed no significant progress in the operating performance of the

bidding firm in comparison of the after- merger performance with the before-merger

performance. In this research the performance of non-merged firms are compared with

those of the merged firms. It is finally concludes that profitability of merged firms

improved than of non-merged firms. It means that mergers has an impact on the

performance of corporations.


Andre, Kooli, and Lher (2004) investigated the effect of mergers and acquisition

on the operating performance of acquiring firms following the merger traded on Canadian

Stock exchanges. This study examined the operating performance of acquiring

corporations. This study is conducted to evaluate the long-term operating performance of

acquiring firm in Canada. Study comprises of 267 Canadian mergers that underwent for

merger deals between 1980 and 2000. Canadian economists are very much concerned

about the cost of mergers and acquisitions deals and how these costs can affect the future

operating performance of acquiring firms. In order to measure the long-term operating

performance of acquiring firm two approaches are used in this study namely calendar

time approach and the event time approach. The result of this study showed that in most

situations Canadian acquiring firms significantly underperform following the post-

Merger. The second conclusion of this study showed that cross border Canadian merger

does not perform well in long term.

Powell and Stark (2005) explained that during the past decades majority of studies

try to find out the answer of difficult question, whether the post- merger performance of

merged companies improved than previous performance. The aim of this study was to

examine whether post-acquisition position of acquiring firms improves in UK. In this

study author compare the various techniques used to evaluate the post- merger and pre-

merger position of target firms and acquirer. Sample of particular 191 mergers are taken

as sample starting from1985 to 1993 in UK. The data is divided into five panels. Panel A

and B are based on proportionate size of acquisition while Panel C is constructed on the

bases of industrial relatedness. Panel D consists of type of acquisition. Panel E depends

on the announcement window. The last panel F based on modes of payment. In this study


two types of benchmarks are used such as operating performance based on industry

median and the other benchmark is based on industry, size and before merger operating

features. The results of this study showed an improvement in post-merger performance

by using regression than change method. The other conclusion is that accrual based

results are higher than cash flow based.

Girma (2006) Investigated the impact of mergers and acquisitions on the overall

productivity and Labor productivity more specifically, the acquisition of companies in the

United Kingdom for the period 1981-1996. The empirical part of this report is based on

an unbalanced panel of 887 plants. The survey was conducted in two ways: Firstly,

empirical models assess whether this was a permanent change in productivity after a

takeover of the company or related companies; second, the sample analyzed according to

the type of size distribution and finally the effect is monitored by time.

Schoenberg (2006) investigated the performance measurement techniques used by

researchers in evaluating the post- merger operating performance of acquiring firms. In

this study four performance measures are described, namely manager assessment,

cumulative abnormal return, divestment and expert assessment. In this sample of 61

British mergers are chosen that engaged in mergers and acquisitions deals during 1988

and 1990. This study was based on qualitative performance measure such as underlying

assumption, strength measure, weakness of merger and examples of studies using

measures. This study aims to explore whether there is any correlation between four

performance measures. Another objective of this study is to investigate the comparative

of four acquisition measure. The results of this study suggested that each of the four

performance measure independently indicate a success rate of 44-56%. It also concludes


that positive correlation has found between manager assessment and expert assessment. It

concludes that no significant relationship has been found between four performance

measures.

Soubeniotis, Mylonakis, Fotiadis, Chatzithomas, and Mertzitmekis (2006)

explained the concept of business combination in the form of acquisition and business

buyouts in Greece. The author explained that the main cause of merger and acquisition

and buyout of business in Greece is intense competition. Business buyout normally

happen when the business not properly managed. The buyout of a corporation is needed

when the buyout will decrease per unit cost of the operation, save the consumption of the

organization financial resources in the areas of research and development, economics of

scale in production and distribution. This study was based on primary research. In this

study a questionnaire containing fifteen research questions have been developed on the

bases of twenty two buyouts exists on the Athens stock market. In this study six year

period 1998-2003 were taken. The result of this study showed that merger and buyout

failed due to various reasons. The author explained buyout failure reasons such as no

proper planning, no strategic investment reasoning, no realistic anticipation, high buyouts

cost, conflicting company cultures, slow process of buyout, shareholder conflicting

interest, external factors and macroeconomic conditions.

Martynova, Oosting, and Renneboog (2006) analyzed the longer period

profitability (acquired and acquiring firms) which is selected from the continental

Europe. In this study four separate techniques are used to measure the operating

performance of acquiring and target firms before and after the merger and acquisition.

The operating performance result provided by previous researches based on single


analysis technique yield non-consistent conclusion. The study found that companies

(acquiring and acquired) perform better in pre merger phase and profitability of post

merger phase decline significantly. In this study the acquisition are classified into four

categories, hostile, friendly, tender offers and negotiated offers. The study also shows that

long term operating performance significantly different in each of the four acquisition

categories. The author also concluded that the acquiring firms leverage and liquidity

position before the merger and acquisition shows no impact on the operating performance

of the combined firms, on the other hand the acquiring company cash position adversely

effect on the operating performance of the firms. The study finally concluded that the

turnover of big target firms generate longer profitability to the combined firms than the

small target. If the target firms are smaller than the post- acquisition profitability will

decline.

Pazarskis, Vogiatzogloy, Christodoulu, and Drogalas (2006) investigated the

impact of merger in Greece. In this study a sample of fifty Greek manufacturing firms are

considered that involve in the M&A during 1998 - 2002. Financial and non-financial

variables are used in this research to measure the impact of mergers. Financial variables

used in this study include profitability, liquidity, and solvency. Proxies of profitability

areas are earning as % of net worth, return as % of assets and gross profit as % of sales. A

proxy of liquidity is quick ratios whereas solvency is calculated by using net worth as %

of assets and debt as % of net worth. In this research primary research is conducted

through research questionnaire. The result of this study concludes that after merger the

performance of acquiring firms declined.


Kruse, Park, Park, and Suzuki (2007) analyzed the long term operating

performance of Japanese firms following the merger and acquisition deals. The author of

the study explained that historically there was no trend of M&A deal in Japanese firms.

The Japanese firms were reluctant to merge. There were only average four mergers per

year during 1990-1997. After year 2004 there was a sudden increase in the quantity of

mergers and acquisitions deals. In Japan till 2004 there were only four studies showing

the impact of merger deals. The aim of this study is to examine the long term impact of

merger and acquisition on the operating performance of acquiring firms. In this study a

sample sixty nine business alliances of manufacturing companies were taken to determine

the effect of mergers operating position of the merged corporations. This research uses

the accounting ratios to investigate the operating performance of bidding firms following

the merger. The two accounting ratios are the operating return, and operating margin.

Operating return is calculated by dividing the operating cash flow before tax to market

value of assets. The operating margin is calculated by dividing the operating cash flow

before tax to sale. The study also shows that panel post acquisition position is highly

correlated. This research concludes that a business alliance has considerable influence on

merged firms. The improvements in employment nearby mergers and acquisitions deals

are positively correlated to post merge operating performance between diversifying

mergers.

Tuch and Sullivan (2007) investigated the impact of mergers and acquisitions on

operating performance of firms by reviewing the previous studies. The main purpose of

this study was to find out the impact of merger on firms performance by studying the

previous literature. In this study evidence about post-merger firm’s performance has been


taken by reviewing the acquiring performance from seven different point of view such as

short and long term event studies, accounting studies, method of payment, method of

acquisition, industry relationship of acquired and acquisition from pre-bid operating

performance. Each area of study shows the period of study, details of sample, country

which the research has been taken, event window and the main findings. The results of

this study by reviewing previous study shows that in the short- run stockholders wealth

following the merger improved but insignificantly. Long term analysis of post studies

reveals negative results following the merger. The accounting based previous studies

analysis shows mixed results. This study analysis shows that basic characteristic does not

effect on the acquisition performance. Research on the effect of industry relationship on

operating performance shows better results following the merger. The result related to the

impact of pre-bid performance showed that merger bids at the beginning of merger waves

result in better return

Poposki (2007) analyzed the hectic pace of mergers; the financial institutions

involved in the recent years a lot of interest. The aim of this paper is to explore the value

of synergy. Synergy is the benefit that merged firms can get only when the firms

combine. This study explains the importance of financial synergy in merger and

acquisitions transactions between insurance companies. This study is conducted to

explain the role of synergy in evaluating the performance of firms engaged in mergers

and acquisitions activity in insurance industry. The survey of financial synergies focuses

on issues of solvency, liquidity and leverage. Every acquirer insurance company

performance is measured in comparison with the performance of non- merged insurance


company of the same size. It concludes that mergers in the insurance industry increase

the efficiency of firms.

Sufian and Majid (2007) analyzed the mergers effect on the performance of

Singaporean banking sector. The aim of this study is to trace the answer of questions such

as did the mergers result in increasing the post- merger efficiency in Singapore banking,

can low efficient bank is the target of acquisition, can low efficient target bank reduces

the post- merger efficiency of the acquiring bank, can more profitable and efficient bank

increases the post- merger efficiency of acquiring bank and how the relative performance

of Singapore banks can be determined. In this study a sample of all banks that underwent

mergers and acquisition during 1998-2004 in Singapore are taken. In this paper Data

Envelop Analysis (DEA) is used to test the significance. The efficiency is sub divided

into operational, pure-technical and scale efficiency. The results of this study show that

the merger has resulted in an increase Singapore banking groups overall efficiency in the

post-merger period. The results suggest that bank profitability has a significant positive

impact on the efficiency of banks; on the other hand poor credit quality has a significant

negative impact on the performance of banks

Mantravadi and Reddy (2008) explained the impact of type of merger on financial

performance Indian manufacturing firms. The present study was conducted to determine

the impact of different types of mergers on the operating performance of the acquiring

firms. The purpose of this study is to understand which category of merger has more

influence on the operating performance of merged firms. This study describes three types

of merger such as horizontal, conglomerate and vertical. In this study literature review

relating to the impact of type of merger on merged firms performance have been divided


into three categories namely types of merger study in the U.S.A, Europe and studies in

Asia. A sample of 96 merged firms were chosen, which was further sub divided in 64

horizontal merger, eight vertical merger and 24 conglomerate mergers. In this study the

time period from which the sample merged firm chosen was 1991-2000. The statistical

tool used in this study was paired sample t-test. In this study different financial ratios are

used to compare the pre and post-merger operating performance such as operating, gross,

net profit ratio, return as % of net worth, return as % of capital employed and debit as %

of equity. The result of this study reveals that there is no significant difference in the

impact of merger on the operating performance of merged firm in the term of types of

merger. In other words the types of merger do not significantly impact on the firm

performance following the merger.

Said, Nor, Wah , and Rhman (2008) investigated the effect of M&A in the

Malaysian banking sector. The study explained that the trend of getting banks to merge in

Malaysia taking place in the mid-1980s as a consequence of financial and economic

slump. This study is conducted to explore the impact of 1997 financial crisis on the

efficiency of bidding banks before and after the merger. This research is an effort to

evaluate the effects of policies of Malaysian government on the position of merged

banks. In this research a sample of ten Malaysian banks are selected that underwent

merger and acquisitions during the 1998 to 2004. Three approaches to analyze the impact

of mergers used in this study namely paired sample t-statistics, Data envelopment

analysis and regression analysis to test the significance. The variables of study called

camel –type variables includes advances/loan loss reserves to capital ; growth of loans; in

order to measure the liquidity risks of banks, a ratio of loan to deposits is used. The ratio


of expenses to revenue is used to measure the banks inefficiency, banks capitalization is

measured by dividing the total of shareholders equity and loan loss reserves to loans. The

efficiency effect of mergers is calculated by using the DEA. Panel data regression was

used to measure the impact among banks cost-effectiveness and camel type variables.

Paired sample t-statistics was used to measure the pre and post-merger average

performance of camel type variables. In this study ROE was used as dependent variable

whereas all camel type variables as independent variables. The results of this study show

that mergers do not result in improving the productive efficiency of merged banks.

However, because of banks conservative loan loss reserve policies and inefficiencies in

cost following the merger, it has to some extent triggered growth in loan and markup

earning rate variable giving a bad impact on ROE. It concludes that mergers have

insignificant impact on the post- merger performance of acquiring banks.

Marimuthu (2008) investigated the impact of 1997 financial crisis on growth

companies in terms of high and low sales in Malaysia. This study also analyzed those

financial features that have found in high and low sales growth firm involved in mergers

and acquisitions deals. Study comprised of a sample of 60 manufacturing entities listed

on the stock exchanges. It was chosen on the basis of high sales growth (10%). low sales

growth (4%) underwent mergers and acquisitions deals during 1990-1995. In this study

capital gains are used to measure the operating performance over a period of two years.

Profitability of merged firm is measured by using certain financial ratios such as ROE,

EPS, gaining and price earnings ratio. The statistical tool paired sample and independent

sample t-test is used. The results of this study shown there is no significant impact on the

operating performance of low and high growth sales firms in the presence of financial


economic crisis. It is also concluded that high sales growth firms are more sensitive to

economic shock in comparison with low sales growth company. It is concluded that from

the financial features point of view there is no significant difference between the high

sales growth firms and low sales growth firms. It also concludes that low sales growth

firms mergers and acquisition impact more on the wealth of shareholders.

Pazarskis (2009) evaluated the past acquisition operating performance of the

Greek acquiring firms. In the modern business environment corporate restructuring is

universally accepted. Corporate restructuring is the process in which new business

concern are formulated through mergers and acquisition. The purpose of this study is to

examine the effect of merger on the profitability, efficiency, leverage and growth of

merged firms in Greece. In this study a sample of forty Greece firms involved in the

merger and acquisition deal during the period 2003-2005 are chosen. All the selected

merged firms are listed on the Athens stock exchanges. In this study ten ratios based on

accounting are used in order to determine the post and pre- merger performance of

merged firms. The financial ratios are compared three year before and three year after the

merger deal. The ten accounting ratios used in this study are current ratio, accounts

receivable collection period, inventory turnover, debt ratio, total assets turnover, return

on equity, gross profit and margin ratio. The result of this study showed that two ratios

namely current ratio and debt ratio significantly improve as a result of business

consolidation. The other eight ratios used to examine the impact of mergers and

acquisitions events do not significantly change. It concludes that only few ratios had

significant impact on the post- merger operating performance of the merged firms while

the remaining ratios do not affect due to mergers and acquisitions deals.


Badreldin and Kalhoefer (2009) explained that much research work on merger

and acquisition has been done in United States, Europe and other countries in the world.

It has been quite rare to find research work on mergers and acquisitions in Middle East

and North Africa. The main aim of this study is to give an overview of economic reforms

in Egypt. This paper explains the impact of Egypt economic reforms in general on

Egyptian economy and the banking reforms in particular. The author also explained that

the recent economic reforms in Egypt have improved their macroeconomic and financial

sector. This study is conducted to measures the performance of Egyptian banks mergers

or acquisitions during the period 2002-2007. In this study a sample of 10 banks was

chosen that are underwent mergers and acquisitions during the 2002-2007. The sample

consists of 4 domestic mergers and acquisitions and the remaining 6 banks are those that

undergone cross-border mergers and acquisitions deal. In this study return on equity was

used to measure the profitability impact of merger and acquisitions, the degree of success

to determine banking reforms to strengthen and consolidate the Egyptian banking sector.

The results of this study suggest that banks are not all submitted offers mergers and

acquisitions have shown significant improvements in performance and return on equity. It

is noted that mergers and acquisitions have not a clear impact on the profitability of

banks in the Egyptian banking sector. It is also found that only minor positive effects on

the position of credit risk. The author also concluded that results do not support the

current process of consolidation financial and banking reforms observed in Egypt and do

not provide any evidence for their constructive role in improving the operating

performance of banks to support the reformation and the economic disaster.


Maditions, Theriou, and Demetriades (2009) investigated the impact of mergers

and acquisitions in Greek. This study considers the case of Loniki-Laiki bank and Pisteos

bank which engage in merger in mid-1999. The new merged bank was Alpha. The time-

series and regression are used in this study to find out the deviation of stock price

movement in each stock k from that of all stock indexes. The econometric analysis is

done in three stages; in the first stage determine the variables details such as mean,

frequency distribution and standard deviation. In order to stationary the time series data

this study uses the unit root test, auto and partial correlation and the Garch effect. Beta

coefficient of each stock before and after merger is determined by using the regression

analysis. The long term effect of merger is determined by using the financial ratios of

Alpha bank from year 1999-2003. The purpose of financial ratios is to determine the

solvency, profitability and managerial efficiency of Alpha bank. The ratios of Alpha bank

are compared with the whole banking industry ratios. The result showed that the

profitability and the competitive position of Alpha bank enhanced within the banking

industry.

Sufian and Habibullah (2009) analyzed the impact of mergers and acquisitions on

the operating efficiency of Malaysian banks. The author classify the efficiency into

technical, pure technical and scale efficiency. Study comprised a sample of 28 mergers

are taken that underwent merger activity during 1997-2003. The study period is divided

into three periods such as 1997-199 pre-merger years 2000 during merger and 2001-2003

post-merger. This study analyzed the impact of M&A on technical, and scale efficiency

of the Malaysian commercial banks. This study used data envelopment analysis (DEA) to

calculate the technical, pure technical and scale efficiency of banks during the period


1997-2003. This study is based on parametric and nonparametric tests. The results of this

show that Malaysian banks technical efficiency level of 57.4%.The results suggest that

post- merger technical efficiency of Malaysian banks was higher as compared to the pre-

merger technical efficiency of Malaysian banks. The study also suggests that pre- merger

scale inefficiency outweighs the post- merger scale inefficiency in the Malaysian banking

sector.

Selvan, Babu, Indhumathi, and Ebenezer (2009) investigated the effects of M&A

on liquidity, profitability, efficiency of the merging firms in India. Mergers and

acquisitions are major forces of growth in the changing business environment. In order to

ascertain the positive impact of merger there should be financial benefits from the

business combinations. In other words the success of takeover depends on the post-

merger benefits stem from the business mergers. It is important to investigate the

solvency position of those firms which engage in the M&A deals to examine whether this

corporation has adequate quick assets to meet current liabilities. This research is based on

secondary data and a sample of thirteen companies is taken that involve M&A between

years 2002-2005. In this study the statistical t-test is used to test the significance. The

result of this study revealed that the liquidity situation of bidding firm’s shareholders

greater than before. The overall results of this study showed that the results of this study

were in agreement with the findings of previous studies that in merger deal the acquiring

firms beneficial more as compared to the target corporation.

Vaynerman (2009) compared following the merger financial performance of both

conglomerate and horizontal mergers. This study also examines the underlying causes for

the variations in post- merger financial performance. Study conducted with a sample of


100 U.S. mergers consisting of 50 horizontal 50 conglomerate mergers underwent

mergers and acquisitions deals during 1990 and 1999 are chosen. The results of this study

shows a significant improvement in operating performance of horizontal mergers

following the merger because this is a significant improvement in cash flow margin on

sales ratio due to mergers and acquisitions. The results indicate that equity revaluation

near merger announcement showed investor’s expectation of post- merger financial

performance and expected merger gain.

Sidharth and Sunil (2009) investigated the impact of domestic and international

merger on the operating performance of acquiring companies in India. The aim of this

study is to evaluate the effects of acquisition on the financial position of acquiring firm’s

pre and post- acquisition ratios of these companies that underwent for domestic and cross

border acquisition deals. In this study samples of 54 domestic and cross border merger

are chosen that underwent for mergers and acquisitions deals during 2000-2007. In this

study t-test is used for evaluating the pre and past merger financial performance of

domestic and cross border mergers. The results of this study showed that the difference in

term of effect on operating performance past merger depending on whether mergers and

acquisitions deals is domestic and international. It concludes that domestic merger have a

positive impact on the operating performance of acquiring firms, while cross border have

negative impact on the operating performance of acquiring firms.

Kadir, Selamat, and Idros (2010) investigated the extent of the impact of merger

and acquisition on Malaysia banks productivity over the period 2003-2007. The aim of

this study is to explore the productivity growth of commercial banks in Malaysia. In this

study a sample of nine commercial banks are taken that underwent merger and


acquisition activity in Malaysia during 2003-2007. It analyzes both technological change

and changes in technical efficiency of merging banks in Malaysia with a non-parametric

analysis of data envelopment analysis (DEA) and Malmquist Index approach. The

Malmquist model for measuring the efficiency had divided the efficiency in to various

categories such as Technical, pure technical, scale efficiency change and total factor

productivity. This study examines the two input and three output variables. The input

variables are operating expense and interest expense. Output variables used in this study

are net interest income, total amount of loans and advances and non- interest income. It

was found that the total factor productivity (TFP) had six of the nine banks with average

increases. In addition, the study shows that the process of mergers and acquisitions

actually increases the efficiency growth and productivity banking groups in Malaysia. It

concludes that mergers are needed because the globalized financial industry is now more

visible. For the banking industry to compete at global level it is compulsory to improve

their efficiency.

Mishra and Chandra (2010) conducted a study on analysis of Indian

Pharmaceutical firms underwent business combinations. The outcomes display that

mergers and acquisitions have no energeticinfluence on the financial position of the

sample firms. They also highlighted some reasons of such failure such as entrance of new

firms.

Sinha, kaushik, and Chaudhry (2010) investigated the impact of mergers and

acquisitions on the financial performance of certain financial institutions in India. This

study is concerned only with the financial sector of India. In this study a sample of

seventeen companies are selected that underwent merger and acquisition activity in India


during 2000-2008. In this study two measurement tools are used, ratios analysis and

Wilcoxon. In this study financial ratios and Wilcoxon test are used for four parameters

such as overall profitability measure, liquidity measure, solvency measures and overall

efficiency parameters. This study reveals a major change in the wealth of the

shareholders, but no major variation in the liquidity situation of the company. The

outcomes of research show that M&A in Indian economy indicates a major relationship

between finance and business alliances in the long term, and acquiring businesses were

capable to produce value. This research also reveals that there are numerous mergers in

the financial sector of India and more than shows improved performance.

Oladepo (2010) investigated the role of financial intermediaries and business

consolidations in Nigerian banking industry. The aim of this study is to examine whether

mergers and acquisitions have an influence on the banks to perform their function as an

intermediary. This study is carried out to cover this problem by examining the effects of

business alliances on the effectiveness of financial intermediation in the Nigerian banks.

The study found evidence to support the argument that the consolidation program

induced by mergers and acquisitions in the banking sector has improved the

competitiveness and efficiency of the borrowing and lending in the banking sector of

Nigeria.

Raiyami (2010) analyzed the merger effects on the efficiency and productivity of

banks in India. The reason of this study is to explore the motivations of mergers and

acquisitions in the Indian banking sector. In this study a sample of six Indian banks are

selected that underwent merger and acquisition during year 2000-2006. In this study

author compares the pre-and post-merger financial performance of merged banks


financial parameters. In this study the author used the financial ratios. Financial ratios are

used to examine the profitability, efficiency, liquidity assets quality and capital position

of Indian banks. This study examines changes in the acquisition of companies on the

basis of financial strength and global impact of mergers and acquisitions for the

acquisition of banks. This paper used an independent t- test to examine the statistical

significance of this test is to verify not only the analysis of the situation but also the

impact of mergers and acquisitions on the performance of banks. The result of the study

shows that banks have a positive impact on mergers and acquisitions.

Song, Kueh, Rehman, and Chu (2010) investigated the effect of cross-border

merger and acquisitions on the operating performance of five East Asian countries. The

author explained that there was a worldwide financial crisis in 1997. The reasons behind

this research are to find out the influence of M&A deals on operating performance of five

East Asian countries which were affected by the 1997 financial crisis. The five East

Asian countries included in this study are South Korea, Indonesia, Malaysia, Philippines

and Thailand. In this study a sample of 96 public listed corporations are chosen in the

five East Asian countries which are engaged in the merger and acquisition activity during

1998-2004.The sample of 96 target firm are those where more than 10% share is acquired

by the foreign acquiring firms. The period of this study is 1998 to 2004. The most

popular technique Tobin’s has been used to assess the operating performance of target

firms. Tobin’s test is normally used to assess the post- merger performance of target

firms. Tobin’s q is superior method over the stock return. The result of this study

explained some reasons of mergers and acquisitions trends continue in future in the five

each Asian country. Governments are willing mergers in the banking and other sectors in


these countries. It also concludes still there is need to work out the cause and effects of

cross-border merger and acquisitions.

Ullah, Ullah, and Usman (2010) investigated financial and operating performance

of the acquiring firms in Pakistan. The purpose of the paper is to evaluate the financial

position of merged manufacturing firms in Pakistan. This study explains two type of

growth organic and inorganic. Organic growth is the internal growth in which firms

bought fixed assets and use these assets to produce goods and sold in the market, organic

growth is slow but longer lasing and less risky. On the other hand inorganic growth is the

process in which organizations combine together through merger of existing businesses.

Inorganic growth is the faster method of growth and this method is more risky. In this

study a sample of 14 merged firms (manufacturing) and fourteen matched control firms

are chosen. In this study accounting ratios 3 year before and after merger relative to

control firm are used. Paired sample t-test is used to test the significance. This study used

the accounting ratios such as net profit ratio, return on equity, ROTA, ROCE, EPS, total

assets turnover and growth ratio. The results of the study found that the merged firms do

not perform significantly relative to the control firms. It concludes that the merger do not

significantly impact on the operating performance of the merged firms relative to the

industrial peers.

Jain and Raorane (2011) analyzed the effects of corporate alliances on the

operating and financial position of India corporations. In the present research a sample of

13 manufacturing firms is selected. Selected firms are the part of merger activities during

the year 2004-2009. The study uses the ratios to measure the operating performance of

selected sample firms. The accounting ratios namely operational synergy, ROI, working


capital ratio and ratios related to liquidity are used. Statistical tool named paired sample t-

test is used in. The result of this study showed the merger result in minor variation on

financial performance of merged firm following the merger. Normally in theory it is

supposed that merger positively impact on the performance of the merged firms due to

synergy, improved market shares and number of qualitative and quantitative reasons.

Dhiman and Parray (2011) investigated the effects of mergers on operating and

financial performance of manufacturing firms engaged in mergers and acquisition in

India. The author also explains that the firms through merger and acquisition are trying to

explore new markets, new ideas, and economies of scale, new geographic and enlarging

the assortment to reduce business risk. A sample of ten firms (manufacturing) was

selected. Selected firms are engaged in the mergers and acquisitions deals between years

2006-2007. Accounting based financial ratios showing the financial and operating

position for three year after the merger and three year prior the merger year was used for

the selected sample firms to determine wither there was an effect of merger on the

operating position of the firms or not. In this study for data analysis purpose statistical

tool t-test for independent sample is used. The results of this study showed that M&A

deals do no impact the profitability of the corporations. The study was concluded that

there was no significant change in the post- merger financial ratios when compared with

the pre- merger financial ratios. In this study it is also recommended that on the basis of

this study it will be incorrect to assume that all merger and acquisition yield nothing to

the acquiring firms and merger is useless practice.

Bashir, Sajid, and Sheikh (2011) investigated whether the joint of businesses

yields wealth for the shareholders. The main objective of every business organization is


to maximize the wealth of the shareholders, not the profit maximization. The total

population of this study comprised of all the financial and non-financial sectors mergers

that happen during the year 2004-2010. A sample of forty five mergers was chosen in this

study for analytical purpose. The sample of forty five mergers is further divided into

twenty seven financial sectors and eighteen into manufacturing sectors. To test the

significance of the research hypothesis an event window study of eleven days used in this

study. In this study abnormal returns and stock beta value are computed before and after

the merger. The results of this study shows that target firms suffer insignificant losses

during the event window period, on the other hand acquire firm gain an insignificant rise

in value during the event study period. The results of this study are not in agreement with

the previous studies on this issue. The literature shows gain to target and loss to the

acquirer.

Ebimobowei and Sophia (2011) explained that this study focused on the

efficiency effects of mergers and acquisitions in the Nigerian banking sector. Data were

collected from the accounts of all banks in the sample within the study period. The study

population consists of all banks operating in the Nigerian banking sector on December

31, 2010. Simple random sampling technique was used in this study for the selection of

sample banks. Sample of this study consists of ten commercial banks involved in the

merger transactions using paired samples t-test statistics. The results showed that there is

no significant difference between the return on equity of banks before and after the

merger and acquisition. Based on the results of this study it is suggested to others that

business combinations in the banking sector in Nigeria should base on market forces to

provide space for growth and efficiency, as conflicting to business consolidation.


Kemal (2011) analyzed post –merger profitability of Pakistan banking sector. The

aim of this study is to explore the role of mergers and acquisitions in the globalized

economy. The author explained the various objectives behind the mergers such as

diversification, taxation, and increases in sales, improve market share, synergy and

economies of scope and scale. In this study the case of Royal Bank of Scotland (RBS) is

considered because in 2008 (RBS) acquires the ABN Amro bank. This research analyzed

the before and after- merger operating position of bidding (RBS). This study employed

ratios to measure the operating position of (RBS) in Pakistan following the merger. The

analysis is performed by analyzing the financial accounts for four years 2006-2009 by

using twenty key financial ratios. The most common operating and financial indicators

used in this study are liquidity, profitability, and leverage ratios, return as % of

investment and stock market ratios. Despite some limitations, the accounting ratios are

still considered as a tool for analyzing practical and reliable. The results show that RBS's

financial performance in terms of profitability, liquidity, asset management flow, debt

and cash is very satisfactory before the proposed merger. This means that the merger

agreement does not improve the financial performance of the bank.

Selcuk and Yilmaz (2011) evaluated the pre and past merger performance of

acquiring firms in Turkey. 62 firms are chosen that are engaged in merger and acquisition

activity between 2003 and 2007. In this study operating performance of acquiring firms is

measured with the help of two techniques such as stock market approach and accounting

based ratios. Stock market technique uses an event study to find out whether the security

holder earned abnormal return near the announcement of the merger and acquisition

activity. The other performance evaluation method used in the study is the accounting


ratios. Accounting approach used the profitability ratios such as return on assets, return

on equity and return on sales. In this study paired sample t-test is used to test the

significance of the hypotheses. In this study t- values of the event study and accounting

ratios are calculated. The author concluded that the stock return of Turkish firms engaged

in merger activity provide above average industry return. The accounting based ratios t-

values showed that return on sales and return on assets after acquisition are significantly

below than before acquisition. The accounting ratios based analysis indicates that the

operating performance of the acquiring company adversely impact by the merger and

acquisition event.

