@ Mergers and Acquisitions Examining Managerial Strategy Connection To Post Transaction Accounting Measures

Mergers and Acquisitions: Examining Managerial Strategy Connection to Post
Transaction Accounting Measures
Dissertation
Submitted to Northcentral University
Graduate Faculty of the School of Business and Technology Management

in Partial Fulfillment of the
Requirements for the Degree of
DOCTOR OF BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
by
STEPHEN PAULONE
Prescott Valley, Arizona

January 2013
Copyright 2013
Stephen Paulone
APPROVAL PAGE
Mergers and Acquisitions: Examining Managerial Strategies Connection to Post
Transaction Accounting Measures
by
Stephen Paulone
Approved by:
_______________________________________________________________
Chair: Lonny Ness, Ph.D.Date
Member: Becky Takeda-Tinker, Ph.D.
Member: Ying Liu, Ph.D.
Certified by:
_______________________________________________________________
School Dean: Lee Smith, Ph.D. Date
Abstract
Merger and acquisition activity accounts for trillions of dollars in our economy and
currently fails to be productive at rates of 50 to 75%. Agency theory established a
foundation for an inherit conflict between management goals and the needs of the
shareholders which may account for this failure rate. The purpose of this convergent
parallel design mixed study was to examine a purposeful sample of 35 US domestic
mergers and acquisitions (M&As) from 1998 to 2002 to identify if there was a
relationship between managerial intention as stated in Securities and Exchange
Commission (SEC) required Form 10-K statements and M&A success. Government-
required filings of the companies involved in M&As were analyzed pre- and post-merger
via content analysis and accounting ratio analysis. A unique aspect of this study was to
measure the range of achievement of managerial strategy by relating the objectives of
M&As through senior managements own words as published in regulatory documents
and the evidence of achievement of those intentions through analysis of financial
statements. M&As represent an extreme commitment of company resources and focus,
so the objectives and outcomes of management M&A decisions need to be evaluated
once the merger or acquisition has been completed. Such analysis will assess the extent
to which there is an alignment between what senior management has communicated to
stakeholders and the subsequent financial outcomes following M&A activity. The
findings of this study illustrate that management does not establish clear outcomes for
measuring success of M&A events since a clear alignment between motives and
measures is established but accounting measures related to success show no positive
change. The most often recognized strategy is establishing a stronger market presence or
iv
power by acquiring or merging with a competitive or complementary business. The
quantitative findings of this study support the lack of clear achievement of any positive
difference when comparing pre and post M&A events since p-values for tested variables
were insignificant in five of six variables (ranging from .115 to .565) with the one
significant outcome (.040) for net sales which was expected. The resulting model
established here is intended to increase M&A success in the future and creates a
foundation for future research.
v
Table of Contents
List of Tables ................................................................................................................... viii
List of Figures .................................................................................................................. viii
Chapter 1: Introduction ....................................................................................................... 1

Background ............................................................................................................. 2
Problem Statement .................................................................................................. 3
Purpose .................................................................................................................... 4
Theoretical Framework ........................................................................................... 5
Research Questions ............................................................................................... 10
Hypotheses ............................................................................................................ 12
Nature of the Study ............................................................................................... 14
Significance of the Study ...................................................................................... 19
Definitions............................................................................................................. 20
Summary ............................................................................................................... 23
Chapter 2: Literature Review ............................................................................................ 24

Analysis Techniques (quantitative and qualitative) .............................................. 27
Effects of M&As ................................................................................................... 31
Managerial Objectives .......................................................................................... 43
Sample Impact on Study of M&As ....................................................................... 51
Valuation Techniques and M&A Financial Analysis ........................................... 60
Summary ............................................................................................................... 64
Chapter 3: Research Method ............................................................................................. 68

Hypotheses ............................................................................................................ 76
Research Methods and Designs ............................................................................ 78
Participants ............................................................................................................ 84
Materials/Instruments ........................................................................................... 88
Operational Definition of Variables...................................................................... 90
Data Collection, Processing, and Analysis ........................................................... 97
Methodological Assumptions, Limitations, and Delimitations .......................... 109
Ethical Assurances .............................................................................................. 111
Summary ............................................................................................................. 113
Chapter 4: Findings ......................................................................................................... 115

Results ................................................................................................................. 116
Evaluation of Findings ........................................................................................ 129
Summary ............................................................................................................. 135
Chapter 5: Implications, Recommendations, and Conclusions ...................................... 137

Implications......................................................................................................... 139
vi
Recommendations ............................................................................................... 146
Conclusions ......................................................................................................... 151
References ....................................................................................................................... 153
Appendixes ..................................................................................................................... 161

Appendix A: Worksheet to Capture Screened data from Mergerstat Database.. 162
Appendix B: Categories Related to Key Words and Phrases ............................. 169
Appendix C: Worksheet to Capture Rank Order of Content Analysis ............... 170
Appendix D: Worksheet to Capture Pre M&A Accounting Ratios .................... 171
Appendix E: Worksheet to Capture Post M&A Accounting Ratios ................... 173
Appendix F: Worksheet to Capture Delta of Accounting Ratios ....................... 175
vii
List of Tables
Table 1: Dictionary of Content Analysis Categories .......Error! Bookmark not defined.6

