Thesis

Master’s Level
The Effects of Mergers and Acquisitions on Firms’
Performance

Author: Norda Yenni

Supervisor: Alemu Tulu Chala
Examiner: Reza Mortazavi
Subject/main field of study: Economics
Course code: NA3010
Credits: 15 ECTS
Date of examination: 11 September 2023

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Abstract:

Mergers and acquisitions are one of the most researched topics in the financial literature
and many research has been done. This thesis aims to analyse the impact of mergers and
acquisitions on firms’ performance for the acquired firms and uses the difference-in-differences
(DID) estimation method with variation in treatment timing to achieve the objective. The data
used in this thesis are collected from database of Institute for Mergers, Acquisitions and
Alliances (IMAA) for 25 companies that merged between 2005 and 2019 and from the database
of Indonesia Stock Exchange for 25 firms that did not undertake the mergers and acquisitions
in the same period. The findings of this study indicate that there are statistically not significant
effects on Return on Assets (ROA) and Return on Equity (ROE). This suggests that the mergers
and acquisitions do not affect the company's financial performance in terms of profitability.

Keywords:

Mergers and Acquisitions, Difference-in-differences estimation, Return on Assets, Return on

Equity, Financial performance.
 Table of contents

1. Introduction ................................................................................................. 1
2. Literature review ......................................................................................... 2
3. Theoretical framework ................................................................................ 4
4. Empirical methodology................................................................................ 6
4.1 Data collection ...................................................................................................................... 6
4.1.1 Dependent variables .................................................................................................... 7
4.1.2 Independent variables of interest................................................................................ 7
4.1.3 Other control variables ................................................................................................ 7
4.1.4 Descriptive statistics ................................................................................................... 8
4.2 Econometric model............................................................................................................... 9
5. Empirical results ........................................................................................ 10
5.1 Results from difference-in-differences.............................................................................. 10
5.2 Propensity score matching ................................................................................................. 13

6. Conclusions ................................................................................................ 14
References ...................................................................................................... 16
Appendix ........................................................................................................ 21
1. Introduction

Saboo and Gopi (2009) investigated the impact of mergers on the operating
performance of acquiring firms by examining some pre-merger and post-merger financial ratios
which conclude that mergers and acquisitions have a positive effect on key financial ratios of
firms. In contrast, Vanitha and Selvam (2007) analysed the pre- and post-mergers financial
performance of manufacturing sector and found that the overall financial performance of
merged companies was not significantly different.

The discrepancy between the results of previous studies and existing theories presents
an opportunity for studies on mergers and acquisitions to enrich findings of research. The
objective of this thesis is to examine the effect of mergers and acquisitions on the target
company. The question that has motivated this research is: Do mergers and acquisitions create
value, i.e., improved the acquired firms’ in financial performance?.

This thesis uses firm data from different industries such as banks, manufacturing,
wholesale, and retail while previous empirical works ignore industry factors. Return on assets
and return on equity are used to measure the firms’ performance in term of profitability, while
previous empirical works only use one of them. Compared to previously mentioned research,
the method used in this thesis is difference-in-differences methodology while Gustina (2017)
uses paired sample t-test to compute the analysis. The data collected from database of Institute
for Mergers, Acquisitions and Alliances (IMAA) and the database of Indonesia Stock
Exchange for 25 companies that merged or acquired between 2005 and 2019 and 25 firms that
have not been merged or acquired. The government of Indonesia published the regulation
(Article 29 of Law No 5/1999) and the law prohibits a range of restrictive agreements and
abusive behaviours, including mergers and acquisitions that may result in monopolistic
practices or unfair business competition.

There is only limited empirical evidence on the impact of mergers and acquisitions on
the target firms in Indonesia. This thesis thus contributes to the limited literature on mergers
and acquisitions in Indonesia by investigating the effect of mergers and acquisitions on target
firms’ financial performance while the previous research focuses either on the acquiring firms
or the combined firms that is acquiring and target firms. Another contribution of this paper is

1
the focus on the combined effect of domestic and cross-border mergers and acquisition while
previous research focuses either on the impact of cross-border mergers and acquisition or on
domestic mergers and acquisitions.

This thesis finds that mergers and acquisitions do not affect the company's financial
performance because the result shows statistically not significant effects on return on assets
(ROA) and return on equity (ROE). This finding is consistent with the finding of the empirical
study by Vanitha and Selvam (2007). The analysed the pre- and post-mergers financial
performance of manufacturing sector and found that the overall financial performance of
merged companies was not significantly different.