Khan and Ahmed (2011) investigated the effect of M&A on operating position of

Indian acquiring banks. The aim of this study was to examine the mergers and

acquisitions in detail in the financial sector of India after the liberalization period. The

purpose of this research is to explore different motivations of M&A in Indian commercial

banking sector. In present study a sample of two banks is taken that underwent merger

and acquisition deals after the liberalization regime. The sample consists of one bank

from public sector and another bank from the private sector. This study uses the

independent sample t-test to test the significance. It also compares the pre-and post-

merger financial performance of merged banks with financial parameters such as gross

margin, net margin, operating margin, return on capital employed (ROCE), return on

equity (ROE) and debt ratio. The result of the study shows that M&A have a positive

impact on after merger position of banks.

Liargovas and Repousis (2011) investigated the role of M&A on financial and

operating position of Greek banking industry. The author also explained the impact of


relaxation in financial regulations in Greek. In this study a sample of 26 commercial

banks are chosen that engaged in mergers and acquisitions in Greek during 1996-

2004.This study also includes 15 non merged banks in study sample. The study uses two

techniques to measure the impact of mergers, such as event study and operating

performance. The event study uses the stock prices to measure the financial performance

before and after the merger of banks involved in mergers and the sample of non- merged

banks. The other technique operating performance uses the financial ratios. The author

also explained that financial ratios are used to examine the four important areas of banks

such as profitability, productivity, operating and liquidity. The statistical tool paired

sample t-test is used to measure the significance. The results show that significant

positive cumulative average abnormal returns win after the announcement of horizontal

diversification and bank drafts. The overall results show that bank business alliances do

not have any impact and shareholders wealth doesn’t improve. It is finally concluded that

operating position does not get better after M&A. There are also controversial results

when comparing non-merge companies with merge companies.

Joshua (2011) analyzed the pre and post- merger operating performance of banks

merged in Nigeria. Mergers were carried out in order to achieve greater efficiency,

prevent financial operational difficulties and eliminating bottlenecks. In this study a

sample of three banks are selected that underwent merger transactions during 2002-2008.

This study used the secondary form of data. Financial ratios are computed to measure the

operating performance of acquiring firms. The study used the paired sample t-test to test

the significance. This study uses the gross margin; after tax margin and net assets of

banks selected indices to find out financial effectiveness by matching previous M&A


index "with the acquisitions of after-merger" indices for the period. The results of this

study also reveal that an increase financial performance results in an improved financial

efficiency.

Saba (2011) explained that modern study covers mergers and acquisitions, and

provides an overview of the impact of M&A. This research analyzed the impact of

merger on productivity of the bank in Pakistan. The sample size of this research is ten

banks that underwent M&A during 1999-2001 in the banking sector of Pakistan. The

sampling technique used in this study is purposive. This study collected data from

secondary source. The data were collected three years before and after the merger from

annual reports of sample banks. Financial ratios are computed to measure the operating

performance of acquiring banks. Dependent variable is acquisition of banks and six

performance measures are independent variables such as gross profit ratio, operating

ratio, return to net worth, debt to equity ratio, net profit ratio and return on capital

employed. The analysis performed by using the paired sample t- test. The outcomes

suggest that operating and financial position of all acquiring commercial banks had

decrease after the merger.

Sinha and Gupta (2011) studied Indian financial sector in the scenario of mergers

and acquisitions. The aim of this research is to investigate the post- merger impact in the

financial sector of India. Author stated that Indian corporations s were subject to a strict

control regime before 1990s. In this study a sample of eighty mergers are selected that

involved in mergers and acquisitions during the 1993—2010. The reason given by the

author to choose financial sector in this study is that there is growing trend of financial

services businesses in India during the last two decades. This study uses the paired


sample t-test, regression and Wilcoxon /Mann Whitney to achieve the research objectives

and to test the significance of research hypothesis. The variables used in this study are

profit margin, total cost, advances, profit before interest and taxes, depreciation and

amortization, profit after tax ratio, current ratio, interest coverage ratio and return on

capital employed. Three years average before and after merger is taken for all variables

and significance is tested with the help of paired sample t- statistics. In regression

analysis, return on shareholders’ funds is taken as dependent variable while profit margin,

current ratio, cost efficiency and interest coverage ratio are used as independent variables.

The results show that after tax profits, and profit before interest, taxes, depreciation, and

amortization positively improved after the merger but this improvement is statistically

insignificant. The variable which is used to measure the liquidity is the current ratio.

Post-merger current ratio is negatively and insignificantly affected. The post-merger

efficiency in terms of cost and number of times interest is covered improved and

deteriorated in the same proportion. Interest coverage ratio has the significant impact on

the shareholders’ funds. This study concludes that mergers have a positive and negative

impact on the firm performance but the impact is insignificant as a whole.

Indhumathi, Selvan, and Babu (2011) explained the impact of merger and

acquisitions on operating and financial performance of firms in India. The author

explained that the success of merger depend on the financial gain from merger and

acquisition. In this study a sample of thirteen companies was chosen which involved in

merger and acquisition activity during the year 2002-2005. Average period of three year

before and three year after is used. The study use different accounting ratios to measure

the profitability, efficiency and liquidity of acquiring firms three year before and after the


merger. In this study paired sample t-test is used. The author also explains the accounting

ratio to measure the solvency of acquirer and target firms are, debt equity ratio, interest

coverage ratio. Activity ratios are used in this study to measure the efficiency in utilizing

the assets are, fixed assets turnover, total assets turnover. Profitability ratios used in this

study are return on net worth, return on capital employed, and market price to book value,

price- earnings, earnings before interest and taxes to sales and earnings before interest

and taxes to fixed assets. In this study t-values of 14 variables are calculated. The study is

concluded that none of the sample merged firms in this study obtain significant t-values

for profitability, liquidity and efficiency ratio. This is also concluded that the merged

firms operating performance do not improve following the merger from financial

evaluation points to view and mergers do not prove the successful. The hypothesis set in

this study do not fully proved. In this study the null hypothesis is partially accepted.

There is no difference in the post-merger operating performance of the consolidated firms

prior to merger.

Ismail, Abdou, and Annis (2011) explained the previous literature relating to the

operating performance of merger and acquisition. The purpose of this study was to

describe the previous studies that explain the consequences of combination of firms. The

purpose of this study is to evaluate to the prior studies on merger and acquisition and

their impact on the operating position of merged firms in an effort to identify factors that

might affect post-merger performance results. In this study the author made an attempt to

identify those factors that can affect the financial performance of acquiring firms by

reviewing the previous studies. In this study the purpose is to study the previous literature

on the past merger performance of the combined firms and to determine the factors that


impact on the profitability, efficiency and growth of merged firms. The various

measurement techniques that are used in the past studies are accounting based ratios,

stock market based measures, mixed measures and qualitative measures. After reviewing

the past studies on the effect of merger on operating performance it can be concluded that

the various factors that might effect on the operating performance included method of

payment, type of merger, firm size, time period of dealing, book value to market value

ratio, domestic and cross border merger and tender deals and country macroeconomic

environment. It is concluded that mergers of both acquiring and target firms should

considered of all factors and the effect of these factor on the past merger operating

financial performance. It is also recommended that the managers should take in to

account all such factor before correctly evaluate proposal of combination and make

strong decision.

Adeyemi and Ojenike (2012) analyzed the return on investment to shareholders

of acquiring firms that involved in conglomerate mergers in Nigeria. The objective of this

study was to examine the effects of conglomerate mergers on the shareholders wealth

maximization. In this study a sample of four firms are selected that underwent into

conglomerate mergers. The time period selected for this study purpose is 1990—2005. In

this research the impact of independent variables is examined on the dependent variable.

The dependent variable is return on assets. The independent variables consists of

sales/turnover, margin of net profit, earnings belongs to one ordinary share, return yield

by capital employed. The hypotheses of this study are tested by using correlation

coefficient between independent and dependent variables. The t-statistics is also used to

test the significance of the research hypothesis. The results of this study show the positive


relationship between the net assets and the sales, and the profit margin. The t-statistics p

values show the relationship is significant between the net assets and the sales, profit

margin. The results also indicate that correlation between net assets and after tax profits,

earnings belong one ordinary share is very weak. The t-statistics shows insignificant

relationship between net assets and after tax profits, earnings belongs to one ordinary

share. It concludes that increased position of merged firm after the merger should convert

into improving the wealth of shareholders.

Agu, Olajide, and Orji (2012) examined the determinants of output behavior of

banks in Nigeria consolidation program between July 2004 and December 2005. The aim

of this study is to identify the factors that are responsible for consolidation in Nigerian

banking industry. This paper also identifies the specific factors that may be the cause of

mergers and acquisitions in Nigerian banking industry. This study found no strong

evidence that the conditions prevailing macro-economic and sectorial factors have

influenced the output behavior of banks in the consolidation exercise. It concludes that

the structural dependency between failure and merger and acquisition incentive risk

induced by the central bank of Nigeria.

Juma, Wawire, ByarruhangAa, Okaka, and Odera (2012) studied the past

literature related to banks mergers and acquisition which shows effect on the wealth of

business owner and investors. The main aim of this study is to proof whether mergers

results in improving the wealth of shareholders. This study shows that in order to

improve the wealth of shareholders, these must be synergistic benefits. Synergy motive

can further be divided into operational and financial synergy. The wealth of shareholders

can also be improve by getting economies of scale and scope and increasing market


power and revenue enhancement, increasing the efficiency of managers. The author also

describes the certain factors results in reducing the wealth of shareholders such as

managerial agency problem, diversification objective. After reviewing the literature

author identified three types of mergers such as horizontal, vertical and conglomerate.

The result of this study showed that mergers and acquisition are the burning issue for the

researcher and the literature has discussed almost on every aspect of mergers including

effect on post-merger profitability, efficiency and synergy.

Saluja, Sharma, and Lal (2012) investigated the effects of mergers and acquisition

on house development Finance Corporation (HDFC) in India. The author explained that a

dynamic and flexible banking system is very important for sound economic development

and accelerated Growth. Consolidation of banks to grow through mergers is the preferred

choice for banks and too big. This study describes the various objectives behind mergers

such as systematic stability, monopolistic ambitions, international competitiveness and

strategic alliance. This study also explains the business philosophy of HDFC, operational

excellence, product leadership, customer focus and people. The increasing trend in the

banking sector around the world is not too many small banks, but few large banks. In this

article an attempt is made, the impact of the merger on retail banking in the leading

countries is the HDFC Bank with Centurion Bank of Punjab to evaluate. This assessment

was made with the latest model of financial analysis model of financial ratios. The

purpose of this study was to evaluate the impact of the merger on the financial

performance of HDFC Bank. The period of study is 2006-07 to 2010-11. The duration of

the study is divided into pre-merger and post-merger. This study concludes that the

financial performance of HDFC Bank in post-merger improves.


Vitale and Laux (2012) explained that the recent financial crisis has prompted a

number of M&A in the banks. The time period of this study is 2006 to 2008.In this study

data were collected using six accounting-based parameters for 105 companies involved

directly into mergers or acquisitions during this period. In this research financial ratios

are calculated to find out the before and after- merger financial position of bidding

corporations. The ratios that are used in this study are return on assets, return on equity,

assets to employee, deposits as % of equity, and net interest to total assets. An empirical

comparison of the two company’s business performance and company to industry shows

that the company does not benefit from mergers examined for most conditions. It

concludes that the observed results support the hypothesis and expose merger and

acquisition inefficiency. Overall these results show the ineffectiveness of mergers and

acquisitions.

Leepsa (2012) explained the impact of mergers on the operating performance of

Indian Electricity Company. This study also explains the merger and acquisition

objectives, trends and regulations in electricity companies in India. Merger and

acquisitions in India are the result of liberation and globalization in India. There are

numerous factor which are responsible to trigger the M&A deals in India such as

competition, higher interest rate, fiscal policy and increase in gross domestic product

.Organizations are using the mergers and acquisitions as the corporate growth strategy

.The main aim of this study is to investigate the current position of mergers in power

sector in India, and indicates factors responsible for Merger and acquisitions in India. In

this a sample of 47 electricity companies that underwent mergers and acquisitions deals

during 1990 to 2011 was chosen. In this sample the mode of payment of merger deals on


cash basis and certain merger deals on stock basis. This research used the financial and

accounting ratios to find out the merger impact on post- merger operating position of

electricity segment of India economy. Return as % of net worth, networking capital,

current ratio, and asset turnover and return on capital employed used in this study. The

results of this study concluded that the Merger and acquisitions in electricity sector of

India is highly regulated. It finally concludes t hat mergers results in achieving the

economies of scale, gaining synergies, but it also recommended that acquiring companies

acquire only those companies whose return is higher than cost. The study also pointed

certain economic problems such as employee morale and turnover which affect the

ethical and cultural values.

Goyal and Joshi (2012) investigated the concept of mergers and acquisitions in

banking sector. In order to get the good position in globalized economy firms have to

adopt the growth strategies. This study is a success story of Industrial Credit &

Investment Corporation of India (ICICI) which is the largest bank in private sector. The

ICICI ltd has acquired nine financial firms to reach at the top of the success ladder. The

aim of this study is to explain the growth that ICICI bank has achieved due to merger &

acquisition. The result of this study shows that mergers helps the organizations to gain

synergy and sustainable competitive advantage but at the same time corporate

combination can create a trauma and stress, and various other problems such as

psychological issues, behavioral issues and health problems both for company and

individuals. It is proved from this study that organization like ICICI bank become market

leader by following the M&A as growth strategy. It is also concluded the mergers and

acquisitions is a difficult and complex task.


Leepsa and Mishra (2012) examined the post- merger operating performance of

Indian manufacturing companies. This study explained that organizations can grow

inorganically through merger and acquisition. Growth can be achieved internally and

internal growth is the slow growth process because in the corporate world there is an

increasing competition and organization cannot wait for the opportunities rather

organization have to avail the opportunities. The present study is intended to explore the

growth through merger and acquisition in the manufacturing sector of India. Mergers and

acquisitions are used as a tool for growth. The author explained that of the post- merger

performance of the merged firms is better than the before merger. In this study the

mergers and acquisition has analyzed the pre and past merger performance in the areas of

profitability, efficiency, growth and leverage position of the acquiring manufacturing

companies. The time period used in this study is from year 2003-2004 to 2006-2007. In

this study a sample of 115 merger deals are analyzed by using statistical tool paired

sample t-test. The result of this study showed that the liquidity of merged companies

increases but this increase in statistically insignificant. The long term solvency position

has decrease but this decrease is statistically insignificant. The author also pointed out the

improvement in the operating performance might be not the only criteria for mergers and

acquisitions improvement.

Mahesh and Parasad (2012) analyzed the impact of mergers on the financial

operating performance of Indian airline companies. The aim of this study is to evaluate

the influence of mergers on profitability, leverage, liquidity and capital market standards

of the acquiring firms in Indian airline industry. Every organization has the desire to

grow either internally (organically) or externally (inorganically). Inorganic growth is the


process of combining the resources of two separate entities in to one separate entity. In

this study a sample of three companies are selected from the Indian airline industry that

underwent M&A deals during 2007-2008. Convenience sampling technique was used in

this study to select the sample companies. In this study various statistical tools and

techniques was used to test the hypothesis. Paired sample t-test was used in this study.

The results of this study show that the mergers and acquisitions don’t significantly impact

on the operating performance of Indian airline firms following the merger. This study

concludes that return on equity, interest coverage, net profit, earning per share do not

improve following the merger.

Sulaiman (2012) conducted this study to find out the impact of corporate

restructuring on Nigerian oil and gas sector. The purpose of this analysis is to investigate

whether mergers improve the post-merger performance of sample firms from the Oil and

Gas sector of Nigeria. The sample of this research consists of four firms of energy sector

of Nigeriaand these firms are traded on Nigerian Stock exchange. The data analysis tool

of this research is financial ratios.To test the significance of differences that occurred in

the post-restructuring period is tested with the help of paired sample t-statistics. The

results of analysis indicate that after-merger all performance indicators improved.

Bebeji (2013) studied the effect of banks consolidation on the quality of assets of

acquiring banks in Nigeria. The banking industry of Nigeria faces a number of financial

crises due to higher amounts of non- performing loans, liquidity shocks, and poor quality

of assets. These problems have necessitated the need of banks mergers in Nigerian

banking industry in order to address the financial issues. In this study a sample of ten

Nigerian banks were selected that underwent merger and acquisition process during


2002-2008. Paired sample t- test is used to test the significance. After the merger the

quality of banks assets improved and the ratio of loan losses decreased which positively

affect the bank profitability.

Oduro and Agyei (2013) explained that corporate growth, increase in efficiency

and profitability are the main benefits required from business combinations. This study is

an effort to find out the effects of business combinations on the performance of firms

listed on Ghanaian stock exchanges from 1999-2010. The study was based on accounting

and statistical tools paired sample t-statistics and panel data regression was used in this

study. The result of panel data analysis shows that business alliances have significant

negative impact on the profitability of firms. It is therefore important that mergers should

be suitably planned, executed and assessed. The results of this study show that risk and

firm size have significant negative correlation with firm profitability.


CHAPTER THREE: THEORETICAL FRAMEWORK

3. Theoretical Framework

A theoretical framework demonstrates the statistical relationship of interrelated

variables of a research. It also determines what thing will measure in a study. There are

numerous theories of mergers and acquisitions that explain the impact of M&A on the

operating show of companies. All the theories of mergers and acquisitions show the

relationship between integration of business and effects of this integration on

performance variables such as profitability, efficiency, liquidity asset quality, capital and

leverage of the firms. The theories of mergers and acquisitions predict the influence of

M&A on financial and operating position of acquiring firms. Significant theories that

explain mergers and acquisitions include efficiency or synergy theory, profitability

theory, growth and productivity theory, agency problem theory, market power theory and

tax consideration theory. The most relevant theories to this study are efficiency or

synergy theory, profitability theory, growth and productivity theory.

In this section the researcher established logical relationship between dependent

and independent variables and for this particular study with the help of relevant literature

return on assets (ROA) is taken as dependent variable while depends on current ratio, sale

to net working capital, debt equity, debt ratio, interest coverage ratio, fixed asset

turnover, asset turnover, sale growth, cost efficiency, bank size, investment to total assets,

advances to total assets, total liability to total assets, deposits to total assets, cash and cash

equivalent to total assets, total equity to total assets and non-interest income to total


assets. The graphs below illustrate the research framework of panel data regression used

in this research which elaborates the relationship that the researcher intends to check in

this study. The dependence of the operating performance is checked through the elements

of profitability performance indicators.

Theoretical framework profitability performance indicators impact on post-merger

profitability of non-financial sector of Pakistan

Sale to Net Working

Capital

Current Ratio (CR)

Debt Equity

Debt Ratio

Interest Coverage Ratio

Sale Growth

Cost Efficiency

Asset Turnover

Fixed Asset Turnover

Operating

Performance

Return on

Assets

(ROA)

Dependent Variable

Systematic diagram based on conceptual framework


Theoretical framework profitability performance indicators impact on post-merger

profitability of commercial banks of Pakistan

The return on assets (ROA) is a useful meter of companies’ profitability. It is

calculated by dividing net income to total assets. ROA indicates the profit earned per

rupee of assets which reflect company’s management ability to employ the organization’s

financial and real investment assets to produce profits (Naceur, 2003; Alkassim, 2005;

(Link between performance indicators and return on assets)

Investment to Total Assets

(ITTA)

Bank Size (BS)

Advances to Total Assets

(ATA)

Total Liability to Total

Assets (TLTA)

Deposits to Total Assets

(DTA)

Non-Interest Income to

Total Assets (NIITA)

Total Equity to Total Assets

(TETA)

Cash and Cash Equivalent

to Total Assets (CCETA)

Operating

Performance

Return on

Assets (ROA)

Independent Variables

Dependent Variable


Sulaiman, 2012; Kemal, 2011; Oduro & Agyei, 2013). Profitability ratios show the

combined effects of liquidity, asset management and debt management on the results of

operations. Profitability ratios measured in relation to sales, capital employed, total assets

and shareholders. In the context of mergers and acquisitions profitability is the value

creation in the form of an increase in the post –merger wealth of shareholders. The

performance of the firms before and after-merger is usually evaluated by financial

indicators of performance signals: current ratio, acid-test ratio, gearing ratio, debt equity

proportions, self-financing ratio, cash flow ratio, shareholders equity, return on equity,

return on asset, gross profit ratio, net profit ratio, before tax earnings per share, after tax

earnings per share, dividend cover ratio, dividend to equity, overhead and additional

expenses as % of sales, finance expenses % of operating profit, finance expense % of

revenue, finance expense of contractual liabilities, gross profit index, accounts

receivables % of revenue, sales as % of total assets, inventory turnover, stock turnover

period, sales to capital employed, length of operating cycle, sales growth in addition to

breakup value of each share (Kishore, 2003). Current ratio is the connection among

current assets and current liabilities. It is also recognized as working capital ratio. The

current ratio is computed by dividing the current assets over current obligations. This

ratio shows the short term solvency of firms. Higher the current ratio lowers the business

risk and less probability of default to pay due current liabilities (Sidharth & Sunil, 2009;

Jain & Raorane, 2011; Sinha & Gupta, 2011; Selvan, Babu, Indhumathi, & Ebenezer,

2009). The sale to net working capital ratio shows the rate of utilization of working

capital of the firm. The working capital denotes to net working capital, which is equal to

amount of current assets less current liabilities. The ratio is calculated by dividing sales


over net working capital. This ratio reveals how much sales can be produce by using the

given level of net working capital. It is better to generate more sales with less net

working capital. Lower the net working capital more profit as return on assets (Sulaiman,

2012; Jain & Raorane, 2011; Sidharth & Sunil, 2009; Selvan et al., 2009). Debt to-equity

percentage is also recognized as external funds-internal funds ratio. Debt to-equity ratio

is computed to quantity the comparative claims of outsiders and insiders against the

firm’s assets (Selvan et al.,2009; Sidharth & Sunil, 2009), the ratio indicates the

relationship among the equities of externals and equities of internals. Debt-equity ratio is

calculated by dividing total liability over net worth. Debt ratios are stagnant and unable to

show the capacity of the company to fulfill interest obligations. In other words as the debt

ratio increase, the ROA decreases. This is because high debt will result in high interest

expenses which eat away a large portion of corporate profits. Therefore, corporations

with a high level of debt ratio tend to have a low level of profitability. This is because

interest expense will only be high when the amount debt is larger. The smaller amount of

debt will not much affect the corporate profit. Mergers also influence the liquidity shocks.

Huson and Mackinnon (2003) explain that “firm level diversification” results in

improved liquidity while the views of (Gilson, Healy, Noe, & Palepu, 2001) are quite

opposite to (Huson & Mackinnon, 2003). A firm with short of liquidity might merge with

one which is surplus in liquid assets with the purpose that the joint short-term financial

condition will get better (Lipson & Mortal , 2007). Liquidity ratio examines the firm’s

capability to meet its present/ongoing short term liabilities. The higher liquid the firm

prior to the merger, the more expected it will not face liquidity troubles if it assumes

additional post-merger costs, such as higher interest payments. If however, the firm is


only slightly liquid at the time of merger, it may experience liquidity problems following

the merger, unless it can rely on the other merger partner for additional liquidity

(Tzoannos & Samuels, 1972). The interest coverage ratio is the better measure to assess

the firm’s debt-servicing ability (Kemal, 2011). The interest coverage ratio indicates how

many times interest charges are covered by profits that are normally available to pay

interest charges. As taxes are calculated on profits after subtracting interest, profits before

taxes are taken. Depreciation charges is a not a -cash item. Therefore, profits equal to

depreciation are also available for payment of interest charges. So, the interest coverage

ratio is calculated by dividing the profits before depreciation, interest and taxes (PBDIT)

by interest charges (Sinha & Gupta, 2011; Selvan et al., 2009). In other words, as the

interest coverage ratio increases, the ROA also increases. This is because high interest

coverage ratio eats away a lesser/ smaller portion of corporate profits. Therefore,

corporations with a high level of interest coverage ratio tend to have a high level of

profitability. This is because interest coverage will only be high when the amount of

interest expense burden on earnings before interest and taxes is less. The smaller amount

of interest expense wills not much affect the corporate profit. Net profit ratio is computed

by dividing the profit after tax over sales. Net profit includes non-operating income so the

later may be deducted to arrive at profitability arising from operations (Kemal, 2011;

Sinha & Gupta, 2011). Cost efficiency shows the relationship between cost of goods sold,

operating expenses and total assets. Cost efficiency is calculated by dividing the total cost

over total assets. Cost efficiency variable of profitability has the positive relation with the

ROA. This is because, as the cost efficiency ratio improves, the ROA also improves.

(Sinha & Gupta, 2011). Fixed Assets are the major source to generate sales. If the firm


manages the fixed assets more competently, sales would be higher and resultantly profits

would be higher. This ratio is computed by dividing sales over total fixed assets. Assets

turnover means, the ability and the capacity of assets to generate sales, the higher the

ratio means the more sales with the available assets. Therefore, corporations with a high

level of assets turnover ratio tend to have a higher ROA (Selvan et al., 2009). Assets are

used to produce sales. If the firm be able to use the company assets more efficiently, then

sales would be greater and at the same time profits would go up. This ratio is calculated

by dividing sales to total assets. Total assets turnover ratio is calculated by dividing sales

over total assets (Leepsa & Mishra, 2012; Selvan et al., 2009). Sales growth means how

much sales increase this year by comparison with previous year. If corporate sales grow,

then might be proportionately profits also increases (Oduro & Agyei, 2013). The other

variable which is affected on the corporate profits is the sales growth, as the sales growth

ratio increases, the ROA also increases. Therefore, corporations with a high level of sales

growth ratio tend to have a higher ROA. Ratio on revenues earned other than mark-up

e.g. capital grains, commission, fee to total assets etc. this ratio shows how much revenue

is earned other than mark-up through other functions of the bank by employing total

assets. It is useful for banks and DFI (Development financial institutions). This ratio is

calculated by dividing total non-markup income over total assets (State Bank of Pakistan,

2009). Bank size examines its general competence to carry out its intermediary task. It is

generally argued that there are two conflicting opinion both hypothetically and

empirically to the association among bank liquidity and size. The larger the size of the

bank, more profitable the bank will be. The earliest view is too large to be unsuccessful

which considers negative association among volume/size and liquidity while; the


conventional transformation examination suggests encouraging association. This research

anticipated positive effect of bank size on liquidity as per the second argument. In this

research proxy for bank size is the natural logarithm of assets. (Oduro & Agyei, 2013).

Total equity as % asset reveals capital sufficiency and indicates the general protection

and security of the banks? It shows the talent of a bank to take up losses and control risk

exposure with shareholders. Normally there is an optimistic correlation among equity as

% of assets and profit margin. Total equity as a % of assets is estimated to have a positive

with performance in good health banks are less risky and more money-making (Said ,

2013). Cash and balances with banks/ total assets this ratio expresses the percentage of

total assets available in the form of highly liquid assets (State Bank of Pakistan, 2009).

The ratio between investment and total assets shows investment activity with reference to

its total assets. This ratio is useful for banks, DFIs and insurance companies. This is

calculated by dividing amount of investment to total assets. This ratio expresses the

relationship of advances (net) to total assets. This ratio is useful for banks and DFIs. This

is calculated by dividing advances to total assets (Said , 2013). The ratio shows the

proportion of bank assets, which are financed through debt. This ratio is useful for banks

and DFIs. This is calculated by dividing total liabilities to total assets (Oduro & Agyei,

2013; Badreldin & Kalhoefer, 2009). Deposits as % of assets is one more liquidity gauge

but is treated as a liability. Deposits are the foremost basis of bank funding and for this

reason it has an influence on the profit margin of the banks. Deposits as % of assets is

included as an independent variable in this study (Badreldin & Kalhoefer, 2009). The

more the bank will advance the money to borrowers; the bank will earn more interest

which will increase the revenue and return on assets for the banks. The more the deposits


the bank will take from the customers, in turn this will increase the bank investment to

earn interest and increase the spread which ultimately enhance the return on assets.

Table 3.1

Theories of Mergers

Type Total value Gain to target Gain to acquirer

Efficiency or synergy

HUBRIS

Agency Problem

+

0

-

-

+

+

+

-

-

Source (Berkovitch & Narayanan, 1990)

The theoretical framework of operating performance of firms’ post-mergers can be

depicted with the help of diagram


.

Source (Turunen, 2008).

Figure 3. 1: Theoretical framework of operating performance after mergers and

acquisitions.

Theories on corporate restructuring

Non-Synergistic Synergistic

Principal-agent theory

agency costs and free

cash flow problem

Signaling theory

Monopoly theory and

market power.

Behavioral finance,

managerial optimism

and hubris

Efficiency Profitability

Financial synergies

Operating synergies

Managerial synergies

Strategic synergies

Previous Studies

Accounting

Studies

Operating

Performance

Market

Performance

Event Studies

M&A and performance

Wave

Effect

Deal

Choices


3.1 Non-Synergistic Theories

Turunen (2008) explained non--synergistic theories on company reorganization

deal with the market for company control and give full attention to the overseeing and

administrative role of financial markets. Jensen and Ruback (1983) define the theory of

corporate control as the rights to decide the administration of organizational assets. A

takeover performs as an external control mechanism attending for the interests associated

with shareholders. By way of example, the simply threat of the acquisition drives

managers to operate harder as well as create price for shareholders. On the opposite hand,

in mergers as well as acquisitions the actual control rights for the target firm's assets are

utilized by the buyer which may inspire managers to create larger empires. With non-

synergistic theories the primary force or motivation driving mergers and acquisitions just

isn't the price boosting but something different like efforts to improve growth or sales, to

regulate more sources, or only to fool the actual markets. The financial viewpoint of

mergers and acquisitions should be to improve the prosperity of company and the wealth

of its owners. Non-synergistic theories include Principal-agent theory: agency costs and

free cash flow problem, Signaling theory and asymmetric information, Monopoly theory

and market power.

