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Ref No: 1402

1.1 Introduction to the Research

The research focuses on analysing the impact of merger and acquisition on the creation of shareholder value over the years. The research is important considering the fact that shareholder value creation is one of the important objectives of the company. In accordance with Anderson, Fornell and Mazvancheryl (2004), the shareholder value is affected by each and every decision taken by the company so the management and directors needs to be careful while taking any major decision. It is further stated that the shareholder satisfaction is most important as they are the actual owners of the company and managers are the agents of those shareholders. The statement is referred to as agency theory and requires the agents to act in best interests of their owners. A later theory relating to the importance of shareholder value creation is known as stakeholder theory. Though it includes other stakeholders’ interests into consideration while taking any decision but it must be noted that the shareholders’ interest prevail over those of other stakeholders (Jensen, 2002). These theories illustrate that the shareholder value creation is very important and therefore, extra care must be taken for major decision like merger and acquisition. In the view of Gaughan (2010), the merger & acquisition leads to the restructuring of the company and it can be both beneficial and risky depending on the situation and strategic fit between the companies.

The research carries significance to individuals as well as companies who may be interested in merger / acquisition in future.  Firstly, the research is important for the researcher himself as it will help him develop his financial analysis, strategic analysis and research skills and will enable him using these skills in the professional life. Secondly, the research is important for the individuals in the society as they can gain knowledge about the impact of merger & acquisitions on the performance and shareholder value creation of the acquiring companies. Thirdly, the research carries significance for the companies as they can understand the impacts of merger & acquisition before they acquire a company. The research will help the companies understand the consequences of merger & acquisition on the shareholder value creation in a better way.

1.2 Research Aims and Objectives

The research aims to analyse the impacts of merger & acquisition on the shareholder value creation of the acquiring company. The objectives of the research are as follows:

1. To determine whether the impact on shareholders wealth was positive or negative as a consequence of the merger and acquisition.
2. To analyse the activity of merger and acquisition and its impact on improving financial growth.
3. To determine if the operating performance of companies are positively or negatively affected by merger and acquisition.

1.3 Research Questions

Every research aims to answer certain questions in line with achievement of the research objectives. The research questions for this research are as follows:

1. Does a merger and acquisition have an impact on the operating performance of a company?
2. Does merger and acquisition in improve financial growth?
3. Does merger and acquisition have an impact on shareholder value?

Chapter – 2 Literature Review

2.1 Introduction to the Chapter

This chapter focuses on the analysis of the results of past researchers related to the aims and objectives of the research. The chapter focuses on numerous aspects pertaining to the shareholder value and impacts of merger and acquisition. The chapter starts with the determinants of shareholder value, discusses the causes behind merger & acquisition and goes on to discuss the impacts of merger and acquisitions on different performance measures such as operational performance, financial performance and shareholder value. Lastly, the chapter highlights research gaps as identified from the study of past literature and discusses how current research will try to fill those gaps in the academic literature….