This thesis is organized as follows. Section 2 provides a literature review. Section 3

outlines the theoretical framework. Section 4 provides empirical methodology. Section 5
provides the empirical results. Section 6 summarizes the findings.

2. Literature review
This section first reviews the empirical literature that have been done in the area of the
effect of mergers and acquisitions. Next, it briefly discusses the institutional background in the
area of study.

Some notable empirical studies show a positive and some others show a negative impact
of M&A on the financial performance of companies. For example, Saboo and Gopi (2009)
investigated the impact of mergers on the operating performance of acquiring firms in India by
examining pre-merger and post-merger financial ratios. The results suggest that there are
variations in terms of the impact on performance which shows that mergers and acquisitions
have a positive effect on key financial ratios of firms. Fatima and Shehzad (2014) examined
the impact of mergers and acquisitions on the financial performance of banks in Pakistan. Their
findings were that return on equity (ROE) was affected by mergers and acquisitions while other
ratios were not affected by mergers and acquisitions.

In contrast to the above studies, some studies have found no effect of mergers and
acquisitions. For example, Badreldin and Kalhoefer (2009) examine the operating
performances of acquiring organizations in Egypt using x and y as measures of operating

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performances and find no improvement in the operating performances after mergers and
acquisitions. Vanitha and Selvam (2007) analysed the pre- and post-mergers financial
performance of manufacturing sector in India and found that the overall financial performance
of merged companies was not significantly different.

The evidence of Kummer and Hoffmeister (1978) and Dodd (1980) indicated that
acquiring firms gained from the mergers and acquisitions while Halpern (1973) found a
significant stock price increase for both buyers and sellers. Empirical studies from Langetieg
(1978) and Agrawal et al. (1992) concluded that acquiring/bidding firms lost from the mergers
and acquisitions over several years while Frank et al. (1991) found no evidence to support
significant abnormal returns of acquiring firms. Cotter et al (1997) show that target firms’
independent outside directors driven takeover attempts by tender offers enhance shareholder
wealth. Moreover, Bruner (2004) and Weston et al. (2004) suggests that target firms’
shareholders earning most of the gains and bidding firms’ shareholders receiving less of the
gains or even losses.

According to Denis et al. (2002) a cross-border mergers and acquisitions, ceteris paribus,
increase the degree of global diversification. Focarelli and Pozzolo (2005) find that banks are
more likely to do cross-mergers and acquisitions to countries where per-capita GDP is lower,
the level of education is higher, credit and financial markets are larger. Samra and Nawazish
(2017) found that cross-border mergers and acquisition not always increase shareholders’
wealth. They find that the return on earnings for the shareholder of the acquiring firms have
the negative value when acquiring bank in another country. The finding of Hernando et al
(2009) show that the domestic mergers and acquisitions in banking industry target bank that
have poor financial performance and bank that have larger assets. From the efficiency
perspective, the research by Zhan (2014) found that the targeted bank of domestic mergers and
acquisitions tends to be inefficient in terms of operational, which generate small return values.

Studies also show that mergers and acquisitions have different effects of depending on
firm size. Walsh (1989) found that the target company’s top management turnover rates
increase with an increase in the size difference between the parent and target companies.
Moeller et al (2002) found that larger firms are expected to take longer time to complete
mergers and acquisitions than smaller firms due to regulatory issues, which are typically more
important for large firms. Larsson and Finkelstein (1999) found that there is a positive

3
relationship between target size and a combined potential of target and acquiring firms. They
show that bigger mergers and acquisitions do better because they offer greater synergy
potential.

This thesis is filling the gap from the empirical study by Kummer and Hoffmeister
(1978) and Dodd (1980) since they analysed that acquiring firms gained from the mergers and
acquisitions. The result of the thesis shows statistically not significant effects on return on
assets (ROA) and return on equity (ROE) which suggests that mergers and acquisitions do not
affect the company's financial performance.