3.1.1 Agency Problems Theory

Tobin’s q theory of mergers and acquisitions develop by (Jovanovic & Rousseau,

2002). Tobin’s q theory explains that many business organizations using the mergers and

acquisitions as vehicle to shift the technology, cost and to distribute the capital .The

deficiencies of the Tobin’s q theory is covered up by the agency theory. Jensen (1986)


presented the agency problem theory of mergers and acquisitions. The most important

supposition of agency hypothesis is that the relationship between company management

and the shareholder are like the principals and agents, and both are normal and wealth—

looking individuals who are irritating to make best use of their function. According to

law of corporate governance the status of shareholders are the principal, while the senior

managers and directors are the agents of the principal. Jensen states that there are two

theories of firm, neoclassical theory and the behavioral theory of firm. According to

neoclassical theory the main objective of the firm is to maximize the profits, whereas the

purpose of behavioral theory is to satisfy the behavior of the managers. In view of the

fact that management in a diversified corporation does not hold a large percentage of the

corporation shares, they will be more concerned in the search of larger power over, more

rewards, and better working environment at the cost of the company owners. In modern

business environments there is separation between ownership and control, and in this

situation it becomes so complicated and expensive to observe and assess the efficiency of

management in an effective manner. This is called ethical exposure. This agency theory

suggests that takeovers are mainly forced by the selfishness of the particular acquirers’

management. The causes have been developed to explain the difference in the interests of

management as well as the shareholder of an organization include diversification

associated with management’s own portfolio, the use of free cash flow to enhance the

volume/size of the company and acquiring assets that raise the firm’s dependence on

management. The general perception of these statements will be that acquisitions are a

process that ends in value being transferred from the shareholders of acquiring firms for

the managers of the particular acquiring firms. The suggestions on the agency theory is


that as the target firm knows that a bid is inside the interest of the management rather

than the shareholders of the actual acquiring firm sees this bid probability to take out a lot

of the value that can have gone to acquiring firm management. What amount of value the

target firm can remove hinges on the bargaining power they have. Agency problem

theory states that managers run the affairs of the corporation on behalf of the owners. The

relationship between business managers and the business owner is like agent. The

managers are the agents of the owners. There is agent and principal relationship between

business managers and the shareholders. The major conflict between managers and

shareholders is on the payout of cash. The aim of agency problem theory is to examine

the conflicts between those who run the organizations and those who invested the money.

The propositions of agency problems are originated by (Jensen , 1986). When managers

work less energetically or else consume additional perquisites/privileges (memberships in

clubs, company vehicles, and luxurious offices) consequently agency problem arises,

since these costs are tolerated by the owners. Large corporations along with extensively

isolated ownership and owners do not have adequate resources to observe the behavior of

mangers towards organizations resources. Compensation provisions and market for

managers may help to reduce the agency problems. Threat of takeover may be a

substitute of shareholder’s efforts to examine the behavior of managers. The market

mechanism of mergers is extended form of previous work done by (Manne, 1965).

An alternate theory of agency problem is managerialism theory of corporate

mergers formulated by (Mueller , 1990). Mueller suggested that the size of a corporation

increase by motivating and compensating to managers. According to findings of the

theory, if agency problems are not solved then mergers came into take place. This is


suggested by the theory that mergers are measures toward dealing with the agency

problems. According to the managerialism theory agency problem cannot be solves and

obviously mergers are inefficient to solve agency problems. In few situations, the agency

dilemma might strength managers to engage in mergers (Frensch, 2007).With the

division of proprietor and control, the agency dilemma implies that mergers take place

when manager desire to enlarge their capital at the cost of the acquirer’s shareholders

rewards (Berkovitvh & Narayanan, 1993). Agency dilemma can encourage competition

between corporations although is not themselves eradicated from the rivalry, and the

competition has improved the benefits to the shareholders of target firm (Berkovitvh &

Narayanan, 1993). As opposed to the synergy purposes, when the agency aim is the

major reason behind M&A, the gain to the target is greater than the acquirer shareholders,

thus returns to the newly formed corporation is negative (Gondhalekar & Bhagwat,

2000). Gupta and Misra (2007) explained that very good manger run corporations with

efficient motivator and monitoring process which work to make sure that corporate policy

focuses on maximizing value. In comparison some manger may perhaps initiate merger

so that they can maximize personal benefits, probably to the determent of the firm’s

owners. Mehran and Peristiani (2006) recognize that agency troubles are significant

factor contributing to management –initiated buyouts absolutely when mangers and

stockholder differ on how surplus cash should be utilized. A solution to agency problem

is to give confidence and support to management to act for the benefits of shareholders

through the enforcement of contractual commitments.


3.1.2 Signaling Theory

Signaling theory of mergers developed by (Ross , 1977). This theory is grounded

on the hypothesis that the markets are not entirely well-organized and as a result there is

an imbalance of information among management and the market. Signaling theory says

that an acquisition proposal is a signal of the worth of the target or of information

concerning more proficient way to lead the corporation (Halpem, 1983). The character of

signaling theory and distorted information in mergers and acquisitions about the selection

of method of financing has been studied by (Hansen, 1987; Fishman, 1989; Berkovitch &

Narayanan, 1990; Eckbo, Giammarino, & Heinkel, 1991). The proof shows that the

profits for the acquirer are significantly greater in Merger and acquisitions financed with

cash instead of stock. On the other hand when the transaction is settled by a combination

of cash and stock, the profit looks to be higher than in all-cash transactions (Eckbo,

Giammarino, & Heinkel, 1991, pp. 673), and positively connected to the percentage of

cash (Berkovitch & Narayanan, 1990, pp. 171).The first studies examining the selection

of method of exchange considered the financing choices to be all-cash or all-stock bids

(Hansen, 1987; & Fishman, 1989). Hansen (1987) explained that acquirer will favor to

offer stock when the target has private information regarding its value; when information

irregularity is both sided, acquirers’ present all-stock proposals when they are

overestimated and all-cash offers when underestimated. Fishman (1989) describes the

character of a cash offer in anticipating the competition by signaling an excessive

estimate of the target and, thus, forecasts that all-cash bids yield more return for the

acquirer and lesser possibility of refusal.


3.1.3 Market Power Theory

The market power theory of mergers and acquisitions is presented by Rock, Rock,

and Sikora (1994) in his book the mergers and acquisitions handbook and explained that

few firms increase their market share by mergers but one objection that exists against this

is the resulting “undue concentration”. The traditional public policy in the United States

says that undue concentration is found where at least 40% of the sales in a line of

business are held by less than four firms of that business line. This undue concentration is

also sometimes termed as undesirable market structure. The main reason for this is that

the businesses then start recognizing the interdependence whereas tacit collusion can also

witnessed in such cases which leads to consideration of reactions to policy changes and

also of other actions of the market. This makes monopoly elements in prices and profits

of the firms start improving. These monopoly gains motivate the increase in

concentration if the economies resulting from the mergers cannot be recognized.(Rock,

Rock, & Sikora, 1994).

James (1978) analyzed 205 firms’ data to examine the monopoly-efficiency

conflict by taking data of four years before the complaints. Results were positive and

statistically significant for the sample. But because of filing the complaint the residual

then turned negative, though the residuals were found in very less quality. The author

also observed one of the causes of these complaints by the acquiring firms in the later

years could be because of the archive building of the effective management of the

resources of the firms. This concept was stated as “harassment” hypothesis. This

harassment hypothesis totally opposes the merger’s explanation of monopoly. It also says


that the action of government agencies of standing the prosecution cost will disable the

defendants; this in turn will benefit the rivals. The ability of a firms or a group of firms to

earn extra-ordinary profits by controlling the price, nature or the sale is termed as market

power (Seth, 1990). The increase in revenue and inclining market power are the most

inductive motives of a firm which seeks mergers and acquisitions (Zaheer & Souder,

2004). Many studies positively state that mostly market power induces the mergers and

acquisitions. Scherer and Ross (1990) also narrated that one of the initial objective behind

mergers, particularly for horizontal mergers are market power. It is also said that market

concentration is boost by mergers which in turn increases the market power as well as the

revenues of the firms (Sharma & Thistle, 1996).

There are many other studies too that states that increasing the concentration may

not eventually result in any benefits from mergers. These corporate mergers are supposed

to produce market power. Less cost and restrictions on entry in the market can sustain

those markets as no improvement can be seen in market power if barriers to entry exist.

Besides to see its effects, market power should be carried out in the given market or the

markets which have more competitiveness. So this whole discussion concludes that not

only the horizontal mergers but also the other types of the mergers play their roles in

targeting the controlled competitors. This is because of the reason that relatively bigger

firms always sets higher prices and because of having larger size and better financial

strength may not be of much importance. Sudarsanam (2003) elaborated this even more

by saying that this inclining market power efficiently aids company whereas if the firm

decreases the price of sensitive products then growth in revenues can also be achieved

and by introducing new technologies, range of products and markets advanced growth


opportunities can also be revealed. This in turn will increase the financial strength of the

acquiring firm by improved market power and increased growth (Gaughan , 2005).

3.1.4 Managerial Hubris Theory of Mergers

The hubris theory is dependent upon the perception that the administrators or

managers of offering/acquiring firm make malfunctions valuing some sort of target

Company. The bidding company bids an excessive amount because managers of

acquiring firm experience hubris, excessive pleasure, and unnecessary pride. This make

them offer too high a price to the target company and as a consequence the merger fails

because post -merger performance is not able to compensate for high price. The Hubris

theory of mergers is presented by Roll in 1986. The hubris hypothesis states that

managers often overvalue the capability to take advantage of synergies (Roll, 1986). Roll

(1986) suggested that manager’s hope is symmetrically wrong with an upward bias

because the stock market is a reverse intersection. This brings about excessive bids in

which acquisition price might be paid thus it really is less likely that shareholders will

gain from an acquisition (Bosecke, 2009). Seth, Song, and Pettit (2000) explain that

managerial hubris includes two main problems; the hubris hypothesis as well as the

managerialism hypothesis. The hubris theory happens when the management of the

bidder underestimates the value of the target firm and as a rule overestimates the value of

possible synergies (Berkovitvh & Narayanan, 1993). Bidder may therefore pay a lot more

than the present selling price of the target (Gaughan , 2005; Berkovitch & Narayanan,

1993). From the viewpoint of managerialism hypothesis managers like to assume Merger

and acquisitions at the expense of the shareholders so as to boost their own capability


(Caves, 1989). Markets often react negatively or neutral on the bidders when Merger and

acquisitions introduced (Gaughan , 2005). Sirower (1997) declares that the operating

performance of mergers and acquisitions unequivocally reliant on the synergy

prospective, the premium paid and combination process. If the premium paid is higher

than synergy potential, the value creation of the merger or acquisition is negative. If

synergies are realized too delayed then the discounting of potential income to pay

premium synergistic performance improves. The acknowledgement of synergy impacts

hinges on the adequacy and efficiency of the integration procedure. The efforts of

management are to be encouraged when the motives behind mergers and acquisitions are

to maximize the wealth of shareholders. Nonetheless, further objectives might consist of

wish to go into a target's industry or come to be the greatest firms in the business, the

extent to which these motives play a role vary from case to case (Hitt, Harrison, &

Ireland, 2001).

3.2 Synergistic Theories

Whilst non-synergistic theories provide some more motivation apart from value

maximization, synergistic theories are founded within the theory involving finance

stating that an investment decision needs to be accepted on condition that it yields value

to shareholders. The principle of finance will be based upon the supposition of utility

maximizing behavior and reasonable expectations involving market contributors. Another

basic default is actually that markets are efficient in order that stock rates always

thoroughly reflect the actual available details (Fama, 1970). Portfolio theory in finance


theory is used to explain how investment decisions are made in the world with risk.

Based on the theory connected with finance and synergistic model an acquisition should

meet same the criteria which are required for another investment selection. As an

example, cross border mergers may very well be explained with regards to comparative

advantages: as unique countries have got different creation capabilities, cross-border

mergers can certainly be seen as a tool intended for efficient resource allocation

providing huge attainable synergies (Meschi, 1997).Unlike non-synergistic practices,

synergistic theories assume that managers should act to maximize shareholder value and

forecast that corporate restructuring do indeed create value in some form of financial

benefits.

Synergistic theories mean that the mixture of two corporations after mergers will

be more productive than without the transaction. Consequently due to synergy gains the

value of both the firms combined is a lot more than the sum of the pre-merger values of

the independent corporations (Lee & Colman, 1981). One explanation for the increased

merger activity is usually that mergers and acquisitions enable firms to reply to changes

on the planet economy more quickly than inside growth would likely and without

expanding the whole capacity of industry. Moreover, the forces of change create new

synergies (Ahem & Weston, 2007).

3.3 Efficiency Theory

The creation of synergy is the main and the ultimate purpose of every merger. The

ultimate outcome of the business consolidations is that after the merger, the corporation


should be able to increase the efficiency as a whole and this increase was not possible

before the merger. The major cause of reduction in cost after the merger is that both the

organizations will use the same production facilities (Ray, 2010). The theories of

efficiency and synergy shows there will always be chance of being both efficiency and

inefficiency during merger and takeover. Efficiency theory reveals that firm X is more

efficient than compared to firm Y and both are belongs to a similar industry, firm X can

enhance the competence of firm Y however the condition is that there must be merger

between firm x and firm y. The theory of inefficiency certifies that Company Y is not

capable for public cognizance so firm X can control the firm being inefficiency Y firm

through merger or takeover. These two examples of firm X and Y will explain that

merger is a tool to solve problems of the efficiency in carrying out mergers. Copeland

and J(1988) explain that efficiency and inefficiency theories will support the horizontal

and conglomerate mergers respectively. The efficiency theory suggests that mergers

occur when a sound basis exists for the profitability of target and acquiring firms. The

efficiency can be improved as a whole by introducing new customs of mergers and

acquisitions. Here culture is the key rational for the success of mergers. Culture means

the people’s behavior; management factors, internal organization factors and execution of

the policy and business strategy (Stallworthy & Kharbanda, 1988).

3.4 Synergy

Synergy can best be described by the equation 2+2=5 (Pearson, 1999). Basically

the whole could well be bigger than the sum of its individual parts (Sherman, 1998).


When two separate entities are combined together and formed a single entity, then the

activities of the combined firm can be better manage than the management of the

individual activities .When two or more concerns combine and formed a larger

organization, then this large organization would be superior than what it would be in

different entities (Bakker & Helmink, 2004). Synergy word comes from the Greek word

to assist/cooperate or work jointly (Bruner, 2004). In merger process an important

decision is the estimation of expected synergies and the estimation of impact of synergies

on the operating performance of post merged firms, especially for four reasons. Firstly,

mergers are intended for value creation and therefore assessing the value that has to be

produced by the synergies is extremely significant. Secondly, assessing how investors

would answer the merger package is an additional essential factor to be considered.

Thirdly mergers have to reveal these strategies and immense effects in the form of

benefits about such deals to investors and therefore there perfect appraisal and awareness

is very essential. Last but not least valuing synergy is very essential for mounting host

merger amalgamation techniques (Bruner, 2004). There are various ways to get synergies

resulting from takeover. Synergy can also be an end result of operational and financial

economies of scale all the way through takeovers (Brealey et al., 2001; Ross, Westerfield,

& Jaffe, 2002). Operating economies of scale can be the cause of possible decrease in

manufacturing or distribution costs (Jensen & Ruback, 1983) and financial economies of

scale consists of lesser marginal cost of debt and improved liability capacity. Oligopoly

control and improved diversification of company risk are the other sources through which

synergy can be achieved. Lastly efficiency can be enhanced by the opening of an

innovative corporate culture with the help of takeover. Culture may be defined as a set of


undisclosed and not visible codes that determines the manners pattern of an exacting set

of people, together with their way of judgment, emotion and perceiving each day

dealings. For that reason, it is normal to consider that a prosperous/ attractive takeover

needs the incorporation and mixture of both corporation cultures in a positive,

harmonious and pleasant way. Consequently the inspiration of fresh company culture

might itself be a rationale behind takeover (Stallworthy & Kharbanda, 1988).

Sirower (1997) define synergy as increasing competitiveness and cash flow

beyond two companies should conduct themselves. Frensch (2007) explain that synergy

has the positive and bad efficiency effects caused by the partial or perhaps full

amalgamation of the merging firms. This can mainly be the well-liked ground of mergers

and acquisitions. It means acquiring or blending with resources associated with two

separate firms. It is the flexibility of corporate combination to get more profitable than

the individual profits of the firms that are normally pooled (Gaughan , 2005). An

essential source of synergy is the transfer of certain intangible assets, such as values

expertise between targets and acquirers (Seth, song, & Pettit, 2000). Carpenter and

Sanders (2007) reported five sources of synergies, reduce risks, and add to market power,

cost savings, and boost financial strength along with leverage capabilities. The

expectation connected with synergistic benefits creates incentives for companies to incur

expense of mergers and acquisitions process nonetheless pays a premium in the market

value to shareholders. The synergistic effect ought to be greater than the price to justify

going away to attempt an acquisition. If synergistic effect is a lot less than expenses, then

the acquiring firm may have overpaid the targeted (Gaughan , 2005). Review of synergies

offered by mergers and acquisitions has become one of the most important tasks of


managers themselves. From the point of view of relationship between targeted and total

benefits, they are passively associated in synergy motivated mergers. Consequently, the

bigger the synergy, the bigger the target gains in addition to the acquiring firm’s investors

benefits (Berkovitvh & Narayanan, 1993).

3.4.1 Operational Synergies

It is related to those kinds of resources which leading to the production efficiency

of the management (Peck & Temple, 2002). In many cases product associated

diversification or business combinations in the form of mergers are carried out due to

operational synergies. These kinds of synergies facilitate firms to reduce unit cost due to

product relatedness. Typical technology, marketing techniques just like ordinary or

conventional brands and also manufacturing facilities just like general logistics or

fundamentally the components of operational synergy (Peng, 2009). Operational synergy

may be obtained by a combination of economies of scale, which would decrease average

costs due to more proficient usage of organizational resources and economies of scope,

which may assist a corporation to deliver more from the same amount associated with

inputs (Bakker & Helmink, 2004). Operational synergy means the efficiency taken in

gains as well as operating economies which are resulting in horizontal and vertical

mergers. Operational synergy frequently comes from a decrease in expenses that is the

outcome of business combination and also economies of scale (Gaughan , 2005).

Operating synergies may be classified into revenue increasing and cost savings. Those

business combinations that enhance the capability of resulting entity to come up with

more revenue are valuable.


3.4.2 Financial Synergy

It refers to the impact of mergers and acquisitions on the reduction of capital costs

of the merged company or the newly created firm from the merger (Depamphilis, 2005).

Financial synergies identify the way to decrease the cost of capital and/or improved

borrowing capability (Hankin, Seidner, & Zietlow, 1998). The conglomerate mergers are

the source of financial synergy. Conglomerate mergers usually concentrate on financial

synergies that enhance the competitiveness for every individual unit manage by one

centralized holding company beyond what has been gained by each competing unit

individually. Financial synergies not only reduce the cost of capital, but also bring about

a bigger capital base which helps funding of bigger investment. One of the main motives

of conglomerate mergers is to achieve the financial diversification. In addition to

financial diversification, conglomerate mergers can provide many other benefits like cash

flows are steadier, minor performance deviations, savings in insurance costs and other tax

reward (Bakker & Helmink, 2004). Financial synergies are possible between related and

unrelated companies as opposed to operational synergies only between associated

enterprises (Peck & Temple, 2002). Operating synergies are only possible among

companies belongs to the same kind of industry. On the other hand financial synergy can

be achieved even when mergers happen among related and non-related companies.

Financial synergistic benefit refers to the opportunity that the cost of capital through a

combination of two or more firms can be reduced. A form of synergy is to buy target at

low prices. If the ratio of the market value of securities of companies to replacement cost

of the assets is low, the buyer will be in a success by buying the target (Copeland,

Weastn, & Shastari, 2005).The reduction of transaction cost from economies scale is also


considered as an advantage of financial synergy (Copeland et al., 2005). Sudarsanam

(2003) states that cost reduction is one feature of value creation in mergers and

acquisitions

3.4.3 Managerial Synergies

Managerial synergies originate when the acquirer’s managers have the talent and

know how to govern the target well than its current management. Mergers and

acquisitions can happen for example owing to variations in technology or market

situations that need reorganization for the reason that the current management is

incapable to realize the forest for the trees (Jensen & Ruback, 1983).

3.4.4 Strategic Synergies

Takeovers can encourage the formation of new companies for instance by

merging know how from distinct entities or synergies may be realized by harmonizing

the strategies of both businesses (Goold & Campbell, 1998). Strategic motivations were

previously peak of as variation forces. By taking the opportunity offered by unalike

strategies, the worth of a business can be improved or retained unaffected when other

options might be deterioration in worth caused by the change forces and incapability of

administration to respond. Compared to other forms of synergies strategic synergy can be

tougher to attain or the outcomes may be harder to quantity(Ross , Weasterfield, & Jaffe,

2005).


3.5 Profitability Theory

Profitability theory is presented by Paul Temple in year 2002 in his book

“Mergers and acquisitions: Perspectives”. Profitability theory assumes that a great

conclusion about mergers is that they don’t result in increasing the profits of the merging

firms. These findings proved to in the United States in the first two mergers waves, which

were dominated by horizontal and vertical acquisitions. The cause of the first merger was

for monopoly and the second merger wave was for the purpose of oligopoly. The

objective of these two mergers waves was not to increase the profitability of the merging

firms. On another evidence that merger do not the increase the profitability is found by

following the tightening of the cellar-Kefauver act, when many of the horizontal and

vertical mergers are not allowed and this has resulted a great increase of profitability. The

effects of mergers on the profitability of the companies can be measured by computing

the weighted average profits of the merging firms before the merger and compare it to the

profit rate of the merged company after the merger. Economic conditions can also effect

on the profitability of the companies. It might be possible that economic conditions

before and after the mergers may be different and in a way effects the profitability of the

merged units, one should also control for this factor by comparing the change in profits

of the merged firm with a control group of otherwise similar non merging firms. A large

number of studies about the effects of mergers and acquisitions on profitability of the

companies were conducted in the United States and the United Kingdom on large sample

size. Among these studies one study was conducted in the United States by Muller in

1980 and found that mergers effect on the after tax profits of the merged units. But at the

same time these sample companies before tax profits fell after the mergers relative to the


changes in the merging firm’s home industries. If after tax profit increases as a result of

mergers then it indicates that the mergers did result in tax savings (Peck & Temple, 2002,

pp. 289-292).


CHAPTER FOUR: RESEARCH METHODOLOGY

4. Research Methodology

Research design display the entire research process adopted by the research in

approaching towards the aim and objectives. This is a quantitative research. In this

chapter information is presented relating the variables used in the research, sample size,

target population, data collection, and selection of samples, data collection tools, data

sources, research hypothesis, research model specification and analysis tools.

4.1 Variables of Study

This research is about before and after merger examination and basic emphasis is

on independent variables. Financial ratios and panel data has different dependent and

independent variables. The detail of financial variables and their proxies recommended

by State bank of Pakistan for financial and operating evaluation of Manufacturing,

banking, modaraba, insurance, investment banks, leasing and mutual funds is given in

figure 4.2, 4.3, 4.4, 4.5, 4.6, 4.7 and 4.8 respectively. The dependent variable used in this

study in panel data analysis is the return on assets (ROA). Return on assets is used as

dependent variables both for the manufacturing sector and financial sector models, but

the independent variables in the panel data analysis are different both for the

manufacturing and financial sectors. The performance variables used in panel data

analysis in this study are based on the study of (Sinha & Gupta, 2011; Said, Nor, Wah


Low, & Rhman, 2008). The control group financial ratios are computed for the pre and

post- merger period by using paired sample t-statistics. The independent variables used in

this study in panel data model are current ratio, sales over working capital, debt as % of

equity ratio, debt %, number of times interest cover , net profit ratio, cost efficiency

ratio,, assets turnover, fixed assets turnover, sales growth, non-interest income to total

assets, bank size, total equity to total assets, cash and cash equivalent as % of assets,

investment as % of assets, debt as % of assets, and total deposits as % of assets.

4.1.1 Return on Assets (ROA)

The ROA is a useful meter of companies’ profitability. It is calculated by dividing

net income to total assets. ROA indicates the profit earned per rupee of assets which

reflect company’s management ability to employ the organization’s financial and real

investment assets to produce profits (Naceur, 2003; Alkassim, 2005; Sulaiman, 2012;

Kemal, 2011; Oduro & Agyei, 2013).

4.1.2 Current Ratio

Current ratio is the connection among current assets and current liabilities. It is

also recognized as working capital ratio. The current ratio can be computed by dividing

the current assets over current obligations. This ratio shows the short term solvency of

firms. Higher the current ratio lowers the business risk and less probability of default to

pay due current liabilities (Sidharth & Sunil, 2009; Jain & Raorane, 2011; Sinha &

Gupta, 2011; Selvan, Babu, Indhumathi, & Ebenezer, 2009).


4.1.3 Sales to Net Working Capital

The sale to net working capital ratio shows the rate of utilization of working

capital of the firm. The working capital denotes to net working capital, which is equal to

amount of current assets less current liabilities. The ratio is calculated by dividing sales

over net working capital. This ratio reveals how much sales can be produce by using the

given level of net working capital (Sulaiman, 2012; Jain & Raorane, 2011; Sidharth &

Sunil, 2009; Selvan et al., 2009).

4.1.4 Debt –Equity Ratio

Debt to-equity percentage is also recognized as external funds-internal funds

ratio. This ratio is computed to quantity the comparative claims of outsiders and insiders

against the firm’s assets (Selvan et al.,2009; Sidharth & Sunil, 2009), the ratio indicates

the relationship among the equities of externals and equities of internals. Debt-equity

ratio is calculated by dividing total liability over net worth.

4.1.5 Interest Coverage Ratio

Debt ratios are stagnant and unable to show the capacity of the company to fulfill

interest obligations. The interest coverage ratio is the better measure to assess the firm’s

debt-servicing ability (Kemal, 2011). The interest coverage ratio indicates how many

times interest charges are covered by profits that are normally available to pay interest

charges. As taxes are calculated on profits after subtracting interest, profits before taxes

are taken. Depreciation charges is a not a -cash item. Therefore, profits equal to

depreciation are also available for payment of interest charges. So, the interest coverage


ratio is calculated by dividing the profits before depreciation, interest and taxes (PBDIT)

by interest charges (Sinha & Gupta, 2011; Selvan et al., 2009).

4.1.6 Net Profit Ratio

Net profit ratio is computed by dividing the profit after tax over sales. Net profit

includes non-operating income so the later may be deducted to arrive at profitability

arising from operations (Kemal, 2011; Sinha & Gupta, 2011).

4.1.7 Cost Efficiency

Cost efficiency shows the relationship between cost of goods sold, operating

expenses and total assets. Cost efficiency is calculated by dividing the total cost over total

assets (Sinha & Gupta, 2011).

4.1.8 Fixed Assets Turnover

Fixed Assets are the major source to generate sales. If the firm manages the fixed

assets more competently, sales would be higher and resultantly profits would be higher.

This ratio is computed by dividing sales over total fixed assets (Selvan et al., 2009).

4.1.9 Assets Turn Over

Assets are used to produce sales. If the firm be able to use the company assets

more efficiently, then sales would be greater and at the same time profits would go up.

This ratio is calculated by dividing sales to total assets. Total assets turnover ratio is


calculated by dividing sales over total assets (Leepsa & Mishra, 2012; Selvan et al.,

2009).

4.1.10 Sales Growth

Sales growth means how much sales increase this year by comparison with

previous year. If corporate sales grow, then might be proportionately profits also

increases (Oduro & Agyei, 2013).

4.1.11 Non-Markup/Interest Income to Total Assets

Ratio on revenues earned other than mark-up e.g. capital grains, commission, fee

to total assets etc. this ratio shows how much revenue is earned other than mark-up

through other functions of the bank by employing total assets. It is useful for banks and

DFIs. This ratio is calculated by dividing total non-markup income over total assets (State

Bank of Pakistan, 2009).

4.1.12 Bank Size

Bank size examines its general competence to carry out its intermediary task. It is

generally argued that there are two conflicting opinion both hypothetically and

empirically to the association among bank liquidity and volume/size. The earliest view is

too large to be unsuccessful which considers negative association among volume/size and

liquidity while; the conventional transformation examination suggests encouraging

association. This research anticipated positive effect of bank volume/size on liquidity as


per the second argument. In this research proxy for bank size is the natural logarithm of

assets. (Oduro & Agyei, 2013).

4.1.13 Total Equity to Total Assets

Total equity as % asset reveals capital sufficiency and indicates the general

protection and security of the banks? It shows the talent of a bank to take up losses and

control risk exposure with shareholders. Normally there is a optimistic correlation among

equity as % of assets and profit margin. Total equity as a % of assets is estimated to have

a positive with performance in good health banks are less risky and more money-making

(Said , 2013).

4.1.14 Cash and Balances with Banks to Total Assets

Cash and balances with banks/ total assets this ratio expresses the percentage of

total assets available in the form of highly liquid assets (SBP).

4.1.15 Investment and Total Assets

The ratio between investment and total assets shows investment activity with

reference to its total assets. This ratio is useful for banks, DFIs and insurance companies.

This is calculated by dividing amount of investment to total assets.

4.1.16 Advances and Total Assets

This ratio expresses the relationship of advances (net) to total assets. This ratio is

useful for banks and DFIs. This is calculated by dividing advances to total assets (Said ,

2013).


