Impact of Corporate Restructuring through Mergers and Demergers on Valuation of Companies A Study of Indian Corporate Sector

Abstract

This paper attempts to analyse the impact of corporate restructuring decisions on the financial performance, market performance and economic value of a company. Any corporate action would be termed as successful if it has facilitated the company to improve its performance on various parameters. Financial performance reflects the financial health of the company and the study observes the comparison between the financial health of the company before and after the corporate restructuring decision. This enables to analyse if the financial health of the company has improved or declined as a result of the corporate action. In addition to the impact on financial performance, the study also analyse the impact of corporate restructuring decisions on the stock prices of the company. It is studied as to how the announcement of corporate restructuring decisions impacts the share prices of the company and thereby affecting the shareholder wealth. It is also studied that during which period the announcement impacts the share prices significantly thereby affecting the shareholder wealth. Also the economic value added by the corporate action is a significant parameter to evaluate the impact of a corporate action on the company s overall performance. The study also examines whether the corporate action helps to add any economic value to the company or not. Design/Methodology/Approach: Two important corporate restructuring decisions are considered and their impact on the performance of the companies is analysed. Mergers and Acquisitions and demergers being the vital strategic corporate decisions have been considered and we have analysed their impact on the company s performance. A sample of 91 Indian companies, which announced mergers during 2009-10 to 2011-12, has been selected. Similarly, another sample of 60 companies is chosen which announced demerger of one or more of their divisions during the same period.