3. Theoretical framework
There are several theories of mergers and acquisitions. As described by Trautwein
(1990), these theories can be classified into the efficiency theory, synergy theory, monopoly
theory, and empire-building theory. Economic literature groups these theories into two broad
streams. The two streams are neoclassical theories and behavioural theories. Within the
neoclassical perspective, the existing literature uses four main theories to identify the causes
and effects of mergers and acquisitions. These are Q theory (Jovanovic and Rousseau, 2002),
industry shock hypothesis (Gort, 1969; Mitchell and Mulherin,1996; Harford, 2005).
Behavioural theories include misvaluation theory (Shleifer and Vishny, 2003), managerial
hubris hypothesis (Roll, 1986), and managerial discretion theory (Jensen, 1986).

According to the neoclassical theories, the primary objective of managers is to maximize

the value of the firm, and, as such, mergers and acquisitions are used to create value and
improve the firms’ operating performance. For example, the Q theory of mergers and
acquisitions argues that higher-Q companies desire to acquire lower-Q companies because the
total takeover returns, or the combined returns from a mergers and acquisitions, are higher
when the acquirer’s Q ratio is high and the target’s Q ratio is low (Jovanovic and Rousseau,
2002). The industry shock theory considers exogenous shocks to the business environment,
represented by economic, technological, and regulatory changes, as the primary causes of
merger and acquisitions waves (Harford 2005). This theory directly extends the findings of
Mitchell and Mulherin (1996) that interindustry restructuring is associated with economic
shocks within industries.

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 The efficiency theory was first put forward by Fama (1970) regarding the capital market.
Efficient if the information available in the public is reflected in the stock price. This theory
was then developed into the concept of mergers and acquisitions transactions and the
development is proposed by Shelton (1988) that explain the mergers and acquisitions are
executed to reduce costs by achieving scale economies. The monopoly theory considers
mergers and acquisitions as routes to raise market power (Chatterjee, 1986). By increasing
market share, firms again monopoly control, and are consequently able to charge higher prices
and improve the potential profitability of a company.

Unlike the neoclassical theories, the behavioural theorists of mergers and acquisitions
tend to rule out market efficiency. For example, according to the misvaluation hypothesis,
incorrect valuations in inefficient markets drive mergers and acquisitions (Shleifer and Vishny,
2003; Rhodes-Kropf and Viswanathan, 2004). This theory suggests that managers of
overvalued firms create value by acquiring undervalued firms. By buying the companies whose
value is undervalued and/or are in an inefficient market the purchase price will be cheaper so
that in the future the company's enterprise value will increase.

Another example is managerial hubris hypothesis that was coined by Roll (1986) who
explained there is a psychological effect that management has in making mergers and
acquisitions decisions, especially regarding the purchase price of the company or enterprise
value. The hypothesis assumes market is efficient; but they assume managers to be
overconfident about their estimation of positive return from mergers and acquisitions. The
managerial discretion theory (Jensen, 1986) assumes that mergers and acquisitions waves are
caused due to intent of top management to build empires and get higher compensation. As no
consideration is given by managers to shareholder value under this hypothesis, mergers and
acquisitions are generally value destructive and the performance of firms decline.

According to the value increasing, mergers and acquisitions occur, broadly, because
mergers and acquisitions generate synergies between the acquirer and the target, and synergies,
in turn, increases the value of the firm (Hitt et al., 2001). The synergy theory was developed
by Hubbart and Palia (1999) who argued that companies will generate benefits in the form of
synergy if they join forces rather than stand alone, which in turn will affect the increase in share
prices and affect the value of the firm. Efficiency theory predicts value creation with positive
returns to both the acquirer and the target as observe by Klein (2001). There is always another

5
firm willing to acquire an underperforming firm, to remove those managers who have failed to
capitalize on the opportunities to create synergies, and thus to improve the performance of its
assets (Weston et al.,2004). At the same time the value destroying, mergers and acquisitions
arise because the impact on the performance of the acquiring firm remains, however, at best,
inconclusive and, at worst, systematically detrimental (Dickerson et al., 1997). Unsuccessful
mergers and acquisitions take place because managers primarily make investments that
minimize the risk of replacement not in the effort to maximize enterprise value, but in the effort
to entrench themselves by increasing their individual value to the firm (Shleifer and Vishny,
2003).

The empire-building theory describes that managers undertake mergers and acquisitions
to maximize their own utility rather than shareholders’ wealth (Black, 1989; Rhoades, 1983).
The theory introduces the thought that while management and ownership in most cases are two
separate functions in today’s economy, there is a distinct possibility that management may act
according to interests other than those of their shareholders.