4.1.17 Total Liabilities to Total Assets

The ratio shows the proportion of bank assets, which are financed through debt.

This ratio is useful for banks and DFIs. This is calculated by dividing total liabilities to

total assets (Oduro & Agyei, 2013; Badreldin & Kalhoefer, 2009).

4.1.18 Total Deposits to Total Assets

Deposits as % of assets is one more liquidity gauge but is treated as a liability. Deposits

are the foremost basis of bank funding and for this reason it has an influence on the profit

margin of the banks. Deposits as % of assets is included as an independent variable in

this study (Badreldin & Kalhoefer, 2009).

4.2 Data Collection

Two forms of data collection and information gathering technique prevail in the research

environment. Both the collection techniques are primary and secondary data collection.

This study is based on secondary data. The data relating to the selected units under study

is obtained from prospectus, pamphlets, annual reports and web sites of the selected units.

The data is also collected from web sites of www.secp.gov.pk, www.lse.com.pk and

www.kse.com.pk. This research is based on the quantitative secondary data. The data

used in the study is taken from the audited annual reports of the concerned acquiring

companies. The audited annual accounts are monitored by Securities Exchange

Commission of Pakistan (SECP), State Bank of Pakistan (SBP) and all stock exchanges

of Pakistan.

http://www.secp.gov.pk/

http://www.lse.com.pk/


4.3 Target Population

For this research on merger and acquisitions, the target population is all those

public limited listed Pakistani companies which have entered into merger and

acquisitions in Pakistan since year 1998. In Pakistan 130 mergers and acquisition deals

were completed between 1998-2012, which consists of 58 mergers between privately

held firms while72 mergers and acquisitions deals were happened between public limited

companies. Public limited seventy two mergers are further classified between public

limited listed and public limited non-listed. Mergers of public limited listed companies

consist of twenty mergers of financial sector and thirty two of manufacturing sectors.

4.4 Selection of Sample:

The process of sampling means to identify and select certain elements which

would represent the entire population under study. In this study the entire population of

public limited listed companies underwent mergers and acquisitions during year 1998-

2012 is selected.

4.5 Nature of the Study

There are two main paradigms thinking, carrying out and analyzing the results of

a research: qualitative and quantitative paradigms. Present study is mainly quantitative in

nature because a merger and acquisition phenomenon is examined numerically by

correlating the operating performance of financial and non-financial (manufacturing)


sector of Pakistan in both pre-merger and post-merger situations. Inferential statistics is

used for analysis and deductive approach is used to test specific hypotheses.

4.6 Sample Size

In order to avoid the estimated uncertainty of needless variables this research is limited to

public limited listed (Deakin, 1976; Mcdonald, Morris, & H, 1984). For this research on

merger and acquisitions, the target population is all those public limited listed Pakistani

companies which have entered into merger and acquisitions in Pakistan since year 1998.

In Pakistan seventy two mergers and acquisition deals were happened between public

limited companies between1998-2012. The target population of this study consists of

seventy mergers and acquisitions happened between public limited listed companies.

Public limited listed companies’ mergers and acquisitions are divided into financial

sectors and non- financial sector of Pakistan. Thirty eight of seventy Mergers and

acquisitions deals between listed public limited companies are belongs to non- financial

sector, while thirty two of seventy Mergers and acquisitions deals between listed limited

companies are belongs to financial sector of Pakistan. The sample of this study is drawn

from target population. In this study a sample of fifty two acquiring companies is

selected. The sample of fifty two acquiring companies is further divided into non-

financial and financial sector of Pakistan. The sample of fifty two acquiring companies

consists of thirty two acquiring companies from thirty eight non- financial sectors

acquiring companies and twenty acquiring companies from thirty two of financial sector

acquiring companies. Consistent with previous studies Healy, Palepu and Ruback (1992)


corporations in the sample had to satisfy the following criteria : the acquire had to be

Pakistani listed public firm, three year pre - post-data were available, the acquirer does

not engage into any further merger during three year before and three years after merger,

the acquirer company does not declare as sick unit or bankrupt during merger period and

in case of acquisition the acquiring company holds at least 50% holding in the target

company. These two sectors which are involved in this research further divided into sub-

sectors. In the financial sector the banking, investment banking, modaraba, leasing,

insurance and mutual funds sectors are chosen, and twenty mergers in the financial sector

are selected for ascertaining the impact on the operating performance of acquiring firms’

belongings to various sectors of non-manufacturing sector of Pakistan. In the non-

financial sector the thirty two mergers and acquisition are chosen for ascertaining the

impact of mergers and acquisitions on the operating performance of the acquiring firms.

The manufacturing sector is further divided into twelve sectors of Pakistan economy. The

total sample companies involved in this research are fifty two companies acquiring

companies. The sample of fifty two mergers and acquisitions is comparable with previous

studies conducted insignificantly bigger markets such as the UK and USA (Healy,

Palepu, & Ruback, 1992) n=50; (Clark & Ofek, 1994) n=38; (Manson, Stark , & Thomas

, 1995), n =38; (Cornett, Mcnutt, & Tehranian, 2006), n=30).

4.7 Statistical Methods

The analysis to find out the effects of business alliances on the firm’s financial

and operating position is divided into three methods such as Paired sample t- statistics,

data envelopment analysis (DEA) and panel data analysis.


4.7.1 Paired Sample t- Statistics

In respect that the pre-merger and post-merger performance of the merger

engaged firms could be due to economy wide and industry issues, or a persistence of

company specific performance prior to the merger, an adjusted performance method is

used in this research to evaluate the post-merger operating performance. Preferably

industry performance variables should be used as the standard. Nevertheless, industry

operating performance variables are not available in Pakistan, unlike in the United States.

Consequently, this study focuses on the comparison of the performance of recently

merged companies to a pre-merger aggregate of the acquiring and Target companies.

This study constructed a sample of firms for controlling changes in performance due to

factors in the industry or the economy. Consistent with previous studies (Philippatos, D,

& W, 1985; Neely & D, 1987; Herman & L, 1988) the selection is made on the basis of

industry and asset size. The industry of the acquirer at the time of the acquisition is used

for matching on industry. The method of selection of companies control is suggested by

(Barber & Lyon, 1996). In this research the selection of control firm for every acquiring

and target firm used three criterions, First, the control firm belong the industry in which

the merged firms belongs. Second, the book value of total assets of control firms must be

within 70% to 130% of the sample firms. Thirdly, no one of the control firms was

engaged in any more mergers during the period of three year before and after the merger

(t-3 to t+3). Healy, Palepu, and Ruback (1992) study combines the pre- merger

performance variables data for the acquired and acquiring firms to get yearly aggregate

operating performance measures for the combined firms. In this study a comparison of


the post-acquisition value with this pre-acquisition benchmark assists measurement of the

effect of the acquisition on the performance of the joint firms. In this study pre- and post-

merger adjusted values are calculated. For the pre-merger period, the control firm value is

deducted from the pre-merger combined firm value to determine the pre-merger adjusted

value. In the post-merger period, the control firm value is deducted from the combined

firm value to determine the post-merger adjusted value. To assess the post-merger

performance of the combined acquire and acquiring firm, the pre-merger adjusted value

is matched to the post- merger adjusted value to determine whether the merger lead to an

enhanced performance.

Source (Sharma & Ho, 2002)

Figure 4. 1 Control Firm.

To investigate the influence on corporation efficiency following the mergers-

acquisitions operations, number of past studies used a set of financial ratios, comprising

cost ratios, profitability ratios, and balance sheet ratios. To examine the efficiency and

profitability in the pre and post- merger period expense and profitability ratios were used


(Rhoades, 1998). Financial ratios investigation is further divided into individual company

analysis and overall analysis of manufacturing and financial sector of Pakistan. Pre and

Post-Merger operating performance ratios are estimated and averages computed for each

company within an industry which has gone through merger during the period 1998 to

2012. The method used in this study is similar to that of (Sidharth & Sunil, 2009;

Mantravadi & Reddy, 2008). Average Pre-Merger and Post-Merger financial

performance ratios are compared to see if there is any statistical significant change in

operating performance due to merger, using for the independent sample t-test and paired

sample t-test at confidence level of 0.05. By carrying out assessments of performance

variables it can be find out is there any major variation in the mean values of those

variables for the period of the before- and after-merger. In this model the pre and post-

merger averages of a set of key financial ratios were computed for three years period and

three year after the year of merger completion. Three year pre and post-merger data is

used because it is proved from previous studies that this period is sufficient to check the

results as according to Rhoades (1998) all gains should be realized within three years.

The financial performance variables that are used in this study for manufacturing sector

are consistent with (Pazarskis, Vogiatzogloy, Christodoulu, & drogalas, 2006). The

financial ratios are organized in the general tabulation, divided into profitability liquidity,

leverage and efficiency ratios (Courtis, 1978; Kaplan, 1983). In this study separate

financial ratios for manufacturing and financial sectors are used.


4.7.2 Performance Measurement Variables ofPaired Sample t- Statistics

In this study the pre and post-merger operating performance of manufacturing and

non-financial sector is analyzed. Therefore, the indicators of operating performance are

selected to reflect operating profitability, efficiency, leverage and liquidity. Performance

variables and their proxies relating to manufacturing sector, banking, modaraba,

insurance, investment banking, leasing and mutual funds are given in figure 4.2, 4.3, 4.4,

4.5, 4.6, 4.7 and 4.8 respectively. State bank of Pakistan (SBP) recommended the

following financial and operating variables to measure the post- merger operating

performance of firms.

Profitability Liquidity Efficiency Capital /Leverage

Return on equity

Return as % of capital

employed

Gross profit %

Net profit %

Operating profit %

Current ratio

Quick ratio

Debt as %

equity

Debt %

Fixed assets

turnover

Assets turnover

Sales growth

Earnings per share

Breakup value per

share

Source: (SBP)

Figure 4. 2. The concept of performance measurement (Non-financial sector)


Efficiency /

Profitability Liquidity Assets Quality Capital / Leverage

Spread Ratio

Net Interest

Margin Ratio

Return on

Assets

Non-interest

income to total

Assets

Net interest to

total Assets

Interest

expense to

interest income

Admin expense

to profit before

tax

Non- interest

expense to total

income

Earnings per

share

Cash and cash

equivalent as % of

assets

Investment as %

of assets

Advance net of

provisions as % of

assets

Deposits as % of

assets

Total liabilities as

% of assets

Gross advances as

% of deposit

Gross advances as

% of borrowing

and deposit

Non-performing loans

as % of gross

advances

Provision against non-

performing loans as %

of gross advances


as % of shareholder

equity


write off as % of non-

performing loans

provisions

Provision against non-

performing loans as %

of non-performing

ratio

Capital ratio

Break-up value

per share

Total deposits as

% of to

shareholder

equity

Source: (SBP)

Figure 4. 3 The concept of performance measurement (Banking sector).


Efficiency /

Profitability Liquidity Capital /Leverage

Return on equity

Return on capital

employed

Return on Assets

Return on revenue

Operating expense

Earnings per share

Management

expense

Current assets

as % of current

liabilities

liability as %

of assets

Long term

investment as

% of assets

Capital ratio

Breakup value per share

Source: (SBP)

Figure 4. 4 The concept of performance measurement (Modaraba sector)

Efficiency /


Return on equity

Return on Assets

Claims incurred to

net premium

Underwriting profit

to profit after tax

Earnings per share

Investment to assets

Cash and cash

balance as % of

assets

Capital ratio


Figure 4. 5 The concept of performance measurement (Insurance sector)


Efficiency /

Profitability

Liquidity Capital /Leverage

Return on equity

Return on capital

employed

Return on Assets

Return on revenue

Operating expense

Earnings per share

Current assets to

current liabilities

Total liability to

total assets

Long term

investment to

total assets

Capital ratio


Source: (SBP)

Figure 4. 6 The concept of performance measurement (Investment banking sector)

Efficiency /


Return on equity

Return on capital

employed

Return on Assets

Return on revenue

Administration

expense to profit

after tax

Earnings per share

Lease income to total

income

Cash and cash

equivalent to total

assets

Net investment in

finance lease to total

assets

Capital ratio


Source: (SBP)

Figure 4. 7 The concept of performance measurement (Leasing sector).


Efficiency /


Gain ratio

Return on Assets

Return on revenue

Management

expense

Earnings per share

Net assets value per

share

Cash and cash

equivalent to total

assets

Total liability to

total assets

Shareholders’ equity to total assets

Source: (SBP)

Figure 4. 8 The concept of performance measurement (Mutual fund sector)

4.7.3 Data Envelopment Analysis (DEA)

In this study data envelopment analysis (DEA) is used to examine the relative

indicators of technical and productive efficiency of financial sector of Pakistan. DEA is

an efficiency model. DEA is a non-parametric technique used to measure the production

efficiency of decision making units (DMUs). It is a mathematical programming approach

based on the concept of efficiency having its roots to the research work done by Farell in

1957 in which by using linear programming he takes the prices as input to measure cost

efficiency of different financial institutions after that Charnes and Rhodes (1978) extend

the Farell’s work and introduce the input oriented approach by taking the assumption of

Constant Return to Scale (CRS). In 1985 Fare, Gross Kopf and Lovell present DEA as a


linear programming technique by using the input and output oriented approach. DEA is

based on the concept of efficiency.

There are two approaches to measure the bank efficiency by using the DEA

approach, one is production approach and other is intermediation approach. In Production

approach bank produce different outputs like number of open accounts of different sizes,

loans, the number of transitions performed on each type of service provided and number

of cards issued by using the input like capital and labor where capital and labor costs are

considered as production costs. This approach is not used mostly due to lack of data

availability. In intermediation approach banks acts like an intermediary between the

borrower and the lender where the operating and financial expenses are considered as

total cost. This approach is further divided into two types of analysis i.e. input oriented

analysis and output oriented analysis. Input oriented analysis focused on the reduction of

the input used without reducing the outputs whereas in output oriented analysis output

level increased by retaining the same level of input. The non-parametric DEA has

become increasingly popular in measuring efficiency in the countries with developed

banking systems (Gregorian &Manole, 2002). In this research intermediation approach is

used which is further divided into two type of analysis i. e. input oriented analysis and out

oriented analysis by taking the assumption of Constant Return to Scale (CRS) and

Variable Return to Scale (VRS). Data Envelopment Analysis Online Software is used to

measure the DEA with the help of inputs and outputs. The efficiency score is normally

represented between zero to one or in percentage form (100%). The efficiency equal to

one means the bank is efficient or if it is less than one then it means it is less efficient as

compared to efficient unit and if efficiency score is less than 0.75 then it is inefficient


The variables that are used in this research as inputs to analyze the post- merger

efficiency of banks include total Deposits, Interest Expense and Non- Interest Expense.

The output variable includes Total Loans, Interest Income and Non- Interest Income. Kao

and Liu (2004) used the same variable for Taiwan banks. Ayadi, Adebayo, and

Omolehinwa (1998) used total loans, interest income and non- interest income as outputs

and total deposits, non-interest expense and interest paid on deposit as inputs in Nigeria.

Naulas (2001) in Greek used interest revenue and non-interest revenue as outputs and

interest expense and non-interest expense as output, Atauallah et al. (2004) used the

interest income and non-interest income as outputs and operating expenses and interest

expenses as inputs for Pakistani and Indian banks analysis, Jaffry et al. (2007) also used

the interest income and non-interest income as outputs and operating expenses and

interest expenses as inputs for Sub continent ( India, Pakistan and Bangladesh) bank’s

analysis, Ataullah and le (2006) used interest income and operating income as output and

interest expense and operating expense as inputs for Indian bank’s analysis. The total

Deposits, Interest Expense and Non- Interest Expense as an input variable and total

Loans, Interest Income and Non- Interest Income as an output variable for DEA analysis

also used by (Alkhathlan & Malik, 2009).

The variables that are used in this research as inputs to analyze the post- merger

efficiency of insurance sector include balance of statutory funds, gross claims and

outstanding claims. The output variable includes investment in securities, gross premium

and net claims. The variables that are used in this research as inputs to analyze the post-

merger efficiency of Modaraba sector includes operating expenses, modaraba

management fees and cash generated from operating activities. The output variable


includes gross revenue, long term investment and shareholders’ equity. The variables that

are used in this research as inputs to analyze the post- merger efficiency of investment

banks includes total liabilities, administration expenses and cash generated from

operating activities. The output variable includes total assets, gross revenue and

shareholders’ equity. The variables that are used in this research as inputs to analyze the

post- merger efficiency of leasing sector includes Deposits on finance lease,

administration expenses and borrowings from financial and other institutions. The output

variable includes net investment in finance lease, income from lease and income from

investment. The variables that are used in this research as inputs to analyze the post-

merger efficiency of mutual fund companies includes Payable to investment advisor,

remuneration to management company and trustees, and the cash generated from

operating activities. The output variable includes total gain, investment and shareholders’

equity.

4.7.4 Panel Data Analysis

In this method the impact of independent variable (performance type indicators)

over the dependent variable (ROA) of the manufacturing companies and commercial

banks is examined by combining the data to carry out panel regression for the before and

after-merger. Panel data analysis is not applied on the analysis of modaraba, insurance,

leasing, investment banks and mutual funds industry of financial sector due to

insufficient companies in each industry. Panel regression is divided into two categories

namely, pooled panel regression and panel regression least square dummy variable

(LSDV). Estimation based on panel data regression depends on the supposition about the

gradient point or slope coefficients, intercepts and the error term. In the pooled regression


model constant elements are the intercepts and the slope coefficients over time and space

while error term captures the time and individual differences (Gujarati, 2003). In the

panel regression least square dummy variable model intercepts does not remain constant

but varies over individuals, while the slope coefficients remains constant and does not

varies across individuals. The pooled regression assumes that each individual company

intercepts does not varies overtime, that is why it is called time invariant. This is the

reason pooled regression is also called as the fixed effect (regression) model. How this is

possible to permit the (fixed effect) intercepts to change among the companies. This can

be easily done by the inclusion of dummy variables in the model. It means when the fixed

effect is estimated by using the dummies, then this model is called as least square dummy

variable (LSDV) model. In the literature both the LSDV and fixed effect terms are used

interchangeably (Gujarati, 2003).This study examination is constructed by using fixed

effect panel data , which include yearly data series of listed merged companies in

Pakistan belonging to manufacturing and banking sector of Pakistan. In this study the

intercept of each company is permitted to vary across different companies while slope

coefficients does not change across various companies.

4. 8 Empirical Panel Regression Model

Panel regression is divided into two categories namely, pooled panel regression

and panel regression least square dummy variable (LSDV). In this study panel regression

is used to examine the impact of mergers and acquisitions on the pre and post- merger

performance of manufacturing and banking sector of Pakistan.


4.8.1 Manufacturing Sector

The proposed simple panel least square for manufacturing sector model is

presented in equation1

ROA𝑖𝑡 = βo + β1CRit + β2SNWCit + β3DEit + β4Dit + β5NPRit + β6INCit + β7FATit + β8ATit

+ β9SGit + β10CEit + δt + εit

Where:

i = is the representative of individual bank in this model

𝛽𝑜 = is a common intercept of panel regression

β1, β2, β3,β4 ,β5,β6,β7,β8,β9,β10 are coefficient of each explanatory variable

ROA𝑖𝑡 =Is denoting to return on total assets,𝐶𝑅𝑡= is denoting to current ratio

𝑆𝑁𝑊𝐶𝑡𝑖 = is denoting sales to networking capital, 𝐷𝐸𝑖𝑡 = is denoting debt to equity

𝐷𝑖𝑡 = Is denoting debt ratio, 𝑁𝑃𝑅𝑖𝑡 = is denoting net profit ratio

𝐼𝑁𝐶𝑖𝑡 = is denoting interest coverage, 𝐹𝐴𝑇𝑖𝑡 = is denoting fixed assets turnover

𝐴𝑇𝑖𝑡= is denoting assets turnover, 𝑆𝐺𝑖𝑡= is denoting sales growth

𝐶𝐸𝑖𝑡= is denoting cost efficiency,

εit = is denoting the error term

4.8.1.1 Dummy Least Square Regression

The proposed model after introducing dummies for manufacturing sector is as

following:

Equation ROAit = C1 + C2D2i + C3D3i + C4D4i + C5D5i + C6D6i + C7D7i + C8D8i + C9D9i +

C10D10i + C11D11i + C12D12i + C13D13i + C14D14i + C15D15i + +C16D16i + C17D17i + C18D18i +


C19D19i + C20D20i + C21D21i + C22D22i + C23D23i + C24D24i + C25D25i + C26D26i + C27D27i +

C28D28i + C29D29i + C30D30i + +C31D31i + β1CRit + β2SNWCit + β3DEit + β4Dit + β5NPRit +

β6INCit + β7FATit + β8ATit + +β9SGit + β10CEit + Eit

Where CD are dummy variable for manufacturing companies, profitability is

calculated by using ROA and performance indicator include current ratio, sales over

networking capital, debt over equity, debt %, net profit %, number of times interest

cover, fixed assets turnover, assets turnover, sales growth, cost efficiency %. The

deviations in the intercepts of every company are apprehended by dummy variables.

There are thirty two companies, thirty one dummies are used. Benchmark company has

no dummy which is the Pakelektron limited. The intercept value c1 is the intercept of the

benchmark company and it provides the direct influence of the performance indicator –

profitability of Pakelektron limited. The left over intercepts coefficients c2.c3 -----------

c31 shows the intercept differential for the remaining companies.

4.8.2 Banking Sector

The proposed simple panel least square for banking sector model presented in equation 2

ROAit= βo + β1TLTAit + β2NMIITAi + β3ANPTAit+ β4ITTAit+ β5TETAit+ β6CCETTAit+

β7BSit+ β8DTAit + δt+ εit

Where:βo = is common intercept of panel regression

β1,β2,β3,β4,β5,β6,β7,β8 are the coefficient of each explanatory variable

ROA Is denoting to return on total assets,TLTAis denoting to total liabilities to total assets

NMIITAti = is denoting to non-markup interest income to total assets

ANPTAit = is denoting to advances net of provision to total assets


ITTAit = Is denoting to investment to total assets, TETAit is denoting to total equity to

total assets

CCETAit = is denoting to cash & cash equivalence to total assets

BSit = is denoting to bank size, DTAi is denoting to debt to total assets

εitis denoting the error term of panel regression

4.8.2.1 Dummy Least Square Regression

The proposed model after introducing dummies for banking sector is as

following:

ROAit = C1+ C2D2i+ C3D3i+ C4D4i+ C5D5i +C6D6i+ C7D7i+ C8D8i+ C9D9i+ C10D10i+

β1TLTAit+

β2NMIITAit+β3ANPTAit+β4ITTAit+β5TETAit+β6CCETTAit+β7BSit+β8DTAit+Eit

Where CD are dummy variable for banks, productivity is calculated by ROA and

performance indicator include total liabilities as % of assets, non-markup interest income

as % of assets, advances net of provision as % of assets, investment as % of assets,

equity as % of assets, cash & cash equivalence as % of assets, bank size and debt as % of

assets. The deviations in the intercepts of every bank are apprehended by the dummy

variables. There are eleven banks, ten dummies are used. Standard chartered bank has no

dummy because Standard chartered bank is the benchmark.

4.9 Hypothesis of the Study

In order to execute the major research objectives, number of hypothesis has been

formulated.


H1a: On the basis of accounting ratios, average liquidity performance of Pakistan

manufacturing firms significantly effect after merger.

H1b: On the basis of accounting ratios, average profitability performance of Pakistan


H1c: On the basis of accounting ratios, average efficiency performance of Pakistan


H1d: On the basis of accounting ratios, average capital performance of Pakistan

manufacturing firms significantly effect after merger

H2a: On the basis of accounting ratios, average profitability and efficiency performance of

Pakistan commercial banks significantly effect after merger.

H2b: On the basis of accounting ratios, average liquidity performance of Pakistan

commercial banks significantly effect after merger.

H2c: On the basis of accounting ratios, average asset quality performance of Pakistan

commercial banks significantly effect after merger.

H2d: On the basis of accounting ratios, average capital and leverage performance of

Pakistan commercial banks significantly effect after merger.


Pakistan insurance companies significantly effect after merger.


insurance companies significantly effect after merger.

H3c: On the basis of accounting ratios, average capital and leverage performance of

Pakistan insurance companies significantly effect after merger.



Pakistan modaraba companies significantly effect after merger.


modaraba companies significantly effect after merger.


Pakistan modaraba companies significantly effect after merger.


Pakistan investment banks significantly effect after merger.


investment banks significantly effect after merger.


Pakistan investment banks significantly effect after merger.


Pakistan mutual fund companies significantly effect after merger.

H6b: On the basis of accounting ratios, average liquidity performance of Pakistan mutual

fund companies significantly effect after merger.

H6c: On the basis of accounting ratios, capital and leverage performance of Pakistan

mutual fund companies significantly effect after merger.

H7a: Commercial banks of Pakistan become efficient after the merger.

H7b: Modaraba companies of Pakistan become efficient after the merger.

H7c: Insurance companies of Pakistan become efficient after the merger.

H7d: Investment banks of Pakistan become efficient after the merger.

H7e: Leasing companies of Pakistan become efficient after the merger.


H7f: Mutual fund companies of Pakistan become efficient after the merger.

H8a: Liquidity of manufacturing sector in the post-merger period have a significant

impact on the Profitability of acquiring firms in Pakistan.

H8b: Efficiency of manufacturing sector in the post-merger period have a significant

impact on the profitability of acquiring firms in Pakistan.

H9a: Liquidity of commercial banks in the post-merger period has a significant impact on

the Profitability of acquiring commercial banks in Pakistan.

H9b: Asset quality of commercial banks in the post-merger period has a significant impact

on the Profitability of acquiring banks in Pakistan.

H9c: Efficiency of commercial banks in the post-merger period has a significant impact

on the Profitability of acquiring banks in Pakistan.

H9d: Capital and leverage of commercial banks in the post-merger period has a significant

impact on the Profitability of acquiring firms in Pakistan.


CHAPTER FIVE: RESULTS AND DISCUSSIONS/EMPIRICAL FINDINGS

5. Results and Discussions/Empirical Findings

This chapter describes the outcomes of the different test and research models

established for the different cases of mergers and acquisitions and their impact measured

by means of various factors. Results of hypotheses are also described in this chapter.

5.1 Analysis of Individual Companies (Analysis 1)

Pre and Post-Merger operating performance ratios are estimated and averages

computed for each individual company included in samples which have gone through

merger during the period 1998 to 2012.

5.1.1 Paired Sample t-Statistics of Manufacturing Undertakings

Table 5.1

Paired Samples Statistics Abbot Laboratories Ltd

Performance Variables

Pre-merger

(adjusted average

value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.450 3.400 .101


QR (Times) 1.120 2.446 .03

DE 94.05 27.533 .04

DR 48.083 21.360 .047

Profitability Ratios

ROCE % 11.666 36.936 .005

ROE % 27.216 36.466 .262

GP % 27.780 37.780 .120

NP % 3.433 18.966 .009

OP % 7.810 19.220 .008

Efficiency Ratios

FAT 5.740 4.913 .032

AT 1.753 1.516 .020

SG 10.653 9.486 .910

Capital Ratios

EPS 6.400 11.466 .120

BUV Per Share (Rs) 15.466 47.866 .002

Table 5.1 reports the average values of the performance indicators before and

after the merger. Out of fourteen financial ratios, score for the improved ratios after

merger is 11 (11/14, 79 %) and remaining three financial ratios score shows deterioration

in the post-merger period. Out of eleven improved ratios nine ratios has a significant

impact. At the same time two of three deteriorated ratios are significant at 5% level of

significance. Finally it is argued that Abbot Laboratory’s post- merger performance


improved and merger has a positive significant impact. Post-merger profitability,

liquidity and capital improved but efficiency declined. The result of this study is

consistent with the study of (Ming & Hoshino, 2002; Marimuthu , 2008; Tuch &

Sullivan, 2007).

Table 5.2

Paired Samples Al-Abbas Sugar Mills


Pre-merger

(adjusted average

value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.115 0.956 .050

QR (Times) 0.113 0.143 .660

DE 129.000 563.000 .049

DR 55.783 71.976 .050


ROCE % 12.756 16.130 .671

ROE % 11.170 17.300 .585

GP % 9.073 12.660 .476

NP % 3.726 5.333 .606

OP % 3.413 6.320 .435

Efficiency Ratios


FAT 2.863 1.076 .046

AT 1.513 1.1567 .003

SG 16.420 32.576 .300

Capital Ratios

EPS 4.640 11.283 .336

Table 5.2 shows the average values of the performance indicators before and after

the merger. Out of fourteen financial ratios score for the improved ratios after merger is 9

(9/14, 64 %) and remaining 5 financial ratios reveals decline in the after-merger period.

Out of nine better ratios only one ratio has a significant impact. At the same time all the

remaining deteriorated ratios are significant at 5% level of significance. Post-merger

profitability and capital improved while liquidity and efficiency declined. The result of

this study is consistent with the study of (Ming & Hoshino, 2002; Marimuthu , 2008;

Tuch & Sullivan, 2007; Selvan et al., 2009). Finally it is argued that Al-Abbas Sugar

Mills post- merger performance improved.