Table 2: Category Results of Content Analysis................Error! Bookmark not defined.7
Table 3: Paired Samples Test Results .............................Error! Bookmark not defined.3
Table 4: Managerial Intention and Associated Accounting Measure .......................... 1265
Table 5: Paired Samples Descriptive Statistics ............................................................ 1276
Table 6: Results for EVA and Net Sales ...........................Error! Bookmark not defined.7
Table 7: Numeric Results of Content Analysis............................................................ 13232
viii
List of Figures
Figure 1: Mixed method study design flow chart. ........................................................... 80

Figure 2: M&A model for stakeholder/management alignment. ................................... 146
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1
Chapter 1: Introduction
The managerial prerogative of engaging in mergers and acquisitions (M&As) over
the past 20 years has driven many executive strategies and careers (Lynch & Lind, 2002).
Because the total value of M&As during the span of this study i.e., from 1998 through
2002 was $5,083,579,700,000 (FactSet Mergerstat, 2004), a study which may help
improve the positive return on future M&As is valuable since prior studies have shown
that nearly half of the M&As from 1990 to 1996 damaged shareholder value (Lynch &
Lind, 2002). The number of M&As and the use of trillions of dollars of shareholders
assets in an attempt to increase value and show managerial superiority continue to be rich
areas of study. Since the popularity of M&As is evident and the additive value is not
clear when one contrasts this management strategy for increasing shareholder value to the
actual accounting results (Cartwright & Schoenberg, 2006), there is a need to continue
this research. There remains much to understand regarding the factors that explain
successful M&As, therefore a method that increases the ability to understand success
more effectively deserves serious consideration (Cartwright & Schoenberg, 2006; Daly,
Pouder, & Kabanoff, 2004; Flostrand & Strom, 2006; Kursten, 2008) .
Mergers and acquisitions have been studied from many different perspectives and
analytical processes, including stock market studies, accounting data studies, and case
studies that use data-supported pre- and post-merger performance approaches (Paulter,
2003). Despite these many studies and reports, management still cannot guarantee a level
of certainty that the performance of any given merged company will generate a positive
return more than 36% of the time (Sirower & Golovcsenko, 2004). Many studies show a
long-term negative change in value in acquiring firm stock prices (Agrawal & Jaffe,
2
2003; Loderer & Martin, 1992; Paulter, 2003). Some studies have even demonstrated the
possibility that managers instigate M&As for their own benefit 26% of the time (Seth,
Song, & Pettit, 2000).
The effect of espoused values pre-merger on companies related to the post-merger
performance was a novel area of pursuit by Daly, Pouder, and Kabanoff (2004) in
understanding a relationship between management values and accounting results. These
authors suggested more research was needed to corroborate their finding that there is a
significant difference in merger performance and management values. To this end, the
study of manager objectives as stated in public documents in undertaking M&As and the
measurement of achieving those intentions are critical to understand. The potential for
creating a benchmark or template for these managers to use in valuation is something one
cannot overlook in the study of M&As (Daly et al., 2004).
In this first chapter, the lack of value creation from M&As was investigated and
contextualized within prior studies on M&As. Given that a convergent parallel, mixed-
methods design was used, there were research questions that apply to the qualitative
portion of the study and hypotheses that apply to the quantitative potion of the study.
Definitions of terms and methodology unique to the study of M&As are also presented.
Background
Thompson Financial reports that M&A activity from 2002 to September 30, 2007
created the largest transactional dollar value of all time at 15.5 trillion dollars (Berman,
2007). Because more than half of these transactions resulted in failure (Valant, 2008),
with 64% failing to generate positive market returns for the years 1995 to 2001 (Sirower
& Golovcsenko, 2004), the costs of failed M&As are so great that the challenge to make
3
them more successful is urgent (Lynch & Lind, 2002) for firms, the economy (Fuller,
Netter & Stegemoller, 2002), and shareholder returns (Kursten, 2008). To increase the
chances of M&A success, it seems evident that an empirical study of a possible link
between management objectives for acquiring a company and the financial results of the
transaction are important. The reasons given by corporate leadership are important to
measure since corporate leadership is responsible for the execution of policies that
generate the best return for stockholders. Similar studies (e.g., Cartwright & Schoenberg,
2006; Daly et al., 2004; Fuller, et al., 2002; Kursten, 2008; Lynch & Lind, 2002)
suggested that there exists conflicting relationships between the self-interests of managers
and of the stakeholders involved in the transactions (i.e., shareholders, employees of
target and acquiring firms, other market players). There have been many studies that
have indicated a linkage between cultural mismatches and M&A success (Cartwright &
Schoenberg, 2006; Daly, et al., 2004) but evaluating the link between managerial self-
interest and accounting results was a topic that previously has been overlooked as a
possible cause for the failure of M&As.
Problem Statement
It has been shown that the failure of 60 to 70% of M&As cause loss of
shareholder value (Daly, Pouder & Kabanoff, 2004). It has also been demonstrated that