4. Empirical methodology
This section describes the data collection method including the variables and the
econometric model that will be used in this study.

4.1 Data collection

To analyse the impact of mergers and acquisitions on firm performance, this thesis
collects data on mergers and acquisitions completed between 2005 and 2019 for both domestic
and cross-border mergers and acquisitions. This data was collected from the database of
Institute for Mergers, Acquisitions and Alliances (IMAA). According to this database, there
are a total of 83 companies listed that have engaged in merger and acquisitions. However, for
this research, 25 companies that merged or acquired between 2005 and 2019 were selected due
to availability information. This study also collects information on additional 25 companies
that did not undertake mergers and acquisitions. The data of these firms was collected from the
database of Indonesia Stock Exchange between the same period.

The firms’ financial statements include assets, debt, equity, net income, cash, return on
equity (ROE), and return on assets (ROA). These data collected from the respective company’s

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websites, Central Bank of Indonesia, and Indonesia Stock Exchange. Due to the limited access
to the data, this research is based on the acquired firm's financial data for a time period of six
years: two-years before the mergers and acquisitions, the year when the mergers and
acquisitions took place, and three-years after the mergers and acquisitions occurred.

4.1.1 Dependent variables

To measure firms’ financial performance, the author uses return on assets (ROA) and
return on equity (ROE) as they represent the result of the company’s business. Return on assets
(ROA) is a financial ratio that measures the profitability of a company in relation to its total
assets. It is calculated by dividing the company's net income by its total assets. Meanwhile,
return on equity (ROE) is a financial ratio that tells you how much net income a company
generates per dollar of invested capital. It helps investors understand how efficiently a firm
uses its capital to generate profit. Return on equity (ROE) is calculated by dividing a company's
net annual income by its total equity.

4.1.2 Independent variable of interest

The independent variable of interest for this thesis is an interaction term between a
dummy variable for mergers and acquisitions (MA) and a dummy variable for post mergers
and acquisitions (POST). The dummy variable MA take value 1 if the firm was merged or
acquired, and 0 otherwise. The dummy variable POST takes value 1 for post mergers and
acquisitions years, and 0 otherwise. Since the firms used in this thesis went through mergers
and acquisitions at different years, there is a time varying treatment.

4.1.3 Other control variables

In this study, the author also controls for other independent variables to account for the
effect of others factors that may affect firm performance. The other variables that the author
use as the control variables are assets, debt, equity, net income, cash. Assets is a resource that
has some economic value to a company and can be used in a current or future period to generate
revenues. Debt or liability refers to a financial obligation of a company. Equity refers to the
value of ownership that shareholders have in a company and it represents the residual value of
a company after liabilities are paid and can be used to finance a company's growth or expansion.
Net income is also called net profit since it represents the amount of profit a company has left

7
over after paying off all its expenses while Cash is very important because cash allows a
business to pay its bills.

4.1.4 Descriptive statistics

Table 1 presents descriptive statistics of the variables of this study. The average return
on assets (ROA) is around 6% and the result is considered as a good if above 5%. This generally
indicates that the company is making a good use of its assets and is profitable of doing so.
Another result shows that the mean variance for return on equity (ROE) is around 16% which
consider as adequate since the return on equities of 15%-20% are generally consider as
satisfactory. The high return on equity (ROE) indicates that companies are increasing their
abilities to make profit. The average of assets is greater than the average of debt which a good
sign because it means the business have the stronger financial health.

The result also shown the higher ratio of equity and it is considered satisfactory because
the company usually preferred the greater ratio since the equity ratio calculates the proportion
of total assets financed by the shareholders compared to the creditor. The result of net income
indicates a good net profit ratio which shows how much profit is generated in sales while the
average of cash showing an adequate result which means the company is liquid and can more
easily fund its debt.

Table 1: Descriptive statistics

Variables names Obs Mean Std. dev. Min Max
Return on Assets (ROA) 301 0.06 0.10 -0.64 0.76
Return on Equity (ROE) 301 0.16 0.40 -1.80 3.67
Assets 301 5.82 1.47 705 1.32
Debt 301 3.77 8.10 483 4.12
Equity 301 2.00 1.01 -3.13 1.12
Net Income 301 3.24 1.96 -2.20 2.55
Cash 301 9.18 3.35 479 3.63

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4.2. Econometric model

The number of papers using the difference-in-differences (DID) approach to investigate

the impact of mergers and acquisitions has been growing. For example, Jiménez and Perdiguero
(2012) concluded that prices increased as a result of the mergers and acquisitions. Allain et al.
(2017) assess the impact of a mergers and acquisitions in the French supermarket industry on
food prices. By performing a difference-in-differences (DID) analysis on consumer panel data,
they concluded that the merging firms significantly raised their prices after the merger and
acquisitions.