Table 5.3

Paired Samples Statistics BannuWollen


Pre-merger

(adjusted

average value)

Post-merger

(adjusted

average value)

Significance

(2 Tailed)


Table 5.3 indicates the average values of the performance indicators before and


merger is 10 (10/14, 71 %) and remaining 4 financial ratios score shows deterioration in

Liquidity Ratios

CR (Times) 2.210 2.376 .480

QR (Times) 0.670 0.306 .114

DE 26.670 43.330 .002

DR 37.333 66.666 .019


ROCE % 5.156 10.200 .099

ROE % 5.333 12.993 .139

GP % 2.133 9.836 .420

NP % 5.670 6.126 .413

OP % 0.240 0.443 .003

Efficiency Ratios

FAT 0.573 0.723 .404

AT 0.373 0.520 .212

SG 13.000 16.460 .733

Capital Ratios

EPS 2.360 8.770 .050

BUV Per Share (Rs) 101.123 83.580 .047


the post-merger period. Out of ten improved ratios only two ratios has a significant

impact. At the same time three of four deteriorated ratios are significant at 5% level of

significance. Finally it is argued that BannuWollen post- merger performance improved

and deteriorated and has an insignificant positive impact. Post-merger efficiency

improved whereas liquidity and Capital deteriorated. The result of this study is consistent

with the study of (Ming & Hoshino, 2002; Marimuthu , 2008; Girma, 2006; Healy,

Palepu, & Rubak, 1990).

Table 5.4

Paired Samples Statistics Colony Mills Ltd


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 0.876 1.006 .405

QR (Times) 0.708 0.196 .222

DE 174.600 236.330 .050

DR 0.606 0.543 .669


ROCE % 0.186 6.586 .048

ROE % 16.200 11.140 .671


GP % 0.110 0.134 .502

NP % 6.066 6.286 .959

OP % 0.100 0.063 .613

Efficiency Ratios

FAT 1.656 0.781 .050

AT 1.120 0.483 .064

SG 49.100 20.100 .014

Capital Ratios

EPS 7.400 1.1767 .206

BUV Per Share (Rs) 58.100 12.01 .048



merger is 5 (5/14, 36 %) and remaining 9 financial ratios reveals decline in the after-

merger time. Five of enhanced ratios only one ratio has a significant impact. At the same

time three of nine deteriorated ratios are significant at 5% level of significance. Finally it

is argued that Colony Mills Ltd after- merger position declined and has an insignificant

negative effect. After-merger profitability enhanced while liquidity, capital and efficiency

declined. The result of this study is consistent with the study of (Andre, Kooli, & Lher,

2004; Pazarskis et al., 2006; Martynova, Oosting, & Renneboog, 2006).


Table 5.5

Paired Samples Statistics Dawood Cotton Mills


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 6.120 6.06.933 .927

QR (Times) 5.824 4.894 .268

DE 18.033 21.166 .253

DR 30.333 17.000 .015


ROCE % 10.890 6.493 .033

ROE % 10.366 5.866 .050

GP % 3.650 7.496 .196

NP % 13.266 15.100 .870

OP % 14.243 17.340 .772

Efficiency Ratios

FAT 3.373 2.666 .594

AT 0.640 0.326 .118

SG 119.533 69.366 .308


Capital Ratios

EPS 6.666 6.200 .822

BUV Per Share (Rs) 68.600 123.566 .109




merger time. Five of enhanced ratios only one ratio has a significant impact. At the same

time two of nine deteriorated ratios are significant at 5% level of significance. Finally it is

argued that Dawood cotton mills after- merger position declined and has an insignificant

negative impact. After-merger profitability improved while liquidity, capital and

efficiency deteriorate. The result of this study is consistent with the study of (Andre et al.,

2004; Pazarskis et al., 2006; Martynova et al., 2006; Vaynerman, 2009).

Table 5.6

Paired Samples Statistics Dewan Cement Ltd.

Performance Variables Pre-merger

(adjusted

average value)

Post-merger

(adjusted

average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 0.733 0.146 .050


QR (Times) 0.360 0.093 .135

DE 18.533 16.467 .457

DR 34.333 18.333 .009


ROCE % 4.146 3.393 .809

ROE % 9.083 6.380 .686

GP % 0.133 0.053 .015

NP % 0.056 0.110 .490

OP % 10.233 31.666 .029

Efficiency Ratios

FAT 0.476 0.160 .043

AT 0.370 0.240 .050

SG 8.400 17.900 .013

Capital Ratios

EPS 1.500 1.516 .987

BUV Per Share (Rs) 23.230 22.596 .858




merger time. Six of improved ratios only two ratios have a significant impact. At the

same time three of eight deteriorated ratios are significant at 5% level of significance. As

a whole by comparing the improvement and deterioration of post- merger performance it


is concluded that post- merger performance is deteriorated. Finally it is argued that

Dewan cement limited after- merger position declined and has an insignificant negative

impact. Post-merger profitability, short term liquidity, capital and efficiency deteriorate

while long term liquidity improved. The result of this study is consistent with the study of

(Andre et al., 2004; Pazarskis et al., 2006; Martynova et al., 2006).

Table 5.7

Paired Samples Statistics of Dewan Salman Ltd.


(adjusted average

value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.233 9.660 .002

QR (Times) 0.990 1.8233 .050

DE 188.693 205.833 .103

DR 65.173 67.240 .118


ROCE % 8.366 14.686 .116

ROE % 9.813 7.700 .641

GP % 11.073 10.610 .833

NP % 9.833 2.500 .047

OP % 5.166 8.696 .095


Efficiency Ratios

FAT 1.530 1.646 .499

AT 0.806 0.990 .244

SG 7.333 56.796 .392

Capital Ratios

EPS 2.000 1.233 .433

BUV Per Share (Rs) 20.300 18.266 .137



merger is 7 (7/14, 50 %) and remaining 7 financial ratios score shows deterioration in the

post-merger period. Out of seven improved ratios only two ratios has a significant

impact. At the same time one of seven deteriorated ratios are significant at 5% level of

significance. By comparing the improvement and deterioration of post- merger

performance it is concluded the post- merger performance improved. Finally it is argued

that Dewan Salman limited post- merger performance improved and has an insignificant

positive impact. Post-merger profitability, short term liquidity and efficiency improved

while long term liquidity and capital deteriorated. The result of this study is consistent

with the study of (Healy et al., 1990; Girma, 2006; Poposki, 2007).


Table 5.8

Paired Samples Statistics of DG Khan Cement Ltd.


Pre-merger

(adjusted average

value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.476 14.276 .044

QR (Times) 0.916 13.876 .035

DE 119.213 141.900 .494

DR 54.783 58.093 .570


ROCE % 3.340 7.816 .173

ROE % 3.366 0.866 .827

GP % 13.860 10.280 .755

NP % 4.633 1.100 .751

OP % 5.500 12.273 .224

Efficiency Ratios

FAT 0.390 0.693 .106

AT 0.293 0.513 .037

SG 5.523 4.233 .812

Capital ratios

EPS 0.833 0.333 .853

BUV per share (Rs) 29.733 23.8667 .148




merger is 7 (/14, 50 %) and remaining 7 financial ratios score shows deterioration in the

post-merger period. Out of seven improved ratios only three ratios has a significant

impact. At the same time one of seven deteriorated ratios are significant at 5% level of

significance. Finally it is argued that DG Khan Cement Ltd post- merger performance

improved and has a significant positive impact. Post-merger profitability, long term

liquidity and capital deteriorated while short term liquidity and efficiency improved. The

result of this study is consistent with the study of (Poposki, 2007; Dhiman & Parray,

2011; Leepsa, 2012).

Table 5.9

Paired Samples Statistics of Exide Pakistan limited


Pre-merger

(adjusted average

value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.536 1.620 0.819

QR (Times) 0.533 0.583 0.808

DE 86.330 170.670 0.261

DR 45.330 65.000 0.262



ROCE % 16.970 30.176 0.14

ROE % 19.043 24.646 0.422

GP % 13.800 13.180 0.77

NP % 5.106 5.243 0.928

OP % 5.106 6.503 0.462

Efficiency Ratios

FAT 5.600 10.526 0.034

AT 1.976 3.373 0.239

SG 16.523 90.163 0.049

Capital Ratios

EPS 13.433 32.923 0.079

BUV Per Share (Rs) 112.360 23.431 0.033


after the merger. Performance indicators show improvement and deterioration in the post-

merger performance of acquiring company (Exide Pakistan limited). Out of fourteen

financial ratios score for the improved ratios after merger is 10 (10/14, 71 %) and

remaining 4 financial ratios score shows deterioration in the post-merger period. Out of

ten improved ratios only two ratios has a significant impact. At the same time one of four

deteriorated ratios are significant at 5% level of significance. Finally it can be argued that

Exide Pakistan limited post- merger performance improved. The result of this study is

consistent with the study of (Ming & Hoshino, 2002; Marimuthu , 2008; Girma, 2006;

Healy et al., 1990).


Table 5.10

Paired Sample Statistics of Ghandhara Nisan Ltd.


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.996 7.983 .167

QR (Times) 0.242 0.227 .710

DE 91.666 189.000 .195

DR 161.670 101.330 .283


ROCE % 62.216 25.040 .275

ROE % 14.666 24.666 .209

GP % -53.073 -3.243 .277

NP % -112.050 19.600 .050

OP % -36.325 28.550 .176

Efficiency Ratios

FAT 0.330 0.715 .644

AT 0.220 0.430 .664

SG 102.250 70.865 .909

Capital Ratios


EPS -10.650 10.850 .320

BUV Per Share (Rs) -35.000 -6.200 .404

Table 5.10 indicates the average values of the performance indicators of pre and

post-merger. Out of fourteen financial ratios score for the improved ratios after merger is

10 (10/ 14 71 %) and remaining 4 financial ratios displays decline after-merger. Out of

ten improved ratios only a single ratio has a significant impact. At the same time none of

four deteriorated ratios are significant at 5% level of significance. Finally it can be argued

that Ghandhara Nissan Ltd post- merger performance improved and has an insignificant

positive impact. Post-merger profitability, short term liquidity, capital and efficiency

improved while long term liquidity deteriorated, the result of this study is consistent with

the study of (Ming & Hoshino, 2002; Marimuthu , 2008; Girma, 2006; Healy et al., 1990;

Tuch & Sullivan, 2007).

Table 5. 11

Paired Sample Statistics of GlaxoSmithKline (Pakistan) Ltd


Pre-merger

(adjusted

average value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 2.653 2.993 .127

QR (Times) 1.233 1.963 .048


DE 42.496 32.210 .266

DR 32.070 24.230 .298


ROCE % 16.506 18.786 .589

ROE % 19.566 21.333 .708

GP % 28.580 28.146 .939

NP % 9.956 11.216 .825

OP % 11.956 11.833 .923

Efficiency Ratios

FAT 4.646 4.596 .974

AT 1.443 1.296 .728

SG 5.623 7.570 .805

Capital Ratios

EPS 9.643 14.300 .334

BUV Per Share (Rs) 46.833 64.233 .122

Table 5.11 indicates the average values of the performance indicators of pre

and post-merger. Out of fourteen financial ratios, score for the improved ratios after

merger is 10 (10/ 14 71 %) and remaining 4 financial ratios score shows deterioration

in the post-merger period. Out of ten improved ratios none of ratio has a significant

impact. At the same time none of four deteriorated ratios are significant at 5% level of

significance. By comparing the improvement and deterioration of post- merger

performance, it can be concluded the post- merger performance is Improved. Finally it


can be argued that GlaxoSmithKline (Pakistan) Ltd post- merger performance

improved and has an insignificant positive impact. Post-merger profitability, short

term liquidity, long term liquidity and capital improved while efficiency deteriorated.

The result of this study is consistent with the study of (Ming & Hoshino, 2002; Girma,

2006; Tuch & Sullivan, 2007).

Table 5. 12

Paired Samples Statistics Ibrahim Fibers Ltd


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average value)

Significance (2

Tailed)

Liquidity Ratios

CR (Times) 1.305 1.564 .644

QR (Times) 1.016 1.056 .921

DE 98.366 157.566 .207

DR 56.500 59.700 .625


ROCE % 10.150 9.506 .629

ROE % 13.766 11.633 .588

GP % 14.500 8.353 .018

NP % 9.766 4.500 .011


OP % 11.3933 6.603 .028

Efficiency Ratios

FAT 0.956 2.750 .046

AT 0.703 0.946 .246

SG 47.166 28.200 .286

Capital Ratios

EPS 2.400 2.133 .734

BUV Per Share (Rs) 18.366 20.300 .147


post-merger. Out of fourteen financial ratios, score for the improved ratios after merger

is 5 (5/14, 36 %) and remaining 9 financial ratios displays decline after-merger. From

five improved ratios only one ratio has a significant impact. At the same time three of

nine deteriorated ratios are significant at 5% level of significance. As a whole by

comparing the improvement and deterioration of post- merger performance it can be

concluded the post- merger performance is deteriorated. Finally it can be argued that

Ibrahim Fibers Ltd post- merger performance deteriorated and has an insignificant

negative impact. Post-merger profitability, long term liquidity deteriorated while short

term liquidity, capital and efficiency improved. The result of this study is consistent with

the study of (Healy et al., 1990; Girma, 2006; Marimuthu , 2008).


Table 5.13

Paired Samples Statistics Javaden Cement


Pre-merger

(adjusted

average value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.466 0.833 .146

QR (Times) 0.676 0.136 .203

DE 186.000 411.330 .424

DR 61.610 74.843 .516


ROCE % 75.916 6.680 .100

ROE % 82.216 32.786 .129

GP % 21.033 43.333 .010

NP % 7.500 16.000 .050

OP % 12.333 21.166 .041

Efficiency Ratios

FAT 4.166 7.166 .008

AT 1.936 0.516 .074

SG 9.566 17.800 .032


Capital Ratios

EPS 4.040 5.353 .700

BUV Per Share (Rs) 7.126 33.426 .316



7 (7/14, 50 %) and remaining 7 financial ratios score shows deterioration in the post-

merger period. Out of seven improved ratios five ratios has a significant impact. At the

same time two of seven deteriorated ratios are significant at 5% level of significance. By

comparing the improvement and deterioration of post- merger performance it is

concluded the post- merger performance is improved. Finally it is argued that Javaden

cement post- merger performance improved and has a significant positive impact. Post-

merger profitability, capital and efficiency improved while liquidity deteriorated. The

result of this study is consistent with the study of (Healy et al., 1990; Girma, 2006;

Marimuthu , 2008; Poposki, 2007; Martynova et al., 2006).

Table 5.14

Paired Samples Statistics JDW Sugar Mills Ltd.


Pre-merger

(adjusted average

value)

Post-merger

(adjusted

average value)

Significance

(2 Tailed)


Liquidity Ratios

CR (Times) 4.966 7.184 .723

QR (Times) 0.660 2.402 .329

DE 228.300 205.796 .834

DR 52.000 86.666 .015


ROCE % 35.156 15.530 .085

ROE % 18.600 22.236 .872

GP % 12.436 12.696 .977

NP % 3.766 5.583 .752

OP % 10.193 9.636 .939

Efficiency Ratios

FAT 2.026 1.763 .574

AT 1.526 0.990 .152

SG 59.700 52.815 .890

Capital Ratios

EPS 2.666 9.083 .412

BUV Per Share (Rs) 16.000 42.243 .021

Table 5.14 reports the average values of the performance indicators of pre and

post-merger. Performance indicators show improvement and deterioration in the post-

merger performance of acquiring company (JDW Sugar Mills Ltd). Out of fourteen

financial ratios score for the improved ratios after merger is 8 (8/14, 57%) and remaining


6 financial ratios displays decline after-merger. From eight improved ratios only a single

ratio has a insignificant impact. At the same time one of six deteriorated ratios are

significant at 5% level of significance. By comparing the improvement and deterioration

of post- merger performance, it can be concluded the post- merger performance is

improved. Finally it is argued that JDW Sugar Mills Ltd after- merger position improved

and an insignificant positive effect. After-merger profitability becomesbetter, liquidity

improved while capital and efficiency deteriorated. The result of this study is consistent

with the study of (Vitale & Laux, 2012; Sulaiman, 2012).

Table 5.15

Paired Samples Statistics Jubilee Spinning


Pre-merger

(adjusted

average value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 0.450 0.753 .232

QR (Times) 0.233 0.236 .986

DE 39.367 6.767 .042

DR 89.150 36.916 .020


ROCE % 3.286 2.200 .679

ROE % 5.620 2.713 .228


GP % 3.623 4.700 .714

NP % 0.666 1.246 .002

OP % 2.153 5.743 .267

Efficiency Ratios

FAT 129.720 98.563 .301

AT 0.890 0.833 .438

SG 15.070 8.266 .668

Capital Ratios

EPS 0.713 0.173 .262

BUV Per Share (Rs) 23.126 172.179 .424


post-merger. Out of fourteen financial ratios, score for the improved ratios after merger is

7 (7/14, 50%) and remaining 7 financial ratios score shows deterioration in the post-

merger period. Out of seven improved ratios three ratios has a significant impact. At the

same time none of seven deteriorated ratios are significant at 5% level of significance. By

comparing the improvement and deterioration of post- merger performance, it can be

concluded the post- merger performance is improved. Finally it can be argued that Jubilee

spinning mills performance improved with insignificant positive effect. After-merger

profitability, liquidity improved while capital and efficiency deteriorated. The result of

this study is consistent with the study of (Vitale & Laux, 2012; Sulaiman, 2012;

Martynova et al., 2006).


Table 5.16

Paired Samples Statistics Kohinoor Textile Mills Ltd


Pre-merger

(adjusted

average value)

Post-merger

(adjusted

average value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.253 1.236 .906

QR (Times) 1.063 1.090 .814

DE 182.000 173.666 .806

DR 65.330 61.670 .591


ROCE % 26.500 16.200 .318

ROE % 9.800 15.666 .048

GP % 12.960 15.633 .371

NP % 2.766 6.766 .031

OP % 9.893 12.366 .369

Efficiency Ratios

FAT 3.743 2.003 .337

AT 1.250 0.800 .387

SG 14.500 10.200 .884

Capital Ratios

EPS 2.733 6.466 .404


BUV Per Share (Rs) 19.000 41.966 .310

Table 5.16 reports the average values of the various performance indicators of pre

and post-merger. Out of fourteen financial ratios score for the improved ratios after

merger is 9 (9/14, 64%) and remaining 5 financial ratios displays decline after-merger.

From nine better effect ratios only a single ratio is significant. At the same time none of

five deteriorated ratios are significant at 5% level of significance. As a whole by

comparing the improvement and deterioration of post- merger performance indicators it

is concluded that post- merger performance improved. Finally it can be argued that

Kohinoor Textile Mills Ltd post- merger performance improved and has a positive

impact. Post-merger profitability, liquidity improved while capital and efficiency

deteriorated. The result of this study is consistent with the study of (Vitale & Laux, 2012;

Tuch & Sullivan, 2007).

Table 5.17

Paired Samples Statistics Lafarge Pakistan


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 0.333 0.430 .768


QR (Times) 0.050 0.010 .508

DE 103.670 107.330 .888

DR 49.480 51.686 .736

Profitability Ratio

ROCE % 5.760 8.550 .463

ROE % 7.210 11.696 .313

GP % 30.150 43.450 .001

NP % 8.000 21.936 .020

OP % 9.166 19.110 .012

Efficiency Ratios

FAT 5.583 10.883 .003

AT 0.096 0.406 .133

SG 3.500 13.316 .044

Capital Ratios

EPS 0.640 0.930 .436

BUV Per Share (Rs) 9.500 7.523 .037



10 (10/14, 71%) and remaining 4 financial ratios displays decline after-merger. From ten

improved ratios five ratios are significant impact. At the same time one of four

deteriorated ratios are significant at 5% level of significance. By comparing the

improvement and deterioration of post- merger performance it is concluded that post-


merger performance improved. Finally it is argued that Lafarge Pakistan limited post-

merger performance improved and has a significant positive impact. Post-merger

profitability, capital, efficiency improved while liquidity deteriorated. The result of this

study is consistent with the study of (Worthington, 2001; Hagedoorn & Duysters, 2002;

Ming & Hoshino, 2002; Block, 1997).

Table 5.18

Paired Samples Statistics Millat Tractors


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.480 1.573 .544

QR (Times) 0.803 0.780 .847

DE 1820 134.000 .377

DR 63.686 56.586 .398

Profitability Ratio

ROCE % 40.546 61.550 .349

ROE % 40.546 61.956 .346

GP % 11.000 15.403 .100

NP % 9.050 12.593 .285


OP % 6.600 8.733 .485

Efficiency Ratio

FAT 29.093 17.260 .168

AT 1.480 1.906 .262

SG 10.003 27.643 .145

Capital Ratios

EPS 40.696 63.440 .270

BUV Per Share (Rs) 156.863 156.663 .977


post merger. Out of fourteen financial ratios, score for the improved ratios after merger is


merger period. Out of eleven improved ratios none of ratio is significant impact. At the

same time none of three deteriorated ratios are significant at 5% level of significance.

Finally it can be argued that Millat tractor post- merger performance improved

insignificantly. The result of this study is consistent with the study of (Sulaiman, 2012;

Worthington, 2001; Hagedoorn & Duysters, 2002; Ming & Hoshino, 2002; Block, 1997;

Leepsa, 2012).


Table 5.19

Paired Samples Statistics Nagina Cotton Mills Ltd.


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.341 1.713 .113

QR (Times) 1.078 1.490 .113

DE 198.910 194.200 .918

DR 64.556 65.866 .778


ROCE % 27.333 16.933 .124

ROE % 36.160 20.733 .194

GP % 22.170 13.170 .050

NP % 13.553 24.980 .431

OP % 11.193 10.636 .854

Efficiency Ratios

FAT 5.530 2.417 .348

AT 2.236 1.116 .336

SG -17.233 5.876 .408

Capital Ratios


EPS 6.000 3.733 .177

BUV Per Share (Rs) 18.900 22.166 .030



5 (5/14, 36%) and remaining 9 financial ratios displays decline after-merger. From five

enhanced ratios only a single ratio is significant. At the same time one of nine


improvement and deterioration of post- merger performance, it can be concluded the

post- merger performance is deteriorated. Finally it can be argued that Nagina Cotton

Mills Ltd post- merger performance deteriorated and has an insignificant negative impact.

Post-merger profitability, capital and efficiency deteriorated while liquidity improved.

The result of this study is consistent with the study of (Andre et al., 2004; Agrawal, Jaffe,

& Mandelker, 1992; Selcuk & Yilmaz, 2011; Pazarskis et al., 2006).

Table 5.20

Paired Samples Statistics Nimar Resins Ltd


Pre-merger

(adjusted average

value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 4.700 5.446 .576


QR (Times) 3.133 4.740 .067

DE 138.283 339.000 .050

DR 87.670 88.000 .984


ROCE % 57.000 -149.300 .162

ROE % 167.833 -104.600 .403

GP % -2.050 0.917 .322

NP % -30.560 -32.266 .916

OP % 22.000 -21.100 .013

Efficiency Ratios

FAT 1.020 1.476 .264

AT 0.676 0.833 .308

SG 6.033 15.400 .739

Capital Ratios

EPS -0.600 -1.100 .722

BUV Per Share (Rs) 1.666 0.400 .370




merger period. Out of six improved ratios none of ratio is significant. At the same time

two of eight deteriorated ratios are significant at 5% level of significance. By comparing

the improvement and deterioration of post- merger performance it is concluded that post-


merger performance is deteriorated. Finally it is argued that Nimar Resins Ltd position

deteriorated and insignificantly. Post-merger profitability, liquidity and capital

deteriorated but efficiency improved. The result of this study is consistent with the study

of (Kruse, Park, Park, & Suzuki, 2007; Pazarskis et al., 2006; Soubeniotis, Mylonakis,

Fotiadis, Chatzithomas, & Mertzitmekis, 2006; Marimuthu , 2008).

Table 5.21

Paired Samples Statistics Nishat (chunian) Ltd.


(adjusted average

value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.118 0.820 .02

QR (Times) 0.789 0.310 .119

DE 131.600 236.866 .033

DR 34.000 55.666 .043


ROCE % 29.290 10.900 .033

ROE % 37.433 14.886 .047

GP % 18.446 17.376 .348

NP % 10.900 6.816 .257

OP % 13.696 13.326 .689


Efficiency Ratios

FAT 2.266 1.020 .001

AT 1.466 0.713 .001

SG 29.000 5.800 .345

Capital Ratios

EPS 11.400 9.166 .212

BUV Per Share (Rs) 34.100 37.306 .600




merger period. Out of one improved ratios none of ratio is significant impact. At the same

time seven of thirteen deteriorated ratios are significant at 5% level of significance. By


concluded the post- merger performance is deteriorated. Finally it can be argued that

Nishat (Chunian) Ltd post- merger performance deteriorated and has a significant

negative impact. Post-merger profitability, liquidity, capital and efficiency deteriorated.

The result of this study is consistent with the study of (Sharma & Ho, 2002; Gjirja, 2003;

Sharma & Thistle, 1996; Andre et al., 2004).


Table 5.22

Paired Samples Statistics Nishat Mills


(adjusted average

value)

Post-merger

(adjusted average

value)

Significance (2

Tailed)

Liquidity Ratios

CR (Times) 2.860 1.426 .266

QR (Times) 1.890 0.836 .341

DE 51.670 54.000 .876

DR 33.176 34.973 .774


ROCE % 9.593 12.750 .408

ROE % 11.556 13.820 .537

GP % 17.110 17.180 .976

NP % 11.870 16.063 .579

OP % 10.310 3.326 .026

Efficiency Ratios

FAT 1.483 1.220 .540

AT 0.506 0.643 .299

SG 15.640 22.720 .688

Capital Ratios

EPS 10.360 16.700 .592

BUV Per Share (Rs) 138.300 111.586 .680





merger period. Out of nine improved ratios none of ratio is significant impact. At the

same time one of five deteriorated ratios are significant at 5% level of significance. By


concluded the post- merger performance is improved. Finally it can be argued that Nishat

mills post- merger performance improved and has an insignificant positive impact. Post-

merger profitability deteriorated while liquidity, capital and efficiency improved. The

result of this study is consistent with the study of (worthington, 2001; Hagedoorn &

Duysters, 2002; Marimuthu , 2008; Selvan et al., 2009).

Table 5.23

Paired Samples Statistics Oil Gas and Development Company


(adjusted

average value)

Post-merger

(adjusted

average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 2.603 3.160 .355

QR (Times) 1.816 2.220 .578

DE 31.000 41.330 .136


DR 23.426 29.233 .135


ROCE % 65.903 61.970 .678

ROE % 65.903 68.586 .649

GP % 58.713 67.723 .069

NP % 55.606 60.016 .304

OP % 52.556 52.860 .870

Efficiency Ratios

FAT 6.300 16.900 .035

AT 0.863 0.763 .557

SG 10.866 18.933 .004

Capital Ratios

EPS 9.953 14.480 .004

BUV Per Share (Rs) 21.783 30.456 .049




merger period. Out of ten improved ratios four ratios has significant impact. At the same

time none of four deteriorated ratios are significant at 5% level of significance. Finally it

can be argued that Oil Gas and Development Company Limited (OGDCL) post- merger

performance improved insignificantly. After-merger profitability, efficiency and capital

upgraded but liquidity deteriorated. The result of this study is consistent with the study of


(Sulaiman, 2012; Ming & Hoshino, 2002; Block, 1997; Sufian & Majid, 2007; Sidharth

& Sunil, 2009).

Table 5.24

Paired Samples Statistics Packages Ltd.


Pre-merger

(adjusted average

value)

Post-merger

(adjusted average

value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 3.413 3.176 .815

QR (Times) 2.463 1.250 .320

DE 66.670 72.670 .861

DR 39.546 40.503 .932


ROCE % 28.280 6.760 .007

ROE % 37.783 10.756 .024

GP % 15.050 6.000 .019

NP % 41.793 13.440 .039

OP % 7.093 5.093 .700

Efficiency Ratios

FAT 47.033 65.370 .574

AT 0.496 0.450 .756


SG 13.123 21.266 .511

Capital Ratio

EPS 57.890 17.890 .159

BUV Per Share (Rs) 184.750 266.640 .001



3 (3/14, 21%) and remaining 11 financial ratios displays decline after-merger. From three

improved ratios only a single ratio is significant. At the same time four of eleven


improvement and deterioration of post- merger performance, it can be concluded the

post- merger performance is deteriorated. Finally it can be argued that Packages Ltd post-

merger performance deteriorated and has an insignificant negative impact. Post-merger

profitability and liquidity deteriorated while efficiency and Capital improved. The result

of this study is consistent with the study of (Marimuthu , 2008; Poposki, 2007;

Soubeniotis et al., 2006; Sharma & Ho, 2002).

Table 5.25

Paired Samples Statistics Pak Suzuki

Performance

Variables

Pre-merger

(adjusted average

value)

Post-merger (adjusted

average value)

Significance (2

Tailed)


Liquidity Ratios

CR (Times) 1.776 3.676 .094

QR (Times) 0.823 0.946 .527

DE 97.330 25.330 .130

DR 30.766 16.900 .117


ROCE % 47.246 4.820 .023

ROE % 47.246 4.820 .023

GP % 24.133 47.266 .002

NP % 10.000 22.283 .017

OP % 9.303 20.681 .017

Efficiency Ratios

FAT 6.203 9.300 .028

AT 1.066 2.776 .033

SG 6.650 15.226 .043

Capital Ratios

EPS 47.413 4.440 .030

BUV Per Share (Rs) 172.586 174.063 .934

Table 5.25 reports the average values of the performance indicators before of pre

and post-merger. Out of fourteen financial ratios, score for the improved ratios after

merger is 11 (11/14, 79%) and remaining 3 financial ratios score shows deterioration in

the post-merger period. Out of eleven improved ratios six ratios are significant impact. At


the same time three of three deteriorated ratios are significant at 5% level of significance.

By comparing the improvement and deterioration of post- merger performance, it can be

concluded the post- merger performance is improved. Finally it can be argued that Pak

Suzuki post- merger performance improved and has a significant positive impact. Post-

merger profitability, efficiency and liquidity improved while capital deteriorated. The

result of this study is consistent with the study of (Hagedoorn & Duysters, 2002; Kruse et

al., 2007; Tuch & Sullivan, 2007; Poposki, 2007; Sidharth & Sunil, 2009).