Following the above studies, this thesis also uses difference-in-differences estimation
technique to investigate the impact of mergers and acquisitions on the financial performance
of firms. Unlike the above-mentioned studies, the firms used this thesis went through mergers
and acquisitions at different time periods. Hence, in this thesis treatments occur at different
times. Recently, Callaway and Sant’Anna (2021) and Goodman-Bacon (2021) provide
difference-in-differences (DID) model with variation in treatment timing. Following them, the
difference-in-differences used in this thesis is models as follows:

𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒𝑖𝑡 = 𝛼𝑖 + 𝜆𝑡 + 𝛽𝑀𝐴𝑖 ∗ 𝑃𝑂𝑆𝑇𝑖𝑡 + 𝑋𝑖𝑡 ′𝛷 + 𝜀𝑖𝑡 (1)

where 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒𝑖𝑡 stands for the financial performance of firms. This thesis uses return
on assets (ROA) and return on equity (ROE) as measures of financial performance. 𝛼𝑖 is stands
for firm-specific fixed effect and 𝜆𝑡 stands for time fixed effects. The interaction term
𝑀𝐴𝑖 ∗ 𝑃𝑂𝑆𝑇𝑖𝑡 is the variable of interest. It takes the value one in the post-treatment period for
the treated firms that is, 𝑀𝐴𝑖 ∗ 𝑃𝑂𝑆𝑇𝑖𝑡 = 1 and zero otherwise. The variable 𝑋𝑖𝑡 stands for
control variables and the author uses the variables explained in section 4.1.3 as controls. 𝜀𝑖𝑡 is
the error term and standard errors are robust to heteroskedasticity.

In the commonly applied difference-in-differences (DID) method, there are two time
periods, and these are pre-treatment period and post-treatment period. In this setting, the treated
group is treated in the post-treatment period while the comparison group is not treated in the
pre-treatment period and post-treatment period. As stated above, in the data used in this thesis,
firms went through mergers and acquisitions at different years. Callaway and Sant’Anna (2021)
and Goodman-Bacon (2021) explain that when firms are treated in different points in

9
time, firms that are never treated and firms that are not yet treated can be used as a control
group. They also argue that when there is variation in treatment timing, it is difficult to formally
test the parallel trends assumption graphically. This thesis therefore uses alternative estimation
technique, namely the propensity score matching to check the robustness of the results obtained
from the difference-in-differences (DID) method.

5. Empirical results
This section presents the estimation result from differences-in-differences (DID) with
time varying treatment. In addition, this section also presents the result from propensity score
matching to check the robustness the result from DID.

5.1 Results from difference-in-differences (DID)

Table 2 presents the impact of mergers and acquisitions on firm financial performance.
The result reported in column (1) shows that the interaction term M&A*POST has a positive
but statistically not significant coefficient. This suggests that mergers and acquisitions do not
have statistically significant impact on return on assets (ROA). Column (2) shows that the
coefficient on the interaction term M&A*POST is negative but statistically not significant.
This result also indicates that mergers and acquisitions do not have statistically significant
impact on return on equity (ROE). These findings suggest that mergers and acquisitions have
not improved the financial performance of Indonesian firms.

The finding in this thesis is consistent with the findings of the empirical studies by
Vanitha and Selvam (2007). They analysed the pre- and post-merger financial performance of
manufacturing sector in India. They found that the overall financial performance of mergers
and acquisitions companies were not significantly different.

10
 Table 2: The Impact of M&A on Firm Performance

As discussed in section 2, firm size may influence the impact of mergers and
acquisitions on firm performance. This thesis therefore investigates if that is the case for the
Indonesian firms. To do this, the author created three dummy variables. The dummy variable
Small takes the value one for firms whose total assets are in the first (or lower) tercile, and zero
otherwise; the dummy variable Medium takes the value one for firms whose total assets are in
the second (or middle) tercile, and zero otherwise; and the dummy variable Large takes the
value one for firms whose total assets are in the third (or upper) tercile, and zero otherwise.
These dummy variables are interacted with M&A*POST to create three interaction terms:
M&A*POST*Small, M&A*POST*Medium, and M&A*POST*Large. Table 3 presents the
result.