Table 5.26

Paired Samples Statistics Pakelektron Limited

Performance

Variables

Pre-merger (adjusted

average value)


average value)

Significance(2

Tailed)

Liquidity Ratios

CR (Times) 1.098 0.980 .401

QR (Times) 1.029 0.586 .121

DE 159.833 257.200 .107

DR 9.933 20.233 .099


ROCE % 16.483 30.770 .042

ROE % 3.633 17.966 .111

GP % 21.376 18.150 .140

NP % 1.733 4.700 .256


OP % 12.783 10.860 .083

Efficiency Ratios

FAT 1.366 2.766 .008

AT 0.723 1.046 .038

SG 20.166 41.233 .386

Capital Ratios

EPS 3.433 2.366 .154

BUV Per Share (Rs) 97.900 49.900 .004




merger period. Out of six improved ratios three ratios are significant impact. At the same

time one of eight deteriorated ratios are significant at 5% level of significance. Finally it

can be argued that Pak elektron post- merger performance deteriorated and has an

insignificant negative impact. Post-merger profitability and efficiency improved while

liquidity and capital deteriorated. The result of this study is consistent with the study of

(Vaynerman,2009; Dhiman & Parray, 2011; Vitale & Laux, 2012). The result of this

study also inconsistent with the study of (Marimuthu , 2008; Selvan et al., 2009)


Table 5.27

Paired Samples Statistics Shahzad Textile Mills

Performance

Variables

Pre-merger (adjusted

average value)


average value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 0.850 1.703 .393

QR (Times) 0.563 0.530 .870

DE 136.330 162.330 .740

DR 0.566 0.613 .749


ROCE % 3.153 9.596 .292

ROE % 6.180 12.150 .181

GP % 11.430 10.023 .601

NP % 2.553 4.133 .311

OP % 2.553 5.626 .381

Efficiency Ratios

FAT 1.383 2.766 .118

AT 0.930 1.850 .098

SG 26.643 49.483 .361

Capital Ratios

EPS 1.250 4.413 .581

BUV Per Share(Rs) 33.883 51.483 .394




merger period. Out of ten improved ratios three ratios are significant impact. At the same

time one of four deteriorated ratios are significant at 5% level of significance. By



concluded the post- merger performance is improved. Finally it can be argued that

Shahzad textile mills post- merger performance improved insignificantly. Profitability,

efficiency and capital become better while liquidity declined. The result of this study is

consistent with the study of (Sulaiman, 2012; Hagedoorn & Duysters, 2002; Ming &

Hoshino, 2002; Worthington, 2001; Tuch & Sullivan, 2007).

Table 5.28

Paired Samples Statistics Siemens Pakistan Limited

Performance Variables Pre-merger (adjusted

average value)


average value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 1.286 1.216 .109

QR (Times) 0.750 0.863 .023

DE 262.670 262.330 .995

DR 71.783 24.873 .220


ROCE % 53.170 32.640 .046

ROE % 53.170 32.990 .069

GP % 12.970 13.503 .491

NP % 8.410 7.116 .275

OP % 5.710 4.573 .666

Efficiency Ratios

FAT 20.683 11.100 .159

AT 1.566 1.220 .113

SG 20.970 27.523 .712

Capital Ratios

EPS 102.960 153.710 .362

BUV Per Share (Rs) 440.206 823.246 .043




7 (7/14, 50%) and remaining 7 financial ratios displays decline after-merger. From seven

enhanced ratios only a single ratio is significant. At the same time two of seven ratios are

significantly deteriorated at 5% level of significance. By comparing the improvement and

deterioration of post- merger performance, it is concluded the post- merger performance

is improved. Finally it is argued that Siemens performance improved insignificantly.

Post-merger profitability and efficiency deteriorated while liquidity and capital improved.

The result of this study is consistent with the study of (Marimuthu , 2008; Selvan et al.,

2009; Mantravadi & Reddy, 2008).

Table 5.29

Paired Samples Statistics Thal Limited


average value)


average value)

Significance

(2 Tailed)

Liquidity ratios

CR (Times) 2.617 0.972 .312

QR (Times) 1.136 0.593 .499

DE 57.233 35.033 .335

DR 22.000 25.000 .430

Profitability ratios

ROCE % 57.486 36.286 .019


ROE % 54.633 36.803 .040

GP % 23.768 44.343 .043

NP % 12.120 3.249 .142

OP % 7.660 16.270 .040

Efficiency ratios

FAT 18.118 14.262 .613

AT 2.290 1.798 .007

SG 18.100 48.000 1.873

Capital ratios

EPS 26.840 41.376 .549

BUV per share (Rs) 97.460 231.602 .046




merger period. Out of six improved ratios three ratios are significant impact. At the same

time three of eight deteriorated ratios are significant at 5% level of significance. As a

whole by comparing the improvement and deterioration of post- merger performance, it

can be concluded the post- merger performance is not improved. Finally it can be argued

that Thal limited post- merger performance not improved and has an insignificant

negative impact. Post-merger profitability, efficiency, liquidity are deteriorated, while

capital improved. The result of this study is not consistent with the study of (Hagedoorn

& Duysters, 2002; Kruse et al., 2007; Tuch & Sullivan, 2007; Poposki, 2007; Sinha,


kaushik, & Chaudhry, 2010).The result of this study is consistent with the study of

(Selvan et al., 2009; Marimuthu , 2008).

Table 5.30

Paired Samples Statistics Hub Power


average value)


average value)

Significance

(2 Tailed)

CR (Times) 2.186 1.020 .035

QR (Times) 1.393 0.950 .087

DE 49.000 21.600 .043

DR 32.866 66.156 .026


ROCE % 8.816 9.380 .873

ROE % 11.843 13.390 .797

GP % 20.820 4.700 .200

NP % 4.580 8.460 .048

OP % 19.980 4.313 .205

Efficiency Ratios

FAT 99.876 136.726 .741

AT 0.730 0.936 .566

SG 44.323 19.866 .539

Capital Ratios

EPS 3.110 3.096 .859


BUV Per Share (Rs) 26.130 25.396 .568



5 (5/14, 21%) and remaining 9 financial ratios displays decline after-merger. From five

enhanced ratios only a single ratio is significant. Performance indicator after the merger

is not satisfactory than that before the merger and the mean differences between the two

periods insignificant at the 5% level. At the same time three of nine deteriorated ratios are

significant at 5% level of significance. Finally it is argued that Hub power post- merger

performance not improved and has an insignificant negative impact. Post-merger

profitability and efficiency improved while liquidity and capital deteriorated. The result

of this study is consistent with the study of (Hagedoorn & Duysters, 2002; Kruse et al.,

2007; Tuch & Sullivan, 2007; Poposki, 2007; Sinha et al., 2010).The result of this study

is not consistent with the study of (Selvan et al., 2009; Marimuthu , 2008).

Table 5.31

Paired Samples Statistics World Call Telecom Ltd


average value)


average value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 2.646 0.913 .080

QR (Times) 0.596 0.516 .757


DE 67.670 91.330 .633

DR 38.000 46.670 .583


ROCE % 8.036 7.613 .949

ROE % 0.051 0.096 .418

GP % 0.265 0.206 .730

NP % 0.112 0.016 .730

OP % 5.760 11.870 .040

Efficiency Ratios

FAT 0.303 0.386 .157

AT 0.233 0.320 .086

SG 2.657 5.764 .046

Capital Ratio

EPS 0.876 0.923 .943

BUV Per Share (Rs) 14.436 13.160 .698




merger period. Out of six improved ratios two ratios are significant impact. At the same

time one of eight deteriorated ratios are significant at 5% level of significance. By


concluded the post- merger performance is not improved. Finally it can be argued that


World call Telecom Ltd post- merger performance not improved and has an insignificant

negative impact. Post-merger profitability, liquidity, capital ratios are deteriorated while

efficiency improved. The result of this study is consistent with the study of (Pazarskis et

al., 2006; Soubeniotis et al., 2006; Vaynerman, 2009; Poposki, 2007).

Table 5.32

Paired Samples Statistics Zeal Pak Cement


average value)


average value)

Significance

(2 Tailed)

Liquidity Ratios

CR (Times) 3.508 0.536 .415

QR (Times) 0.406 0.190 .025

DE 60.000 32.667 .228

DR 29.500 15.700 .019


ROCE % 14.040 52.170 .009

ROE % 14.046 63.233 .017

GP % 11.806 115.206 .045

NP % 26.056 166.876 .041

OP % 20.950 160.850 .036

Efficiency Ratios

FAT 77.730 21.616 .008

AT 0.466 0.146 .031


SG 18.950 40.143 .107

Capital Ratios

EPS 1.340 1.420 .916

BUV Per Share (Rs) 9.480 22.080 .003

Table 5.32 shows that out of fourteen financial ratios score for the improved ratios

after merger is 10 (10/14, 71%) and remaining 4 financial ratios score shows

deterioration in the post-merger period. Out of ten improved ratios seven ratios are

insignificant impact. Performance indicator after the merger is satisfactory than that

before the merger and the mean differences between the two periods insignificant at the

5% level. At the same time three of four deteriorated ratios are significant at 5% level of

significance. As a whole by comparing the improvement and deterioration of post-

merger performance, it can be concluded the post- merger performance is improved.

Finally it is argued that Zeal Pak cement post- merger performance improved and has an

insignificant positive impact. Post-merger profitability, liquidity, capital improved while

efficiency deteriorated. The result of this study is consistent with the study of (Kruse et

al., 2007; Tuch & Sullivan, 2007; Sinha et al., 2010; Selvan et al., 2009; Marimuthu ,

2008).

5.1.2 Paired Sample t-Statistics of Individual Banks


Table 5.33

Paired Samples Statistic Al-Faysal Bank Limited


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)

Profitability and Efficiency Ratios

Spread Ratio % 34.073 39.106 .685

Net Markup/Interest % 3.096 3.440 .752

Return as % of Equity% .153 .213 .741

Return as % of Assets % 1.030 .403 .143

Non-Interest Income as % of Assets% 2.586 1.296 .146

Net Interest Income after Provision% 1.710 2.416 .261

Interest Expense to Interest Income% 65.926 71.226 .011

Administration Expense to Profit after Tax(Times) 2.033 18.086 .043

Non –Mark- Up/Interest Expense to Total Income % 16.726 33.436 .041

Administration Expense to Non-Mark Up Interest

Income(Times) .986 2.440 .047

Earnings Per Share (Rs) 2.796 1.826 .386

Liquidity Ratios

Cash and Cash Equivalent to Total Assets% 6.506 9.523 .275


Investment to Total Assets% 26.570 33.420 .048

Advances Net Provisions to Total Assets% 57.590 55.220 .805

Deposits to Total Assets % 71.630 74.806 .438

Total Liability to Total Assets% 91.213 94.083 .144

Gross Advances to Deposits% 85.026 71.510 .049

Gross Advances to Borrowings and Deposits% 73.280 61.943 .043

Assets Quality Ratio

Non-Performing Loans as % of Advances% 8.156 17.026 .016

Provision Against Non-Performing Loans % of

Advances %

7.646 11.680 .042

Non-Performing Loans as % of Shareholders Equity% 71.083 143.360 .047

Non-Performing Loans Write Off as % of Non-

Performing Loans Provisions %

42.623 14.864 .049

Provisions Against Non- Performing Loans as % of

Non- Performing Loans %

70.590 60.780 .228

Leverage and Capital Ratio

Capital Ratio% 6.980 5.100 .117

Break-Up Value Per Share (Rs) 19.113 24.440 .168

Total Deposits to Total Equity(Times) 11.623 13.606 .002


after the merger. Twenty six Performance variables score for the improved ratios after

merger is 11(11/26, 42%) and remaining 15 financial ratios indicates decline in the after-


merger phase. Eleven of improved ratios four ratios are statistically significant. At the

same time eight of fifteen deteriorated ratios are significant. Finally it can be argued that

al Faysal bank limited post- merger performance deteriorated significantly. Post-merger

profitability, efficiency, liquidity, assets quality deteriorated and capital and leverage

improved. The results of Al Faysal merger are consistent with the findings of (Kemal,

2011; Saba, 2011).

Table 5.34

Paired Samples Statistic AL Baraka Islamic bank


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)


Spread Ratio % 48.563 22.640 .046


Return as % of Equity% -.080 .986 .425

Return as % of Assets % -1.686 .290 .368

Non-Interest Income as % of Assets% .940 6.463 .048


Interest Expense as % of Interest Income% 51.236 27.026 .042


Administration Expense as % of Profit after Tax(Times) -2.976 2.403 .022

Non -Interest Expense as % of Income% 78.656 36.766 .047

Administration cost to non-mark up Income(Times) 16.950 4.123 .024

Earnings Per Share (Rs) -.673 .063 .503

Liquidity Ratios

Cash and Cash Equivalent as % of Assets% 11.360 14.600 .463

Investment as % of Assets% 19.700 33.930 .181

Advances Net of Provisions to Total Assets% 41.370 36.110 .673





Assets Quality Ratios



Advances %

1.783 7.460 .032




53.626 34.386 .399



69.680 44.020 .288



Capital Ratio % 24.533 9.870 .042




after the merger. Twenty six Performance variables, score for the improved ratios after

merger is 15(15/26, 58%) and remaining 11 financial ratios indicates decline in the after-

merger phase. Fifteen of improved ratios seven ratios are statistically significant. At the

same time four of eleven deteriorated ratios are significant. As an end point AL Baraka

Islamic bank post- merger performance improved significantly. Post-merger profitability,

efficiency and capital and leverage improved while liquidity and assets quality

deteriorated. The results of AL Baraka Islamic bank merger are consistent with the

findings of (Saluja et al., 2012; Oladepo, 2010; Raiyami, 2010).

Table 5.35

Paired Samples Statistic Allied Bank


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig. (2-

Tailed)



Spread Ratio % 52.260 48.030 .544


Return as % of Equity% 9.170 .373 .432

Return as % of Assets % 1.380 2.446 .359




Administration Expense to Profit After Tax(Times) 1.043 .793 .441

Non –Mark- Up/Interest Expense to Total Income% 26.250 22.636 .201


Income(Times)

1.786 1.776 .976


Liquidity Ratios


Investment to Total Assets % 22.466 29.170 .271


Deposits to Total Assets% 81.776 79.523 .192








Advances %

5.043 6.840 .110

Non-Performing Loans as % of Shareholders

Equity%

64.143 65.706 .678



21.866 30.076 .547



79.923 82.056 .688


Capital Ratio % 5.953 6.810 .274

Break-Up Value Per Share(Rs) 34.176 40.046 .219


Table 5.35 shows the average values of the performance indicators before and


merger is 14(14/26, 54%) and remaining 12 financial ratios score shows deterioration in

the post-merger period. Out of fourteen improved ratios none of ratio is statistically

significant impact. At the same time none of twelve deteriorated ratios are significant at

5% level of significance. Finally it can be argued that allied bankperformance Improved

insignificantly positive. Allied bank all performance indicators becomes better except


asset quality declined. The results of Allied bank merger are consistent with the findings

of (Saluja et al., 2012; Oladepo, 2010)

Table 5.36

Paired Samples Statistic Askari Bank


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig. (2-

Tailed)


Spread Ratio % 41.593 31.193 .031



Return as % of Assets % .693 .496 .728

Non-Interest Income as % of Assets% 1.616 .846 .280




Non -Mark Up/Interest Expense to Total Income% 26.930 25.776 .563


Income(Times)

1.980 3.563 .048



Liquidity Ratios











Advances %

10.330 8.493 .150




37.686 14.010 .050



90.836 68.653 .104

Leverage and Capital Ratios

Capital Ratio % 6.370 4.093 .005







the post-merger period. Out of twelve improved ratios two of ratios are statistically

significant impact. At the same time eight of fourteen deteriorated ratios are significant at

5% level of significance. Finally it can be argued that Askari bank post- merger

performance deteriorated and has a significant negative impact. Post-merger profitability

and efficiency, capital and leverage and liquidity deteriorated while assets quality

improved. The results of Askari bank merger are consistent with the findings of (Kemal,

2011; Saba, 2011; Ullah, Ullah, & Usman, 2010).

Table 5.37

Paired Samples Statistic Atlas Bank


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)


Spread Ratio % 57.030 10.965 .352

Net Markup/Interest% 1.610 1.052 .590

Return as % of Equity% 1.080 14.315 .357


Return as % of Assets % .310 2.720 .364


Net Interest Income after Provision% 1.216 .040 .303


Administration Expense to Profit after Tax(Times) -.195 -.895 .886



Income(Times)

4.780 1.880 .015


Liquidity Ratios



Advances Net Of Provisions to Total Assets% 5.780 55.605 .140








Advances %

4.050 6.115 .332





11.945 58.620 .016



75.645 60.360 .041


Capital Ratio % 23.500 18.780 .049


Total Deposits to Total Equity (Times) .830 3.650 .029



merger performance of acquiring company (Atlas bank). Improvement in performance

indicators shows positive impact of merger while the deterioration shows negative impact

of mergers. Twenty six Performance variables score for the improved ratios after merger

is 15(14/26, 54%) and remaining 11 financial ratios score shows deterioration in the post-

merger period. Out of fifteen improved ratios six of ratios are statistically significant

impact. Performance indicator after the merger is satisfactory than that before the merger

and the mean differences between the two periods insignificant at the 5% level. At the

same time two of eleven deteriorated ratios are significant at 5% level of significance. As

a whole by comparing the improvement and deterioration of post- merger performance, it

can be concluded the post- merger performance is improved. Finally it can be argued that

Atlas bank post- merger performance improved and has insignificant positive impact.

Post-merger profitability and efficiency and liquidity improved while assets quality and


capital and leverage deteriorated. The results of Atlas bank merger are consistent with the

findings of (Ebimobowei & Sophia, 2011; Gjirja, 2003).

Table 5.38

Paired Samples Statistic of Bank Alfalaha


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average

value)

Sig. (2-

Tailed)


Spread Ratio % 32.493 40.093 .007







Administration Expense to Profit after

Tax(Times)

3.190 4.076 .648

Non –Mark- Up/Interest Expense to Total

Income%

36.036 8.356 .041

Administration Expense to Non-Mark Up 11.740 3.260 .010


Interest Income(Times)

Earnings Per Share(Rs) 3.053 3.100 .981

Liquidity Ratios



Advances Net of Provisions to Total

Assets%

53.806 43.560 .110




Gross Advances to Borrowings and

Deposits%

71.873 54.213 .160


Non-Performing Loans to Gross Advances % 2.486 8.326 .012

Provision against Non-Performing Loans to

Gross Advances %

1.790 5.376 .019

Non-Performing Loans to Shareholders

Equity%

25.673 90.106 .021

Non-Performing Loans Write off to Non-

Performing Loans Provisions%

47.336 30.330 .050

Provisions Against Non- Performing Loans

to Non- Performing Loans%

88.213 60.980 .039



Capital Ratio % 4.073 6.516 .008


Total Deposits to Total Equity 21.026 22.296 .756




the post-merger period. Out of fifteen improved ratios seven of ratios are statistically

significant impact. At the same time three of eleven deteriorated ratios are significant at

5% level of significance. Finally it can be argued that Bank Alfalaha post- merger

performance improved insignificantly. All performance indicators becomes better except

liquidity and assets quality decline. The results of Alfalaha bank merger are consistent

with the findings of (Saluja et al., 2012; Oladepo, 2010; Sufian & Majid, 2007).

Table 5.39

Paired Samples Statistic of J.S Bank


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)



Spread Ratio% 23.890 29.785 .049








Non –Mar- Up/Interest Expense to Total Income% 47.105 13.425 .04


Income(Times)

5.845 3.555 .754


Liquidity Ratios











Provision against Non-Performing Loans to Gross

Advances %

5.340 3.525 .346

Non-Performing Loans to Shareholders Equity% 3.205 11.555 .291

Non-Performing Loans Write Off to Non-Performing

Loans Provisions%

6.460 12.760 .223

Provisions against Non- Performing Loans to Non-

Performing Loans %

90.970 42.090 .276


Capital Ratio 24.615 21.920 .710






the post-merger period. Out of eighteen improved ratios four of ratios are statistically

significant impact. Performance indicator after the merger is satisfactory than that before

the merger and the mean differences between the two periods insignificant at the 5%

level. At the same time none of eight deteriorated ratios are significant at 5% level of




Finally it can be argued that J.S bank post- merger performance improved and has an

insignificant positive impact. Post-merger profitability and efficiency and liquidity

improved while assets quality and capital and leverage deteriorated. The results of

Alfalaha bank merger are consistent with the findings of (Saluja et al., 2012; Oladepo,

2010; Sufian & Majid, 2007; Kadir, Selamat, & Idros, 2010).

Table 5.40

Paired Samples Statistic Kasab Bank

Performance variables

Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

tailed)

Profitability and efficiency ratios

Spread Ratio % 36.335 29.465 .042




Non-Interest Income as % of Assets% 3.105 21.525 0.02


Interest expense to Interest Income% 63.665 70.535 .044



Non –Mark- up/Interest Expense to Total income% 14.180 25.190 .396

Administration Expense to Non-Mark up Interest

Income(Times)

.715 1.595 .114

Earnings per Share(Rs) 3.200 1.810 .369

Liquidity ratios





Total liability to Total Assets% 90.385 93.345 .272



Assets quality ratio

Non-Performing loans to Gross Advances % 6.810 13.595 .107

Provision against Non-Performing loans to Gross

Advances%

7.895 9.360 .759

Non-Performing loans to Shareholders Equity% 59.710 121.270 .139

Non-Performing loans write off to Non-performing loans

Provisions%

48.365 21.860 .024

Provisions against Non- Performing loans to Non-

Performing loans %

72.905 68.395 .625


Leverage and capital ratio

Capital ratio % 7.325 6.255 .024

Break-Up Value per Share (Rs) 19.335 20.700 .650

Total Deposits to Total Equity (Times) 10.005 13.310 .300

Table 5.40 reveals the average values of the performance indicators before and


merger is 6 (6/26, 23%) and remaining 20 financial ratios score shows deterioration in the

post-merger period. Out of six improved ratios two of ratios are statistically significant

impact. At the same time five of twenty deteriorated ratios are significant at 5% level of


merger performance, it can be concluded the post- merger performance is deteriorated.

Finally it can be argued that kasab bank performance declined insignificantly.

Profitability and efficiency, liquidity and assets quality deteriorated while capital and

leverage improved. The results of Kasab bank merger are consistent with the findings of

(Kemal, 2011; Saba, 2011; Ullah et al., 2010; Said, Nor et al., 2008).

Table 5.41

Paired Sample Analysis NIB


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)



Spread Ratio% 28.990 20.846 .199


Return as % of Equity% .803 1.023 .894







Administration Expense to Non-Mark up Interest

Income(Times)

2.823 3.610 .323


Liquidity Ratios










Non-Performing Loans to Gross Advances% 11.566 30.503 .028


Advances %

3.240 23.753 .011


Non-Performing Loans Write off to Non-Performing

Loans Provisions %

34.520 20.166 .581


Performing Loans %

87.223 79.693 .670


Capital Ratio % 12.746 28.903 .042






the post-merger period. Out of twelve improved ratios two of ratios are statistically

significant impact. Performance indicator after the merger is unsatisfactory than that


5% level. At the same time three of fourteen deteriorated ratios are significant at 5% level

of significance. As a whole by comparing the improvement and deterioration of post-

merger performance, it can be concluded the post- merger performance is deteriorated.


Finally it can be argued that NIB post- merger performance deteriorated and has an

insignificant negative impact. Post-merger profitability and efficiency, liquidity and

assets quality deteriorated while capital and leverage improved. The results of NIB bank

merger are consistent with the findings of (Kemal, 2011; Saba, 2011; Ullah et al., 2010;

Lang & Peter, 1999).

Table 5.42

Paired Samples Statistic Standard Chartered


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)


Spread Ratio % 71.940 67.646 .340









Non -Mark Up/Interest Expense to Total Income% 24.576 40.386 .048


Income(Times)

10.376 11.870 .251

Earnings Per Share(Rs) 1.443 .366 .011

Liquidity Ratios









Non-Performing Loans to Gross Advances% 6.610 11.550 .127

Provision Against Non-Performing Loans to Gross

Advances%

3.834 14.486 .048



Loans Provisions %

14.183 61.866 .025


Performing Loans %

97.743 87.266 .760



Capital Ratio% 22.146 15.900 .597






post-merger period. Out of nine improved ratios none of ratio is statistically significant

impact. At the same time seven of seventeen deteriorated ratios are significant at 5%

level of significance. As a whole by comparing the improvement and deterioration of

post- merger performance, it can be concluded the post- merger performance is

deteriorated. Finally it can be argued that standard chartered post- merger performance

deteriorated and has an insignificant negative impact. Post-merger profitability and

efficiency, assets quality and capital and leverage deteriorated while liquidity improved.

The results of Standard Chartered bank merger are consistent with the findings of

(Kemal, 2011;Saba, 2011; Ullah et al., 2010; Lang & Peter, 1999; Badreldin &

Kalhoefer, 2009).


Table 5.43

Paired Samples Statistic Summit Bank


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)


Spread Ratio% 47.505 7.015 .203


Return as % of Equity% .005 0.127 .608


Non-Interest Income as % of Assets% 1.290 .760 .600



Administration Expense to Profit After Tax(Times) 0.530 0.364 .960



Income(Times)

2.880 5.280 .346

Earnings Per Share(Rs) .065 0.175 .909

Liquidity Ratios












Advances %

10.575 18.595 .162



Loans Provisions %

58.955 4.610 .252

Provisions Against Non- Performing Loans to Non-

Performing Loans %

100.000 58.685 .141


Capital Ratio % 29.815 5.220 .147







the post-merger period. Out of twelve improved ratios three ratios are statistically

significant impact. Performance indicator after the merger is unsatisfactory than that


5% level. At the same time one of fourteen deteriorated ratios are significant at 5% level

of significance. As a whole by comparing the improvement and deterioration of post-

merger performance it is concluded the post- merger performance is deteriorated. Finally

it can be argued that summit bank post- merger performance deteriorated and has an

insignificant negative impact. Post-merger profitability and efficiency, assets quality and

capital and leverage deteriorated while liquidity improved. The results of Summit bank

merger are consistent with the findings of (Kemal, 2011; Saba, 2011; Ullah et al., 2010;

Lang & Peter, 1999; Badreldin & Kalhoefer, 2009).

5.1.3Analysis of Individual -Financial Sector (Modaraba) Companies

Table 5.44

Paired Samples Statistic BRR Guardian Modaraba


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)


Return on Equity % 5.775 39.965 .050


Return on Capital Employed % 2.990 15.760 .520

Return on Assets % 1.830 10.040 .510

Return on Revenue % 5.035 53.360 .049

Operating Expenses % 23.840 42.450 .046


Management Expenses% .975 16.060 .007

Liquidity Ratios

Current Assets to Current Liabilities (Times) 1.130 1.170 .861

Total Liability to Total Assets (Times) .620 .670 .677

Long Term Investment to Total Assets % .290 4.555 .166


Capital Ratio % 15.990 29.150 .518



after the merger. Twelve Performance variables, score for the improved ratios after

merger is 9 (9/12, 75%), and remaining 3 financial ratios score shows deterioration in the

post-merger period. Out of nine improved ratios two ratios are statistically significant



same time two of four deteriorated ratios are significant at 5% level of significance. As a

whole by comparing the improvement and deterioration of post- merger performance it is

concluded the post- merger performance is improved. Finally it can be argued that BRR


Guardian Modaraba post- merger performance improved insignificantly. All performance

signs becomes better.

Table 5.45

Paired Samples Statistic Fidelity Leasing Modaraba


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig. (2-

tailed)


Return on Equity % 7.143 6.053 .779


Return on Assets% 2.966 3.033 .978


Operating Expenses% 325.666 208.980 .048


Management Expenses% 13.466 2.246 .026

Liquidity Ratios

Current Assets to Current Liabilities (Times) .880 2.810 .046

Total Liability to Total Assets(Times) .423 1.108 .437

Long Term Investment to Total Assets% 6.343 2.643 .050



Capital Ratio % 40.000 55.366 .178



after the merger. Performance indicators show improvement and deterioration in the

post-merger performance of acquiring company (Fidelity leasing modaraba).Twelve

Performance variables, score for the improved ratios after merger is 7 (7/12, 58%) and


seven improved ratios three ratios are statistically significant impact. Performance

indicator after the merger is satisfactory than that before the merger and the mean

differences between the two periods insignificant at the 5% level. At the same time one of

five deteriorated ratios are significant at 5% level of significance. As a whole by


concluded the post- merger performance is Improved. Finally it can be argued that

Fidelity leasing Modarabapost- merger performance Improved insignificantly. All

performance signs better except liquidity declined.

5.1.4 Analysis of Individual -Financial Sector (Insurance) Companies


Table 5.46

Paired Sample Analysis of Efu Life Assurance


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig. (2-

Tailed)


Return on Equity% 28.375 33.350 .943

Return on Assets % 2.555 2.815 .969


Claims Incurred to Net Premium % 35.205 33.900 .982

Underwriting Profit to Profit After Tax% 158.890 589.202 .691

Investment Income to Net Premium % 34.625 10.990 .684

Liquidity Ratios

Cash and Cash Balance to Total Assets% .095 .160 .579



Capital Ratio% 10.045 18.125 .410

Break – Up Value Per Share (Rs) 18.235 26.370 .877




post-merger performance of acquiring company (EFU life assurance). Improvement in

performance indicators shows positive impact of merger while the deterioration shows

negative impact of mergers. Ten Performance variables score for the improved ratios

after merger is 8 (8/10, 80%) and remaining 2 financial ratios score shows deterioration

in the post-merger period. Out of eight improved ratios none of ratio is statistically



level. At the same time none of two deteriorated ratios are significant at 5% level of


merger performance it is concluded the post- merger performance is improved. Finally it

is argued that EFU life assurance post- merger performance improved

insignificant.Profitability and efficiency, capital, leverage and liquidity are better off.