The estimated coefficients in the column 1 show that M&A*POST*Medium has a

positive and statistically significant coefficient while M&A*POST*Small and
M&A*POST*Large has statistically not significant coefficients. This result suggests mergers
and acquisitions improve the financial performance (return on assets) for medium size

11
companies. The result is different for the small and large companies. The statistically not
coefficients on M&A*POST*Small and M&A*POST*Large in return on assets (ROA)
equation suggest that the mergers and acquisitions does not affect the performance for small
and large size companies. Column 2 shows that mergers and acquisitions do not have an impact
on return on equity (ROE) for small, medium, and larger firms.

Table 3: The Impact of M&A on Performance of firms’ size

According to Hannah and Kay (1977), the effects of merger on growth are so strong,
that without mergers, smaller firms would have grown faster than larger firms. The finding in
this thesis is consistent with Reddy & Mantravadi (2007) that witnessed the positive
relationship between the financial performance and firm-size.

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5.2 Propensity score matching

As stated above, this thesis uses propensity score matching (PSM) to check the
robustness of the results that obtained from the differences-in-differences (DID) estimation
method. Propensity score matching (PSM) mitigates the bias and increase the comparability
between treatment and control groups. According to Rosenbaum and Rubin (1983), and Abadie
and Imbens (2016) propensity score matching (PSM) refers to the pairing of treatment and
control units with similar values on the propensity score, discard all unmatched units to reduce
the bias.

To implement propensity score matching, this thesis estimates the probability that firms
are treated with mergers and acquisitions using the probit model as follows:

𝑃(𝑀𝐴𝑖 ∗ 𝑃𝑂𝑆𝑇𝑖𝑡 = 1|𝑋𝑖𝑡 ) = 𝛷(𝑋𝑖𝑡 ′𝛽) (2)

Where P denotes for the probability. MA*POST takes value 1 for the company that
went through mergers and acquisitions in the post-treatment period, and zero otherwise. 𝛷
stands for cumulative standard normal distribution. 𝛽 stands for the coefficient and while the
sign of the coefficient is informative, it is difficult to interpret the coefficients of the probit
model. The variables X controls for other independent variable to account for the effect of
others factors that may affect firm performance as discussed in section 4.1.3.

Table 4 is presenting the result from propensity score matching techniques with using
psmatch2 command developed by Leuven and Sianesi (2003). ATT denotes the average
treatment on the treated companies. Standard errors are reported in parenthesis. The t-test of
significance shows the percentage level is greater than 10% level. As can be seen in table 4,
the one-to-one estimator yields the average treatment effect on the treated loans (ATT) of
0.0008 for return on assets and -0.0450 for return on equity. The nearest neighbour estimator
reports the ATT of 0.0036 for return on assets and -0.0137 for return on equity. Overall, the
matching results confirm the baseline finding that return on assets (ROA) and return on equity
(ROE) are statistically significantly not affected by mergers and acquisitions.

13
 Table 4: The result of Propensity Score Matching

6. Conclusions

This thesis investigates the impact of mergers and acquisitions on firm financial
performance using data from Indonesia. The data is collected from the database of Institute for
Mergers, Acquisitions and Alliances (IMAA) for 25 companies that merged between 2005 and
2019. The data for additional 25 firms that did not undertake mergers and acquisitions in the
same period is obtained from database of Indonesia Stock Exchange.

This thesis uses the difference-in-difference (DID) estimation technique with the
variation in treatment timing to analyse the effect of mergers and acquisitions on firm financial
performance. This thesis also uses the propensity score matching (PSM) as the alternative
technique to check the robustness of the results that are obtained from the differences-in-
differences (DID) estimation.

Enterprise financial reports such as return on assets (ROA) and return on equity (ROE)
are used as measures of financial performance in this thesis. Additionally, other variables such
as assets, debt, equity, net income, cash are used as the control variables to account for the
effect of others factors that may affect firm performance. The results show that mergers and
acquisitions do not have statistically significant effect on return on equity (ROE) and return on
assets (ROA). This finding is consistent with empirical study by Vanitha and Selvam (2007)
that analysed the pre- and post-mergers financial performance of manufacturing sector in India
and found that the overall financial performance of merged companies was not significantly
different.