Table 5.47

Paired Samples Statistic TPL Direct Insurance


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig. (2-

Tailed)


Return on Equity% 7.650 10.660 .050





Underwriting Profit to Profit After Tax % 89.405 13.235 .643

Investment Income to Net Premium % 1.960 13.950 .004

Liquidity Ratios

Cash and Cash Balance to Total Assets% .070 .925 .050



Capital Ratio % 31.500 32.720 .114

Break – Up Value Per Share (Rs) 6.020 6.740 .661



post-merger performance of acquiring company (TPL direct assurance). Improvement in


negative impact of mergers. Ten Performance variables score for the improved ratios

after merger is 7 (7/10, 70%) and remaining 3 financial ratios score shows deterioration

in the post-merger period. Out of seven improved ratios three ratios are statistically



level. At the same time two of three deteriorated ratios are significant at 5% level of




Finally it is argued that TPL direct assurance post- merger performance Improved

insignificantly. All position indicators becomes better.

5.1.5 Analysis of Individual-Financial Sector (Investment Banking) Companies

Table 5.48

Paired Samples Statistic of First Dawood Investment


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig. (2-

Tailed)


Return on Equity % 8.370 12.686 .156




Operating Expense % 53.667 40.200 .026


Liquidity Ratios



Total Liability to Total Assets (Times) 1.376 5.360 .141

Long Term Investment to Total Assets % 24.000 22.056 .785


Capital Ratio% 9.540 12.053 .103

Break - Value Per Share (Rs) 18.980 19.953 .839


after the merger. Eleven Performance variables, score for the improved ratios after


post-merger period. Out of eight improved ratios two ratios are statistically significant



same time none of three deteriorated ratios are significant at 5% level of significance. As

a whole by comparing the improvement and deterioration of post- merger performance it

is concluded the post- merger performance is improved. Finally it is argued that First

Dawood Investment performance improved insignificantly. All performance signs

become better off except liquidity declined.

Table 5.49

Paired Samples Statistic of Invest Capital Investment


Pre-

merger

(adjusted

value)

Post-

merger

(adjusted

value)

Sig. (2-

Tailed)



Return on Equity% 10.836 15.110 .469


Return on Assets % 0.800 12.160 .002


Operating Expense % 16.123 30.946 .629


Liquidity Ratios

Current Assets to Current Liabilities(Times) .8133 .903 .798

Total Liability to Total Assets (Times) 1.550 1.010 .564

Long Term Investment to Total Assets% 7.140 3.770 .660


Capital Ratio% 4.820 7.846 .497




merger performance of acquiring company (Invest capital Investment). Eleven

Performance variables, score for the improved ratios after merger is 8 (8/11, 73%) and


eight improved ratios two ratios are statistically significant impact. Performance indicator

after the merger is satisfactory than that before the merger and the mean differences

between the two periods insignificant at the 5% level. At the same time none of three


deteriorated ratios are significant at 5% level of significance. As a whole by comparing

the improvement and deterioration of post- merger performance, it can be concluded the

post- merger performance is Improved. Finally it can be argued that invest capital

Investment post- merger performance improved insignificantly. All signs of good

performance become better.

5.1.6 Analysis of Individual -Financial Sector (Leasing) Companies

Table 5.50

Paired Samples Statistic Orix Leasing Pakistan


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig.

(2-

Tailed)






Administration Expense to Profit (Times) 1.585 2.165 .886



Lease Income to Total Income % 46.030 43.895 .733

Liquidity Ratios

Cash and Cash Equivalent to Total Assets % 1.045 6.480 .024

Net Investment In Finance Lease to Total Assets% 23.010 37.185 .513



Capital Ratio % 8.040 4.590 .612

Break - Value Per Share(Rs) 23.740 22.945 .946


after the merger. Twelve Performance variables, score for the improved ratios after

merger is 3 (3/12, 25%) and remaining 9 financial ratios displays decline after-merger.

From three improved ratios only a single ratio is significant. Performance indicator after

the merger is unsatisfactory than that before the merger and the mean differences

between the two periods insignificant at the 5% level. At the same time none of nine

deteriorated ratios are significant at 5% level of significance. Finallyit is said that Orix

leasing performance declinedd insignificantly. Post-merger profitability and efficiency,

capital and leverage deteriorated while liquidity improved. The results of sixth objective

indicate that post-merger profitability and efficiency, capital position insignificantly

deteriorated while liquidity performance variables of leasing company insignificantly

improved.

5.1.7Analysis of Individual -Financial Sector (Mutual Funds) Companies


Table 5.51

Paired Samples Statistic PICIC Investment Fund


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Sig. (2-

Tailed)


Gain Ratio % .605 1.203 .183

Return on Revenue % .571 1.135 .046

Return on Assets % .146 6.730 .363

Management Expense % .505 .736 .018

Net Assets Value Per Share(Rs) 16.051 3.783 .244


Liquidity Ratios

Cash and Cash Equivalent to Total Assets% .026 .083 .014

Total Liability to Total Assets% .058 .046 .315


Shareholders’ Equity to Total Assets% .885 .715 .049



post-merger performance of acquiring company (PICIC investment fund). Improvement


in performance indicators shows positive impact of merger while the deterioration shows

negative impact of mergers. Nine Performance variables, score for the improved ratios

after merger is 6 (6/9, 67%) and remaining 3 financial ratios score shows deterioration in

the post-merger period. Out of six improved ratios only two ratios are statistically



level. At the same time two of three deteriorated ratios are significant at 5% level of


merger performance, it can be concluded that the post- merger performance is improved.

Finally it can be argued that PICIC investment fund post- merger performance improved

and has an insignificant positive impact. Post-merger profitability and efficiency and

liquidity improved while capital and leverage deteriorated.

Table 5.52

Paired Samples Statistic UTP Growth Fund


Pre-

merger

(adjusted

value)

Post-

merger

(adjusted

value)

Sig. (2-

Tailed)


Gain Ratio % 43.017 83.800 .278



Return on Assets % 10.072 22.197 .029

Management Expense % 80.297 41.422 .034

Net Assets Value Per Share(Rs) 3.898 26.140 .025


Liquidity Ratios


Total Liability to Total Assets % 85.477 91.492 .240


Shareholders’ Equity to Total Assets % .445 2.807 .140


after the merger. Nine Performance variables, score for the improved ratios after merger

is 7 (7/9, 78%) and remaining 2 financial ratios score shows deterioration in the post-

merger period. Out of seven improved ratios four ratios are statistically significant

impact. At the same time none of two deteriorated ratios are significant at 5% level of

significance. Finally it can be argued that UTP growth fund post- merger performance

improved and has a significant positive impact. Post-merger profitability and efficiency

and capital and leverage improved while liquidity deteriorated.

5.2 An Overall Analysis of Individual Sector (Analysis 2)

Pre and Post-Merger operating performance ratios are estimated and averages computed

for each individual sector included in samples which have gone through merger during


the period 1998 to 2012. Average Pre and Post-Merger financial performance variables

are compared to see if there is any statistical significant change in operating performance

due to merger, using paired sample t-test at confidence level of 0.05.

5.2.1 Paired Sample t-statistics of manufacturing undertaking

Table 5.53

Overall Paired Samples Statistic Manufacturing Sector


Pre-merger

(adjusted

average

value)

Post-merger

(adjusted

average

value)

Significance

(2 Tailed)

Liquidity

CR (Times) 0.518 0.528 .906

QR (Times) 0.363 0.342 .784

DE 57.638 70.171 .032

DR 34.231 37.285 .782

Profitability

ROCE % 24.229 12.177 .124

ROE % 27.220 16.677 .251

GP % 13.028 20.196 .046

NP % 4.822 21.591 .031


OP % 8.841 21.420 .049

Efficiency

FAT 15.367 17.260 .661

AT 1.020 .995 .824

SG 22.562 27.231 .303

Capital

EPS 8.885 24.517 .035

BUV Per Share(Rs) 63.215 135.589 .019


post-merger. Out of fourteen Performance variables, score for the improved ratios after

merger is 8 (8/14, 57%) and remaining 6 Performance indicators reveals decline in the

after-merger phase. Eight of better indicators five Performance indicators namely Gross

profit, Net profit, operating profit, earnings per share and Break- up value per share are

significant. At the same time one of six deteriorated ratios debt to equity is statistically

significant. As a final point overall manufacturing area of Pakistan after- merger position

improved and has an insignificant positive impact. Post-merger profitability

(significantly), efficiency (insignificantly) and Capital (significantly) improved while,

liquidity (insignificantly) deteriorated. The results of first objective shows that post-

merger profitability, capital variables significantly and efficiency insignificantly

improves while the liquidity variables insignificantly deteriorated of the acquiring

manufacturing sector companies The results of this study are comparable to those

obtained by (Khan , 2011; Hagedoorn & Duysters, 2002; Sidharth & Sunil, 2009; Ullah


et al., 2010; Saluja et al., 2012). Hypothesis H1a and H1c are rejected while H1b and H1d

are accepted.

5.2.2 Paired Sample t-Statistics of Banking Sector

Table 5.54

Banks Overall Paired Sample Analysis


Pre-

merger

(adjusted

average

value)

Post-

merger

(adjusted

average

value)

Significance(2

Tailed)

Profitability and Efficiency

Spread Ratio % 43.152 31.526 .040


Return as % of Equity% 2.787 .466 .012

Return as % of Assets % .555 4.212 .049




Administration Expense to Profit after

Tax(Times)

3.354 5.743 .676


Non –Mark- Up/Interest Expense to Total

Income%

37.623 24.805 .042

Administration Expense to Non-Mark Up

Interest Income(Times)

3.714 2.995 .473


Liquidity








Assets Quality


Provision Against Non-Performing Loans to

Gross Advances %

5.502 10.516 .027

Non-Performing Loans to Shareholders Equity 40.025 96.713 .014

Non-Performing Loans Write Off to Non-

Performing Loans Provisions%

34.324 27.595 .495

Provisions against Non- Performing Loans to


83.975 64.816 .002


Leverage and Capital

Capital Ratio % 15.278 11.760 .027





merger is 16 (16/26, 61%) and remaining 10 Performance indicators reveals decline in

the after-merger phase. Sixteen of favorable ratios eight Performance indicators such as

Return as % of equity, Return as % of Assets, Net Markup Income After Provision,

Investment to assets, Non- Interest Expense to Income, Deposits to assets, Provisions

against Non- performing loans to Non- performing loans and deposits to total equity are

statistically significant. Performance indicator after the merger is satisfactory but

insignificant. At the same time seven of sixteen deteriorated ratios Spread ratio ,Return

on equity, Interest expense to interest income, Provision against non-performing loans to

gross advances , Non-performing loans to shareholders equity , Capital ratio and Non-

performing loans to gross advances are statistically significant. As an end point as a

whole after merger position of Pakistan banking segment declined with insignificant

adverse effect. The results of second objective show that post-merger profitability,

efficiency (significantly) and liquidity variables (insignificantly) improve while assets

quality (significantly) and capital variables insignificantly deteriorated. The results of this

study are matched with the results of (Dhiman & Parray, 2011; Jain & Raorane, 2011;


Raiyami, 2010; karur & P, 2010). So Hypothesis H2a, H2c are accepted while H2b and H2d

is rejected.5.2.3 Paired Sample t-Statistics of Insurance Sector

Table 5.55

Insurance Sector Overall Paired Sample Analysis


Pre-merger

(adjusted

average value)

Post-merger

(adjusted

average value)

Significance

(2 Tailed)


Return on Equity% 18.012 42.005 .015

Return on Assets % 2.865 15.275 .500



Underwriting Profit to Profit after

Tax%

124.147 301.218 .612

Investment Income to Net Premium % 18.292 5.970 . 047

Liquidity

Cash and Cash Balance to Total

Assets%

8.250 14.920 .039



Capital Ratio % 20.772 20.922 .860


Break – Up Value Per Share(Rs) 9.127 11.555 .735


after the merger. Ten Performance variables, score for the improved ratios after merger is

8 (8/10, 70%) and remaining 2 Performance variables displays decline after-merger.

From eight improved ratios only five ratios significantly impact. At the same time one of

two deteriorated ratios Investment income to net premium are statistically significant at

5% level of significance. Finally it is argued that insurance sector post- merger

performance improved and has a significant positive impact. The results of fourth

objective shows that post-merger profitability, efficiency, liquidity (significantly) and

capital position (insignificantly) improved. The profitability results of this study are

matched with the results of (Pazarskis,2009; Vaynerman, 2009). The efficiency results of

this study are comparable to those obtained by (Poposki, 2007).The liquidity and leverage

results are compare able to those obtained by (Andre et al., 2004; Pazarskis et al., 2006).

Hypothesis H3a and H3b are accepted while H3cis rejected.

5.2.4 Paired Sample t-Statistics of Modaraba Sector

Table 5.56

Modaraba Overall Paired Sample Analysis


(adjusted

average value)

Post-merger

(adjusted average

value)

Sig (2

Tailed)



Return on Equity % 5.459 26.009 .049




Operating Expenses% 174.753 125.715 .601


Management Expenses% 22.209 13.653 .019

Liquidity

Current Assets to Current

Liabilities(Times)

1.005 1.990 .487

Total Liability to Total Assets (Times) .521 .889 .454

Long Term Investment to Total

Assets%

.521 3.599 .017


Capital Ratio% 27.995 42.258 .049


The table 5.56 indicates the average values of the performance indicators before

and after the merger. Twelve Performance variables, score for the improved ratios after

merger is 11 (11/12, 92%) and remaining one variable score shows deterioration in the

post-merger period. Out of eleven improved ratios seven performance variables such as

Return on equity, Return on revenue, Earnings per share, Long term investment to total


assets, capital ratio, management expenses and Break-Up Value per Share are statistically

significant impact. At the same time deteriorated performance variable are statistically

insignificant at 5% level of significance. Finally it is argued that Modaraba sector of

Pakistan post- merger performance improved and has a significant positive impact. The

results of third objective show that post-merger profitability and efficiency, capital

position significantly improved while liquidity position insignificantly improved. The

results of this study are matched with the results of (Lang & Peter, 1999; Ming &

Hoshino, 2002; Tuch & Sullivan, 2007). Hypothesis H4a and H4c are accepted while H4bis

rejected.

5.2.5 Paired Sample t-Statistics of Investment Banks.

Table 5.57

Investment Banks Overall Paired Sample Analysis


Pre-merger

(adjusted average

value)

Post-merger

(adjusted

average value)

Sig(2

Tailed)




Return on Assets % .550 .650 .487



Operating Expense% 18.771 4.626 .031


Liquidity

Current Assets to Current

Liabilities(Times)

.748 5.940 .035

Total Liability to Total Assets (Times) 1.463 .971 .042

Long Term Investment to Total

Assets%

15.570 12.913 .167


Capital Ratio % 7.180 9.950 .040


The table 5.57shows the average values of the performance indicators before and

after the merger. Eleven Performance variables, score for the improved ratios after

merger is 10 (10/11, 91%) and remaining 1 performance variable score shows

deterioration in the post-merger period. Out of ten improved variables seven performance

variables such as Return on equity , Return on capital employed, Return on Revenue ,

Operating expense , Current Assets to Current Liabilities, Total liability to total assets

and Capital ratio are statistically significantly impact on the post-merger performance

variables of investments banks in Pakistan. Performance indicator after the merger is

satisfactory than that before the merger and the mean differences between the two periods

significant at the 5% level. Finally it can be argued that Investment banks post- merger

performance improved and has a significant positive impact. Post-merger profitability


and efficiency, capital and leverage and liquidity all are improved. The results of fifth

objective indicate that post-merger profitability and efficiency, liquidity position

improved significantly while capital performance variables improved insignificantly of

investment banks. The results of this study are matched with the results of (Marimuthu ,

2008; Kruse et al., 2007; Poposki, 2007; Sufian & Majid, 2007; Selvan et al., 2009; Kadir

et al., 2010) that after the merger there is an improvement in the profitability, efficiency,

liquidity, leverage and shareholders wealth. Hypothesis H5a H5b are accepted and H5c

rejected.

5.2.6 Paired Sample t-Statistics of Mutual Fund Sector

Table 5.58

Mutual Funds Overall Paired Sample Analysis


Pre-merger

(adjusted

average value)

Post-merger

(adjusted

average value)

Sig(2

Tailed)


Gain Ratio% 32.008 67.900 .042


Return on Assets % 22.536 3.733 .024

Management Expense % 65.648 77.711 .469

Net Assets Value Per Share % 9.975 18.961 .048



Liquidity

Cash and Cash Equivalent to Total Assets % 6.787 9.128 .540



Shareholders’ Equity to Total Assets% .665 1.761 .546

The table 5.58 shows the average values of the performance indicators before and


post-merger performance of acquiring company (mutual fund). Improvement in


negative impact of mergers. Nine Performance variables, score for the improved ratios

after merger is 6 (6/9, 67%) and remaining 3 financial ratios score shows deterioration in

the post-merger period. Out of six improved ratios four performance variables such as

Gain ratio, Return on revenue, Net assets value per share and Earnings per share are

statistically significant impact. Performance indicator after the merger is satisfactory

than that before the merger and the mean differences between the two periods significant

at the 5% level. At the same time one of three deteriorated performance variables Return

on Assets variables is statistically significant at 5% level of significance. Finally it can be

argued that mutual fund sector of Pakistan post- merger performance improved and has a

significant positive impact. Post-merger profitability and efficiency and capital and

leverage improved while liquidity position shows mixed results. The results of seventh

objective indicate that post-merger profitability and efficiency improved significantly


while liquidity and capital performance variables of mutual funds sector improved

insignificantly. The results of this study are comparable to those obtained by (Hagedoorn

& Duysters, 2002; Beena, 2004; Marimuthu , 2008; Kruse et al., 2007; Poposki, 2007)

that after merger that there is an improvement in the profitability, efficiency, liquidity and

wealth of shareholders. Performance variable profitability and efficiency of all the

mergers of financial and non -financial sectors significantly improved. Hypothesis H6a is

accepted while H6b and H6c are rejected.

5.3 Data Envelopment Analysis (DEA) Analysis

Efficiency is measured wit Data Envelopment Analysis Model. In this study DEA

is used to estimate the efficiency of banks, insurance, modaraba, investment banks,

leasing and mutual fund sector of Pakistan.

5.3.1 Data Envelopment Analysis of Banks

In this study the variables that are used as inputs to analyze the post- merger

efficiency of banks includes total Deposits, Interest Expense and Non- Interest Expense.

The output variable includes Total Loans, Interest Income and Non- Interest Income.

Table 5.59

Measurement of Efficiency of Banks

Bank

Name

TE

Under

CRS

TE

Under

VRS

SE RTS

Ranking

Under

CRS

Ranking

Under

VRS

%

Reduction

In Input

Under

CRS

%

Reduction

In Input

Under

VRS


Allied

Bank

1.00 1.00 1.00 0.00 1.00 1.00 0.00 0.00

Askari

Bank

0.2256 0.635 0.889 1.00 8.00 6.00 77.44 36.5

Atlas

Bank

0.7487 1.00 0.748 0.00 2.00 1.00 25.13 0.00

Bank

Alfalaha

1.00 1.00 1.00 0.00 1.00 1.00 0.00 0.00

J.S Bank 1.00 1.00 1.00 0.00 1.00 1.00 0.00 0.00

Nib Bank 0.581 0.605 0.995 1.00 8.00 6.00 48.20 39.50

Standard

Chartered

0.7284 1.00 0.728 0.00 3.00 1.00 27.16 0.00

Summit

Bank

0.5814 0.802 0.676 1.00 6.00 3.00 41.86 19.80

AL

Baraka

Bank

1.00 1.00 1.00 0.00 1.00 1.00 0.00 0.00

Al Faysal

Bank

0.9469 0.815 0.934 1.00 2.00 2.00 5.31 18.50

Kasab

Bank

0.6266 1.00 0.6266 0.00 3.00 1.00 37.34 0.00

Average 0.7671 0.896 0.8724 0.36 3.27 2.18 23.86 10.39


Where

TE= technical efficiency, SE= Scale efficiency, RTS= return to scale, No. of banks

considered for analysis= 11

5.3.1.1 Efficiency Score Distribution under Constant Return to Scale (CRS)

Table 5.59 indicates the efficiency of banks after merger under constant return to

scale method. The results show that four banks are efficient after merger while other

seven banks are inefficient having efficiency score less than one. The efficient banks are

allied bank, bank alfalaha, al Baraka bank and J.S banks, while Askari bank, Atlas bank,

NIB bank, Standard chartered bank, Summit bank, Al Faysal bank and KASAB banks are

inefficient. The average score after the merger is 0.7671.Basically this means that on

average; the merger does not look to improve the productive efficiency of banks. Given,

such conclusions, understandably sufficient, banks still carry on merging in order to

advantage from the economic efficiency of alliance for instance the synergy effect.

5.3.1.2 Efficiency Score Distribution under Variable Return to Scale (VRS)

Results show that allied bank, bank Alfalaha, Al Baraka bank and J.S banks are

efficient with score “1” while other banks such as Askari bank, Atlas bank, NIB bank,

Standard chartered bank, Summit bank, Al Faysal bank and KASAB banks are inefficient

having score less than “1”.The average score after the merger is 0.896 . Basically this

means that on average, the merger does not look to improve the productive efficiency of

banks. Given, such conclusions, understandably sufficient, banks still carry on merging in


order to advantage from the economic efficiency of alliance for instance the synergy

effect.

The results show that overall position of sample banks is not becomes better off..

The results of this study are comparable to those obtained by (Lang & Peter, 1999;Ullah

et al., 2010; Badreldin& Kalhoefer, 2009; Mantravadi & Reddy, 2008; Andre et al.,

2004) that there is no improvement in terms of efficiency after the merger.

5.3.2 Data Envelopment Analysis of Insurance Companies

Table 5.60

Measurement of Efficiency of Insurance Companies

Company

Name

TE

under

CRS

TE

under

VRS

SE RTS Ranking

under

CRS

Ranking

under

VRS

%

reduction

in input

under

CRS

%

reduction

in input

under

VRS

EFU

Insurance

0.693 0.886 0.534 1.00 3.00 2.00 30.7 11.40

TPL

Insurance

1.00 1.00 1.00 0.000 1.00 1.00 0.00 0.00

Average 0.8465 0.943 0.767 0.5 2.0 1.5 15.35 5.7

Where


TE= technical efficiency, SE= Scale efficiency, RTS= return to scale, No. of insurance

companies considered for analysis= 2


Table 5.60 indicates the efficiency of insurance companies after merger under

constant return to scale method. The results show that one insurance company is efficient

after merger while other one insurance company is inefficient having efficiency score less

than one. The efficient insurance company is TPL insurance while EFU insurance

company is inefficient. The average score after the merger is 0.8465. Basically this means

that on average, the merger does not look to improve the productive efficiency of

insurance companies. Given, such conclusions, understandably sufficient, insurance

companies still carry on merging in order to advantage from the economic efficiency of

alliance for instance the synergy effect.


The results show that TPL insurance company is efficient with score “1” while

other insurance company is inefficient, having score less than “1”.The average score after

the merger is 0.943. Basically this means that on average, the merger does not look to

improve the productive efficiency y of insurance companies. Given, such conclusions,

understandably sufficient, insurance companies still carry on merging in order to

advantage from the economic efficiency of alliance for instance the synergy effect.

The results indicate that overall average performance of sample insurance

companies is slightly improved after merger and acquisitions; one insurance company is


efficient while other insurance company is less efficient. The less efficient insurance

company should improve their gross claims. The results of this study are comparable to

those obtained by (Beena, 2004; Sufian& Majid, 2007;Poposki, 2007;Tuch & Sullivan,

2007;Abd—Kadir et al., 2010;Raiyami, 2010;Khan, 2011) that the post - merger

performance slightly improves.

5.3.3 Data Envelopment Analysis of Modaraba Sector

Table 5.61

Measurement of Efficiency of Modaraba Companies

Company

Name

TE

under

CRS

TE

under

VRS

SE RTS Ranking

under

CRS

Ranking

under

VRS

%

reduction

in input

under

CRS

%

reduction

in input

under

VRS

BRR

Guardian

Modaraba

0.534 0.988 0.993 1 2 2 0.466 0.012

Fidelity

leasing

Modaraba

1.00 1.00 1.00 0.00 1.00 1.00 0.00 0.00

Average 0.767 0.994 0.9965 0.5 1.5 1.5 0.233 0.006


Where

TE= technical efficiency, SE= Scale efficiency, RTS= return to scale, No. of modaraba



The table 5.61 indicates the efficiency of Modaraba companies after merger

under constant return to scale method. The results show that one Modaraba company is

efficient after merger while other one Modaraba company is inefficient having efficiency

score less than one. The efficient Modaraba Company is Fidelity leasing modaraba while

BRR Modaraba Company is inefficient. The average score after the merger is 0.767.

Basically this means that on average, the merger does not look to improve the productive

efficiency of Modaraba companies. Given, such conclusions, understandably sufficient,

Modaraba companies still carry on merging in order to advantage from the economic

efficiency of alliance for instance the synergy effect.


The results show that Fidelity leasing modaraba company is efficient with score

“1” while other modaraba is inefficient, having score less than “1”.The average score

after the merger is 0.994. Basically this means that on average, the merger does not look

to improve the productive efficiency of Modaraba companies.

The health of sample modaraba companies is not improved; one Modaraba

company is efficient while other Modarabacompany is inefficient. The inefficient

ModarabaCompany should improve their operating expenses and the

efficientModarabaCompany should also boost up the investment operations, capital,


gross revenue and long term investment and expenses should be carefully handled. The

results of this study are comparable to those obtained by (Ebimobowei & Sophia, 2011;

Kemal, 2011).

5.3.4 Data Envelopment Analysis of Investment Banks

Table 5.62

Measurement of Efficiency of Investment Banks

Company

Name

TE

under

CRS

TE

under

VRS

SE RTS Ranking

under

CRS

Ranking

under

VRS

%

reduction

in input

under

CRS

%

reduction

in input

under

VRS

First

Dawood

investment

bank

1.00 1.00 1.00 0.00 1.00 1.00 0.00 0.00

Fist invest

capital

investment

bank

0.685 0.654 0.907 0.00 1.00 1.00 31.50 34.60

Average 0.8425 0.827 0.9535 0 1.0 1.0 15.75 17.30

Where


TE= technical efficiency, SE= Scale efficiency, RTS= return to scale, No. of investment

banks considered for analysis= 2


The table 5.62 indicates the efficiency of investment banks after merger under

constant return to scale method. The results show that one investment bank is efficient

after merger while other one investment bank is inefficient having efficiency score less

than one. The efficient investment bank is first Dawood investment bank while first

invest capital is inefficient. The average score after the merger is 0.8425. Basically this

means that on average, the merger does not look to improve the productive efficiency of

investment banks. Given, such conclusions, understandably sufficient, investment banks

still carry on merging in order to advantage from the economic efficiency of alliance for

instance the synergy effect.


The results show that first Dawood investment bank is efficient with score “1”

while other investment bank is inefficient, having score less than “1”.The average score

after the merger is 0.827. Basically this means that on average, the merger does not look

to improve the productive efficiency of investment banks. Given, such conclusions,

understandably sufficient, investment banks still carry on merging in order to advantage

from the economic efficiency of alliance for instance the synergy effect.

The performance of sample investment banks is slightly improved; one

investment bank is efficient while other investment bank is less efficient. The less


efficient investment bank should improve their total liabilities and also the less efficient

investment bank should also boost up the investment operations, capital, gross revenue

and expenses should be carefully handled. The results of this study are comparable to

those obtained by (Joshua, 2011;Oladepo, 2010; Kadir et al., 2010; Sufian & Habibullah,

2009).

5.3.5 Data Envelopment Analysis of Leasing Sector

Table 5.63

Measurement of Efficiency of Leasing Company

Company

Name

TE

under

CRS

TE

under

VRS

SE RTS Ranking

under

CRS

Ranking

under

VRS

%

reduction

in input

under

CRS

%

reduction

in input

under

VRS

Orix

leasing

0.826 0.682 0.876 +1 2.00 1.00 17.40 31.18

Where

TE= technical efficiency, SE= Scale efficiency, RTS= return to scale, No. of leasing




The table 5.63 indicates the efficiency of leasing company after merger under

constant return to scale method. The results show that leasing company is inefficient after

merger because the score is less than one. The average score after the merger is 0.826.

The inefficient leasing company is the Orix leasing company.


The results show that Orix leasing company is inefficient with score less than

“1”.The average score after the merger is 0.682. The results indicate that overall average

performance of sample leasing company does not improved after merger and

acquisitions, and the Orix leasing company is less efficient. The less efficient leasing

company should improve their deposits on finance lease and the less efficient leasing

company should also boost up the net investment in finance lease, capital, income from

lease and expenses should be carefully handled. The results of this study are comparable

to those obtained by (Bashir, Sajid, & Sheikh, 2011; Ebimobowei & Sophia, 2011; Saba,

2011;Indhumathi, Selvan, & Babu, 2011; Vitale & Laux, 2012).

5.3.6 Data Envelopment Analysis of Mutual Fund Sector

Table 5.64

Measurement of Efficiency of Mutual Fund Companies

Company

Name

TE

Under

CRS

TE

Under

VRS

SE RTS Ranking

Under

CRS

Ranking

Under

VRS

%

Reduction

In Input

Under

CRS

%

Reduction

In Input

Under

VRS


PICIC

Investment

Fund

0.355 0.396 0.964 +1 4 3 64.5 60.4

UTP

Investment

Fund

1.00 1.00 1.00 0.00 1.00 1.00 0.00 0.00

Average 0.677 0.698 0.982 0.5 2.50 2.00 32.25 30.20

Where

TE= technical efficiency, SE= Scale efficiency, RTS= return to scale, No. of mutual

funds companies considered for analysis= 2


The table 5.64 indicates the efficiency mutual fund companies after merger under

constant return to scale method. The results show that one mutual fund company is

efficient after merger while other one mutual fund company is inefficient having

efficiency score less than one. The average score after the merger is 0.677. The efficient

insurance company is UTP investment funds while PICIC investment fund is inefficient.


The results show that UTP investment fund is efficient with score “1” while other

PICIC investment fund company is inefficient, having score less than “1”.The average

score after the merger is 0.698. The results indicates that overall average performance of

sample mutual fund companies is slightly improved after merger and acquisitions, one


mutual fund company is efficient while other mutual fund company is less efficient.

The less efficient mutual fund company should improve their payables to investment

advisors and the less efficient mutual funds company should also boost up the investment

operations, capital, total gains and expenses should be carefully handled. The results of

this study are in contradict to those obtained by (Lang & Peter, 1999; Sharma & Ho,

2002;Gjirja, 2003;Soubeniotis et al., 2006;Ullah et al., 2010).The results of this study

also in match with the work of (Powell & Stark, 2005;Girma, 2006;Worthington,

2001;Lin & Tripe, 2001).

5.4 Panel Data Analysis (Analysis 4)

In this study an assessment of the impact of the performance-type variables on the

profitability of the manufacturing companies and banks is conducted by pooling the data

to perform panel data regression for the pre and post- merger periods. In this study fixed

effects model is used. In fixed effect model the slope coefficients remains constant

whereas intercepts varies across the cross sectional units in panel.

5.4.1 Panel Data Analysis of Manufacturing Sector

In this method the impact of independent variable over the dependent variable

(ROA) of the manufacturing companies is examined by pooling or combining the data to

carry out panel regression for the pre and post-merger periods. This study analysis is

constructed on the basis of fixed effect panel data model, which include the yearly data

series of listed merged companies in Pakistan belonging to manufacturing sector of


Pakistan. In this study the intercept of each company is permitted to vary across different

companies but the slope coefficients does not change across various companies.

Equation1

ROAit = C1 + C2D2i + C3D3i + C4D4i + C5D5i + C6D6i + C7D7i + C8D8i + C9D9i + C10D10i

+ C11D11i + C12D12i + C13D13i + C14D14i + C15D15i + C16D16i + C17D17i + C18D18i

+ C19D19i + C20D20i + C21D21i + C22D22i + C23D23i + C24D24i + C25D25i + C26D26i

+ C27D27i + C28D28i + C29D29i + C30D30i + +C31D31i + β1CRit + β2SNWCit

+ β3DEit + β4Dit + β5NPRit + β6INCit + β7FATit + β8ATit + +β9SGit

+ β10CEit + Eit

The proposed model after introducing dummies for manufacturing sector is presented by

(Gujarati, 2003;Said et al. 2008)

Table 5.65

Panel Data Regression Estimates for Performance of Manufacturing Sector Measured by

Return on Assets

Dependent variable :ROA B Std. Error Sig.

Independent variables

Before -

merger

After -

merger

Before -

merger

After -

merger

Before -

merger

After -

merger

(Constant) 5.308 53.966 12.274 17.235 .667 .003

Current Ratio -0.187 -4.231 .175 2.465 .290 .046

Sales to net working capital 0.106 .030 .137 .036 .442 .418

Debt –equity ratio -0.053 -.006 .067 .022 .426 .799


Debt ratio -0.010 -.621 .144 .141 .943 .000

Interest coverage ratio 0.333 .112 .170 .144 .0490 .437

Net profit ratio 0.198 .018 .179 .021 .273 .404

Cost efficiency 3.164 8.527 1.711 3.289 0.047 .012

Fixed assets turnover 0.162 .170 .191 .336 .402 .615

Assets turn over 0.039 7.795 0.262 3.904 .050 .048

Sales growth 0.009 .084 .034 .040 .792 .040

Differential Intercepts

Dawood Cotton Mills Ltd -8.017 -51.633 11.530 16.963 .489 .003

Thal Limited 1.307 -30.115 11.248 12.905 .908 .023

Dewan Cement -7.086 -24.850 8.908 12.856 .429 .043

Pak Suzukid5 30.983 -60.589 9.423 14.548 .002 .000

OGDCL 50.343 17.004 10.759 14.701 .000 .045

Lafarge Pak. Cement Ltd. 18.891 -21.421 9.536 12.313 .050 .036

Nishat Mills Ltd -.935 -28.745 10.374 13.593 .928 .038

Al-Abbas Sugar Mills -4.294 -8.810 9.983 10.669 .668 .412

Siemens (PAK)

Engineering Co. Ltd.

18.606 11.797 10.404 11.071 .049 .291

Millat Tractors Ltd. 9.372 23.822 10.284 12.423 .365 .039

Javedan Cement Ltd. 48.401 -10.430 10.177 15.187 .000 .495

The Hub Power Company -4.845 -53.763 10.499 72.049 .646 .458

Packages 4.883 -43.146 12.481 26.587 .697 .109


Jubilee Spinning &

Wearing Mills Ltd

-12.426 -69.997 9.742 36.390 .206 .050

Zeal Pak Cement Factory

Ltd

-10.364 15.606 11.542 13.353 .372 .247

Shahzad Textile Mills Ltd -9.016 -29.332 8.639 12.954 .300 .027

Exide Pakistan Ltd -8.045 -20.089 9.865 12.775 .418 .121

Bannuwollen - 6.562 -13.297 8.570 13.653 .446 .334

Colony Mills Ltd 19.474 -18.760 8.696 10.407 .028 .042

World call Telecom Ltd .003 -35.285 10.673 12.531 1.000 .006

JDW Sugar Mills Ltd 7.931 -17.898 9.561 10.641 .410 .038

Nishatchunian LTD 4.310 -13.046 9.410 10.176 .648 .204

D.G Khan Cement LTD 9.290 -19.335 8.494 11.058 .278 .017

Nagina Cotton Mills LTD 4.155 -21.803 9.374 12.433 .659 .042

Dewansalman LTD 10.291 -20.825 9.037 9.684 .259 .035

Abbott Laboratories LTD 11.292 -23.100 8.756 13.730 .201 .032

Kohinoor Textile Mills

LTD

6.862 -15.401 10.451 11.068 .514 .169

GlaxoSmithKline(Pakistan)

Limited

15.265 -29.854 11.378 14.119 .184 .038

Ghandhara Nissan LTD 26.093 -42.055 26.571 12.117 .329 .001

Ibrahim Fibers LT 9.758 -25.941 10.777 11.121 .368 .023

Nimir Resigns LTD 34.737 -78.403 11.945 10.725 .005 .000


Table 5.65 reveals the results of the panel regression for pre and post-merger

periods. Return on assets as dependent variable and Current Ratio(CR), Sales to net

working capital(SNWC), Debt –equity ratio(DE), Debt ratio(D), Interest coverage

ratio(INC), Net profit ratio(NPR), Cost efficiency(CE), Fixed assets turnover(FAT),

Assets turn over (AT) and Sales growth (SG) are explanatory variables for the sample of

thirty two manufacturing corporations in Pakistan. For the pre-merger period, as

presented in table 5.65, the interest coverage ratio, cost efficiency and assets turnover

are the significant predictors of ROA of manufacturing sector and these predictors are

positively correlated to the profitability performance indicator. In other words, as the

interest coverage ratio increases, the ROA also increases. This is because high interest

coverage ratio eats away a lesser/ smaller portion of corporate profits. Therefore,

corporations with a high level of interest coverage ratio tend to have a high level of

profitability. This is because interest coverage will only be high when the amount of

interest expense burden on earnings before interest and taxes is less. The smaller amount

of interest expense will not much affect the corporate profit. Cost efficiency variable of

profitability also has the positive relation with the ROA. This is because, as the cost

efficiency ratio improves, the ROA also improves. This is because the improvement in

the cost efficiency reduces the ratio of cost to total assets and the ratio of cost efficiency

eats away a less amount of corporate profits in the form of cost of goods sold and

operating expenses. The other variable which is positively affected on the corporate

profits is the assets turnover, as the assets turnover ratio increases, the ROA also

increases. Assets turnover means, the ability and the capacity of assets to generate sales,

the higher the ratio means the more sales with the available assets. Therefore,


corporations with a high level of assets turnover ratio tend to have a higher ROA. The

intercept coefficient for the pre-merger period is statistically insignificant at 5% level of

significance.

Table 5.65 also displays the findings of the panel regression for the post-merger

periods. For the post-merger period as presented in table 5.65 Current ratio, debt ratio,

cost efficiency , Assets turnover and sales growth are the significant predictors of ROA

of manufacturing sector and these predictors are positively correlated to the profitability

performance indicator except debt ratio and current ratio which negative and inversely

related to the profitability figure. In other words as the debt ratio and current ratio

increases, the ROA decreases. This is because high debt will result in high interest

expenses which eat away a large portion of corporate profits. Therefore, corporations



debt will not much affect the corporate profit. Cost efficiency is significant at 5% before

and after merger but in this study the focus is to check the post- merger. As shown in the

analysis of panel data regression estimates for performance of manufacturing sector

measured by return on assets that cost efficiency variable has a coefficient of 3.164

before merger it means that for one percent increase in cost efficiency will increase the

return on assets by 3.164%. On the other after merger for one percent increase in cost

efficiency will increase the return on assets by 8.527%. It means that after the merger the

cost efficiency of manufacturing companies improves due to synergy, economies of scale

and benefits of mergers. It is clear that a merger has an impact on the improvement of

cost efficiency variable which ultimately effects on the post-merger return on assets. A


cost efficiency variable is commonly known as the ratio of total expenses to total assets.

Cost efficiency variable of profitability has the positive relation with the ROA. This is

because, as the cost efficiency ratio improves, the ROA also improves. This is because

the improvement in the cost efficiency reduces the ratio of cost to total assets and the

ratio of cost efficiency eats away a less amount of corporate profits in the form of cost of

goods sold and operating expenses.

The findings during the post-merger also consistent with the findings of pre-

merger periods, the coefficient of the cost efficiency remains positive and significant. The

other variable which is positively affected on the corporate profits is the sales growth, as

the sales growth ratio increases, the ROA also increases. Therefore, corporations with a

high level of sales growth ratio tend to have a higher ROA. The post-merger results of

sales to net working capital, debt equity, net profit, fixed assets turnover and interest

coverage ratio are insignificantly affect the return on assets. The intercept coefficient for

the post-merger period is statistically significant at 5% level of significance. Hypothesis

H8a and H8b accepted

Approximation of equation 1 also make a direct impact of performance type

independent variables on manufacturing corporation profitability (ROA ).In addition to

the case for the benchmark company (Pakelektron) that is denoted by the intercept

coefficient, the estimated regressions also produce additional insights into the experience

of each of the individual company examined as reflected by the differential intercepts. As

shown by the intercept coefficient in table 5.65, performance type independent variables

contribute insignificantly to the profitability (ROA) of Pakistani manufacturing company

(Pakelektron) for the pre-merger period of study. As shown by the bottom part of table


5.65, the differential intercept coefficients for Pak Suzuki Limited, OGDCL, Lafarge Pak

Cement Limited, Siemens Engineering Company, Javaden Cement Limited, Colony Mills

Limited and Nimar Resigns Ltd are statistically significant at 5% level of significance for

the period of 1998-2012. These differences in intercepts suggest that although the

profitability performance type variables contribute towards these seven companies

profitability, the contributions are not common across the companies but vary according

to the special features of each company such as differences in management style,

managerial talent, type of business and geographical location (Said et al., 2008).

In table 5.65 dummy variables are used to estimate the fixed effect. The use of

dummy variables to estimate the fixed effect is also known as least square dummy

variable. In this study the least square dummy variable model assumes that the slope

coefficients of the each company do-not change across sample 32 companies , but the

intercepts are to be fluctuate between companies. The main purpose of LSDV model is to

introduce the dummy variables to obtain the explicit intercept value. The dummy

variables are added for thirty one companies out of thirty two sample firms. It is the rule

of LSDV model adds dummies for all companies except the company which is selected

as comparison Company, otherwise dummy variable trap will arise if dummies for thirty

two companies are added. In this study no dummy variable is introduced for Pak Elektron

Ltd which is the bench mark company to compare the performance of other 31

companies. Intercept coefficient in table 5.65, performance type independent variables

contribute significantly to the profitability (ROA) of Pakistani manufacturing company

(Pakelektron) for the post-merger period of study. As shown by the bottom part of table

5.65, the differential intercept coefficients for Dawood Cotton Mills, Thal Limited,


DewanCement,Pak Suzuki, Lafarge Cement, Nishat Mills, Millat Tractors, Jubilee

Spinning & wearing Mills, Shahzad Textile Mills, Colony Mills, World call Telecom,

JDW Sugar Mills, D.G Khan Cement, Nagina Cotton Mills, Dewan Salman Ltd, Abbott

Laboratories ,GlaxoSmithKline LTD, Ghandhara Nissan, Ibrahim Fibers, Nimar Resigns

are statistically significant at 5% level of significance. Consistent with the results during

the pre-merger study period and post- merger period, profitability performance variables

once again contribute significantly to the profitability of Pak Suzuki, OGDCL, Lafarge

Cement and Colony Mills. These differences in intercepts suggest that although the

profitability performance type variables contribute towards these twenty companies


to the special features of each company such as differences in management style,

managerial talent, type of business and geographical location. The findings of the study

imply that the effect of performance variables on company’s performance is not

unambiguous but possibly conditional upon several other underlying company- specific

factors. Generalization of the effect must therefore be company specific.

5.4.2 Panel Data Analysis of Banking Sector

The analysis of this study is based on fixed effect panel data model, which include

the yearly data series of listed acquiring companies in Pakistan belonging to banking

sector of Pakistan.

This proposed model of introducing dummies for banking sector is presented by

(Gujarati, 2003; Said et al., 2008).


Equation 2

ROA it = C1+ C2D2i+ C3D3i+ C4D4i+ C5D5i +C6D6i+ C7D7i+ C8D8i+ C9D9i+ C10D10i+

β1TLTAit+ β2NMIITAit+ β3ANPTAit+ β4ITTAit+ β5TETAit+ β6CCETTAit+ β7BSit+

β8DTAit+ Eit

Table 5.66

Panel Data Regression Estimates For Performance of (Banks) Measured By Return on

Assets.

Dependent variable ROA B Std. Error Sig.

Independent variables

Before-

merger

After-

merger

Before-

merger

After-merger Before-

merger

After-

merger

Constant .091 -.2.93 .083 .144 .290 .027

Non-mark/interest income to total

assets

.101 -.330 .322 .430 .758 .454

Bank size .001 .094 .008 .012 .942 .047

Total equity to total assets ratio .000 .000 .000 .000 .705 .758

Cash and cash equivalents to total

assets

.083 -.083 .140 .084 .562 .339

Investment to total assets .032 -.048 .089 .047 .722 .320

Advances to total assets .091 1.074 .055 .055 .121 .049

Debt to total assets -.127 -.190 .052 .051 .028 .002

Total deposits to total assets .045 2.113 .050 .101 .382 .048

Differentia Intercepts


Faysal Bank -.023 -.020 .020 .014 .275 .188

Allied Bank -.003 1.09 .020 .014 .880 .047

KASB Bank -.019 -.087 .020 .016 .351 .000

JSBank -.018 2.11 .030 .020 .555 .048

Alfalaha Bank -.011 -.041 .020 .015 .596 .014

Askari Bank -.014 -.046 .020 .016 .501 .010

Atlas Bank -.061 -.003 .025 .019 .027 .875

AL Baraka Bank -.056 -.049 .020 .017 .014 .010

NIB Bank -.051 .035 .017 .015 .008 .031

SUMMIT Bank -.058 -.049 .022 .028 .020 .094

Table 5.66 reveals the results of the panel regression for pre and post-merger

periods. Return on assets as dependent variable and non-mark/interest income to total

assets (NMIITA), bank size (BS), total equity to total assets ratio (TETA), cash and cash

equivalents to total assets (CCETTA), investment to total assets (ITTA), advances net of

provisions to total assets (ANPTA), Total liability to total assets (TLTA), total deposits to

total assets (DTA) explanatory variables for the sample of eleven banks in Pakistan. For

the pre-merger period, as presented table 5.66, debt to total assets is the only significant

predictor of the ROA of banks and it is inversely related to the profitability figures. In

other words, as the debt ratio increases, the ROA decreases. This is because high debt

will result in high interest expenses which eat away a large portion of corporate profits.

Therefore, corporations with a high level of debt ratio tend to have a low level of

profitability. This is because interest expense will only be high when the amount debt is


larger. The smaller amount of debt will not much affect the corporate profit. The

remaining seven explanatory variables are insignificant at 5 percent level of significance.

Table5.66 also displays the findings of the panel regression for the post-merger periods.

For the post-merger period, as presented in table 5.66, debt to total assets consistent with

the results during the pre-merger periods and again remain significant predictor of the

ROA of banks and it is inversely related to the profitability figures. In other words, as the

debt ratio increases, the ROA decreases. This is because high debt will result in high

interest expenses which eat away a large portion of corporate profits. Therefore, banks



debt will not much affect the corporate profit. The other variables bank size, advances net

of provisions to total assets and total deposits to total assets variables are positively

significant level of significance. The remaining four variables are insignificant at 5

percent level of significance. The larger the size of the bank, more profitable the bank

will be. The more the bank will advance the money to borrowers; the bank will earn more

interest which will increase the revenue for the banks. The more the deposits the bank

will take from the customers, in turn this will increase the bank investment to earn

interest and increase the spread.

In table 5.66 dummy variables are used to estimate the fixed effect. The use of

dummy variables to estimate the fixed effect is also known as least square dummy

variable. The term fixed effect and least square dummy variable are used interchangeably

in the literature. In this study the least square dummy variable model assumes that the

slope coefficients of the each company do-not change across sample eleven banks, but


the intercepts are to be fluctuate between companies. The main purpose of LSDV model

is to introduce the dummy variables to obtain the explicit intercept value. The dummy

variables are added for ten banks out of eleven sample banks. It is the rule of LSDV

model adds dummies for all banks except the bank which is selected as comparison bank,

otherwise dummy variable trap will arise if dummies for eleven banks are added. In this

study no dummy variable is introduced for standard chartered bank which is the bench

mark bank to compare the performance of other ten banks.

Approximation of equation 2 also makes a direct impact of performance type

independent variables on banks profitability (ROA).In addition to the case for the

benchmark bank (Standard chartered) that is denoted by the intercept coefficient, the

estimated regressions also produce additional insights into the experience of each of the

individual bank examined as reflected by the differential intercepts. As shown by the

intercept coefficient in table 5.66, performance type independent variables contribute

insignificantly to the profitability (ROA) of Standard chartered bank for the pre-merger

period of study. As shown by the bottom part table 5.66, the differential intercept

coefficients for Atlas bank, Al- Baraka bank, NIB bank and Summit bank are statistically

significant at 5% level of significance. These differences in intercepts suggest that

although the profitability performance type variables contribute towards these four banks


to the special features of each bank such as differences in management style, managerial

talent, type of business and geographical location.

As shown by the intercept coefficient in table 5.66, performance type independent

variables contribute significantly to the profitability (ROA) of Standard chartered bank


for the post-merger period of study. As shown by the bottom part of in table 5.66, the

differential intercept coefficients for Allied bank, KASB bank, JS bank, Alfalaha bank,

Askari bank, Al Baraka bank and NIB bank are statistically significant at 5% level of

significance for the period of 1998-2012. These differences in intercepts suggest that

although the profitability performance type variables contribute towards six banks

profitability, the contributions are not common across the banks but vary according to the

special features of each company such as differences in management style, managerial

talent, type of business and geographical location. The results of this study are consistent

with the study of (Said et al., 2008).


CHAPTER SIX: CONCLUSION AND RECOMMENDATIONS

6. Conclusion and Recommendations

6.1 Conclusion

The aim of this conducted research is to determine the after business alliances

performance measurement of acquirer. The results of paired sample t-statistics shows that

overall manufacturing, modaraba, insurance, investment banking and mutual funds sector

of Pakistan post- merger performance improved while the overall banking and leasing

sector of Pakistan post- merger performance deteriorated. The post-merger performance

of five of seven industries improved. It is concluded that mergers has a positive effect.

The results of data envelopment analysis (DEA) technique shows that after merger

commercial and investment banks, modaraba, insurance, leasing and mutual fund

companies becomes efficient. The results of data envelopment analysis indicate that

merger has a positive effect on the post-merger efficiency of financial sector of Pakistan.

It means a merger has an effect on the efficiency of banks. The results of panel data

regression indicate that current and debt ratio adversely affects the post-merger return on

assets while total assets turnover, sales growth ratio and cost efficiency positively affect

the post-merger return on assets. On the other hand sales to net working capital, debt

equity, net profit, fixed assets turnover, and interest coverage positively affect the post-

merger return on assets. It is concluded that liquidity and efficiency performance

indicators has an impact on the post-merger profitability of manufacturing sector of


Pakistan. It is suggested that manufacturing firms should pay more attention on liquidity

and profitability performance indicators. Improvement in post-merger liquidity and

efficiency indicators will impact positively on the post-merger profitability. The results of

panel data regression of banking industry show that bank size, advances to assets, debt to

assets and deposits to assets, total equity to assets, investment to assets and non-interest

income to assets positively affects the return on assets. It is concluded that liquidity and

asset quality performance indicators has an impact on the post- merger profitability of

commercial banks, while efficiency and capital performance indicators has no impact on

the post-merger profitability of banks of Pakistan. It is required to acquiring banks to pay

attention to improve the liquidity and assets quality variables. The final result is that an

overall operating position of bidding manufacturing, commercial banks, modaraba

companies, insurance corporations, investment banks and mutual funds corporations

improved in the post-merger period. On the other hand findings also reveal that post-

merger performance of leasing sector deteriorated.

6.2 Recommendations

This study concludes that mergers and acquisitions shows positive insignificant

impact on performance indicators. The individual mergers analysis shows healthy and

hopeful results. The findings of this study shows that objectives set at the time of mergers

and acquisitions are not fully realized by the commercial banks and leasing sector

companies of Pakistan. So there is need by the companies to consider these results to


understand that which factors overlooked by them either at the time of merger or

following the merger, and it is recommended that:

Corporations should exercise mergers and acquisitions as a strategy to expand

businesses

Mergers should not be done out of desperation but should be properly evaluated

and carried out to ensure its success

Mergers and acquisitions have associated risks that if not properly managed can

lead to failure. Inability of managers to handle the complex task of integrating two

firms with different processes, accounting methods, operating culture and

misestimating of the value of the target firm by the buyer must be avoided

The less efficient and non-efficient banks can be converted into efficient banks by

better handling of customer deposits, loans and advances, interest and non-interest

expenses, by boosting interest and non-interest incomes

This study also suggests that banks should be further aggressive in the promotion

of their financial products to raise their financial and operating efficiency

Financial sector companies should improve their operating expenses and boost up

the investment operation

Non- financial sector companies should pay more attention on liquidity

performance indicators.


Scope for further research

The study by considering the possible differences in the accounting methods

adopted by different companies.

The study with similar objectives could be made covering a lengthy pre-post-

merger period.

Study measuring the post-merger performance of cross border mergers.

Mergers take into consideration the human element.

The present research can be stretched to the comparative study between Pakistan

and south Asian countries.


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Appendix

Details of Sample Companies of Financial Sector

No

.

Name of company New name of

company/merged

with

Merger/

acquisition

Sector Type of merger

1 PICIC commercial

bank Ltd.

NIB Bank Ltd. Merger Banking Horizontal

1 Pakistan industrial

credits investment

corporation Ltd.

NIB bank Ltd. Merger Banking Horizontal

2 Atlas Bank Ltd. Summit bank Ltd. Merger Banking Horizontal

2 My bank Ltd. Summit bank Ltd. Merger Banking Horizontal

3 Union bank Ltd. Standard chartered

Ltd.

Merger Banking Horizontal

4 Royal bank of

Scotland

Faisal bank Ltd. Acquisition Banking Horizontal

5 First allied bank

modaraba

Allied bank

(99.37%)shares

Acquisition Banking Friendly

6 Network leasing

corporation Ltd.

KASB bank Ltd. Merger Banking Vertical


No

.


company/merged

with

Merger/

acquisition


6 KASB & company KASB bank Ltd. Merger banking Conglomerate

6 International leasing

finance

KASB bank Ltd. Merger Banking Vertical

7 Atlas investment bank

Ltd.

Atlas bank Ltd. Merger Banking Horizontal

8 Jahangir Siddiqui

investment bank Ltd.

JS bank Ltd. Merger Banking Horizontal

9 ASKARI leasing Ltd. ASKARI bank Ltd. Merger Banking Vertical

10 National bank of

Pakistan

Bank Alfalaha Ltd. Acquisition Banking Hostile

10 KASB securities Ltd. Bank Alfalaha Ltd. Acquisition Banking Hostile

11 Emirates global

Islamic bank Ltd.

Al-Baraka Islamic

bank Ltd.

Merger Banking Horizontal

12 Al-Zamin leasing

corporation Ltd.

Invest capital

investment bank Ltd.

Merger Investment

banking

Vertical

13 ORIX investment

bank Ltd.

ORIX leasing

Pakistan Ltd.

Merger Leasing Vertical

14 Guardian modaraba B.R.R international

modaraba

Merger Modaraba Horizontal


No

.


company/merged

with

Merger/

acquisition


15 First general leasing

modaraba

First

Dawoodinternational

bank Ltd.

Merger Investment

bank

Conglomerate

15 Industrial capital

modaraba

First Dawood

international bank

Ltd.

Merger Investment

bank

Conglomerate

16 24th ICP mutual fund PICIC investment

fund

Merger Mutual fund Horizontal

16 2nd ICP mutual fund PICIC investment

fund



fund



fund



fund



fund


16 13th ICP mutual fund PICIC investment Merger Mutual fund Horizontal


No

.


company/merged

with

Merger/

acquisition


fund


fund



fund



fund



fund


16 22nd ICP mutual fund PICIC investment

fund


17 First Hajveri

modaraba

First Fidelity leasing

modaraba

Merger Modaraba Horizontal

18 EFU General

insurance Co.

M/S EFU life

insurance Co.

Acquisition Insurance Horizontal

19 Agro general

insurance Co.

M/S direct insurance

Co.

Acquisition insurance Horizontal

20 ABAMCO growth

fund

UTP growth fund Merger Mutual fund Horizontal


No

.


company/merged

with

Merger/

acquisition


20 ABAMCO fund UTP growth fund Merger Mutual fund Horizontal

20 ABAMCO capital

fund

UTP growth fund Merger Mutual fund Horizontal

Financial Sector Industry Wise Distribution

The final sample of financial sector has been break down into the following sub financial

sector or industry wise detail.

Industry No. of Mergers

Banking Commercial 11

Modaraba 02

Leasing 01

Insurance 02

Banking Investment 02

Mutual Funds 02

Total 20


Manufacturing Sector

Name Of Company New Name of Company / Merged With

Automotive Battery Company Ltd Excide Pakistan Ltd

Shaheen Cotton Mills Ltd Shahzad Textile Mills Ltd

Janana De Malucho Textile Mills Ltd Bunnu wollen Mills Ltd

Pakistan Slag Cement Industries Ltd Zeal Pak Cement Factory Ltd

Al-Abbas Industries Ltd Al-Abbas Sugar Mills Ltd

M/S Al-Abbas Holding (Pvt) Ltd

M/S Ghani Holding (Pvt) Ltd

M/S Javedan Cement Ltd

M/S Pirkoh Gas Company Ltd Oil and Gas Development Company Ltd

Nishat Apparel Nishat Mills Ltd

Jubilee Energy Ltd Jubilee Spinning and Weaving Mills Ltd

Tetra Pack Products Ltd Packages Ltd

M/S Laraib Energy Ltd The Hub Power Company Ltd

Millat Industrial Products Ltd Millat Tractors Ltd

Pakistan Cement Company Ltd M/S Lafarge Sa

Heavy Electrical Complex (Pvt) Ltd M/S Seamens (Pakistan) Engineering

Company Ltd

Suzuki Motorcycles Pakistan Ltd Pak Suzuki Company Ltd

Dewan hattar Cement Ltd Dewan Cement Ltd

Colony Textile Mills Ltd Colony Mills Ltd

Pakistan Paper sack Corporation Ltd Thal Ltd (Jute)


World Call Multimedia Ltd

World Call Broadband Ltd

World Call Communications Ltd

World Call Telecom Ltd

United Sugar Mills Ltd Jdw Sugar Mills Ltd

Umar Fabrics Ltd

Nishat Apparel

Nishat (Chunian) Limited

Nishat Mills Ltd

Ghandhara Nissan Diesel Ltd Ghandhara Nisan Ltd

Dilon Ltd

Burewala Textile Mills Ltd

Lawrencepurwollen and Textile Mill

Ltd

Dawood Cotton Mills Ltd

Pel Appliances Ltd Pak Electron Ltd

Elahi Electric Company Ltd Nagina Cotton Mills Ltd

Kohinoor Raiwind Mills Ltd

Kohinoor Gujar Khan Mills Ltd

Kohinoor Textile Mills Ltd

Smithkline and French Glaxosmith Kline Ltd

Knoll Pharmecuticals Ltd Abbott Laboratories

A.A. Textiles Ltd

Zainat Textile Ltd

Ibrahim Energy Ltd

Ibrahim Textile Mills Ltd

Ibrahim Fibers

Dhan Fibers Dewan Salman Fibers


R.R.P. Ltd Nimir Resins Ltd

D.G.Khan Electric D.G.Khan Cement Ltd

Manufacturing Sector (Industry Wise Distribution)

The final sample of manufacturing sector of Pakistan has been break down into the

following sub-manufacturing sector or manufacturing sector industry wise detail.

Industry No. of Mergers

Textile spinning 03

Textile composite 05

Synthetic & Rayon 02

Woolen 01

Cement 05

Cable and electrical goods 02

Automobile parts and accessories 02

Sugar & allied industries 02

Oil & gas exploration companies 01

Technology & Communications 01

Chemicals 01

Paper& Board 01

Automobile assembler 03

Power generation & distribution 01

Pharmaceuticals 02

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