14
 The government of Indonesia published the regulation (Article 29 of Law No 5/1999)
that govern about the prohibition of monopolistic practices and unfair business competition.
The law prohibits a range of restrictive agreements and abusive behaviours, including mergers
and acquisitions that may result in monopolistic practices or unfair business competition.

The main limitation of this thesis is the limited access to the sample size of the data.
Further research recommended to extend the literature on Indonesia mergers and acquisitions
by addressing the limitation of this thesis and also by including other key determinant of
financial performance as well as additional characteristics, such as corporate governance and
market characteristics.

15
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Appendix
List of companies
Mergers and Acquisitions Non-merger and Acquisitions
Institutions Industry Acquiror Name Acquiror Nation Date Approved Institutions Industry
Enseval Consumer Products Kalbe Farma PT Indonesia 2005 Ace Hardware Wholesale & Retail
Bank Internasional Indonesia Banks MayBank Malaysia 2008 AKR Corporindo Logistics & Supply Chain
Apexindo Pratama Duta Tbk Oil & Gas Mitra Rajasa Tbk PT Indonesia 2008 Ancora Indonesia Metals & Mining
Bank UOB Buana Banks United Overseas Bank Ltd Singapore 2008 Astra Agro Lestari Agriculture
Garuda Indonesia Transportation & Infrastructure Investors Indonesia 2008 Bank Central Asia Banks
Bentoel Intl Investama Tbk Tobacco British American Tobacco PLC United Kingdom 2009 Bank Mandiri Banks
BlueScope Steel Metals & Mining Nippon Steel Corp Japan 2009 Bank Negara Indonesia Banks
Bukit Makmur Mandiri Utama Metals & Mining Delta Dunia Petroindo Tbk PT Indonesia 2009 Bank Rakyat Indonesia Banks
Matahari Department Store Department Store Retailing Meadow Asia Co Ltd Hong Kong 2010 Bayu Buana Tourism, Restaurant and Hotel
Bank CIMB Niaga Banks CIMB Group Sdn Bhd Malaysia 2010 Buana Finance Insurance
Bayan Resources Tbk Metals & Mining KEPCO South Korea 2010 Ciputra Development Real Estate & Property
Astrindo Mahakarya Indonesia Building/Construction & Engineering Benakat Petroleum Energy Tbk Indonesia 2011 Fast Food Indonesia Tourism, Restaurant and Hotel
Chandra Asri Petrochemical Chemicals SCG Chemicals Co Ltd Thailand 2011 Hotel Sahid Jaya Tourism, Restaurant and Hotel
Indosat Tbk Wireless Tower Bersama Infrastructure Indonesia 2011 Lippo General Insurance Insurance
Indomobil Sukses Internasional Automobiles & Components Gallant Venture Ltd Singapore 2012 Mayora Indah Food & Beverage
Golden Energy Mines Tbk Metals & Mining United Fiber System Ltd Singapore 2012 Pakuwon Jati Real Estate & Property
Bumi Resources Tbk Metals & Mining Bakrie & Brothers Tbk PT Indonesia 2013 Pool Advista Financial Services
XL Axiata Telecommunications Services PT Solusi Tunas Pratama Tbk Indonesia 2014 Ramayana Lestari Department Store Retailing
Asuransi Jiwa Sequis Life Insurance Nippon Life Insurance Co Japan 2014 Samudera Indonesia Logistics & Supply Chain
Bank Ekonomi Raharja Banks HSBC Asia Pac Hldg (UK) Ltd United Kingdom 2016 Sona Topas Tourism, Restaurant and Hotel
Amman Mineral Internasional Metals & Mining PT Medco Energi Internasional Indonesia 2017 Summarecon Agung Real Estate & property
Kideco Jaya Agung Metals & Mining Indika Energy Tbk PT Indonesia 2017 Tempo Inti Media Production House
Sarana Menara Wireless Sapta Adhikari Investama PT Indonesia 2017 Trimegah Securities Securities
Bank Danamon Indonesia Banks Bk of Tokyo-Mitsubishi UFJ Ltd Japan 2017 Tunas Ridean Automotive
Bank BTPN Banks Sumitomo Mitsui Banking Corp Japan 2019 Unilever Wholesale & Retail

Source: Institute for Mergers, Acquisitions and Alliances; Indonesia Stock Exchange

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