M&A strategy results in the destruction of shareholder value in approximately 44% of all
M&As caused by the inability of shareholders and managers to adequately assign
performance measures based on stated management strategies (Cartwright & Schoenberg,
2006). The specific problem is that in practice, it has been found that managers have a
potential conflict between the maximization of their wealth and the maximization of
4
shareholder profits (Nyberg, Fulmer, Gerhart & Carpenter, 2010; Podrug, Filipovic &
Milic, 2010). This problem is informed through the agency theory, as initially promoted
by Jensen and Meckling (1976) as managers may act in their own interests thereby
creating the agency conflict as illustrated in agency theory. A systemic process is thus
needed to assess whether an M&A will be more likely to increase shareholder value when
management presents an M&A strategy to company boards and shareholders for approval
and agreement upon M&A objectives with aligned measures of success and
compensation (Andrade et al., 2001; Flostrand & Strom, 2006). Previous studies
primarily have focused on the areas of strategic fit, organizational fit, and the acquisition
process itself (Cartwright & Schoenberg, 2006) as the drivers of M&A success or failure.
Establishing a rigorous basis for shareholders to judge proposals for M&A presented by
management should help shareholders and stakeholders evaluate strategies so that they
can either change poor plans or vote down M&A attempts if the proper strategy is not
proposed by management (Kursten, 2008).
Purpose
The purpose of this convergent parallel design mixed method study of a
purposeful sample of 35 US based M&As between the years 1998 and 2002 was to define
the intention of management through content analysis of their own strategy statements
and then to identify if there was a relationship between managerial intention and M&A
success toward improved M&A performance. Studies have shown that nearly half of the
M&As from 1990 to 1996 resulted in negative shareholder value (Lynch & Lind, 2002)
and the destruction of shareholder value in approximately 44% of all M&As. It is
believed that the failures were due to the inability of shareholders and managers to
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adequately assign performance measures based on stated management strategies in their
pursuit of M&As (Cartwright & Schoenberg, 2006). Jensen and Meckling (1976) and
Nyberg, et al. (2010) have shown that Agency theory is about the self-serving nature of
human behavior that is motivated through the satisfaction of personal goals over
company goals. Therefore, understanding Agency theory may aid in understanding the
high failure rate of M&A strategy (Podrug, Filipovic & Milic, 2010).
Individual M&As were associated with a set of independent variables noted as
Management Strategies (MSs) derived from previous research of Daly, et al. (2004) and
these are associated with metrics of strategies that governed the executive rationale for
mergers. Questions regarding the difference between MSs (independent variables) and
financial results (dependent variables) must be answered due to the impact that senior
managements M&A strategies have on a firms value (Chatterjee & Meeks, 1996; Fuller,
et al., 2002; Loderer & Martin, 1990; Morck, Shleifer, & Visney, 1990). The outcome of
this study should be the establishment of an additional means of M&A analysis that helps
executives select their M&A strategies and bring stockholder focus to the proper strategy
measures to improve the likelihood of M&A success (Schoenberg, 2006; Walter &
Barney, 1990).
Theoretical Framework
Agency theory established by Jensen and Meckling (1976) is the foundation for
the concept of the inherit conflict between management goals and the needs of the
shareholders. In the field of M&As, this theory has been extended to include the
difference between acquiring firms' and target firms' espoused values, and the effect of
post-merger performance based on the measure of return on assets (Daly et al., 2004). In
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the present study, the goal was to extend the work of Daly, Ponder and Kabanoff (2004)
by using their method of ascribing values to companies to the determination of
managerial intentions. This is important in the M&A field due to the amount of failures
and the sums of assets involved in M&As which corporate leaders commit on behalf of
their shareholders (Chatterjee & Meeks, 1996; Fuller, et al., 2002; Kursten, 2008;
Loderer & Martin, 1992; Lynch & Lind, 2002; Morck, et al., 1990). The difference of
management intentions and measuring those intentions to deliver positive financial
outcomes post-merger is critical to understanding M&A failures and objectives with
aligned measures of success must be defined pre-M&A event to help avoid these failures
or at least identify which poor financial management strategies leads to failure of M&A
events (Paulter, 2003).
Prior studies primarily have focused on the areas of strategic fit, organizational fit,
and the acquisition process itself (Cartwright & Schoenberg, 2006) as drivers of success
or failure in the area of M&As. The intentions managers have for pursuing M&As is not
a rich field of literature. Although reasons given for the lack of research in this area vary,
a common reason is that until recently, the only method used to acquire this information
was surveys aimed at top management who participated in such M&As. A survey of top
management is difficult to execute given that the proper people first must be identified
and located, many have moved on from their positions, these type of people are
extremely busy and difficult to contact, and the participants must complete a survey
which may include information that is confidential (Paulter, 2003). Surveys too have
inherent risks that threaten their reliability, including the possibility of self-selection bias,
retrospective bias, and the Hawthorne effect (Daly et al., 2004). The findings based upon
7
content analysis are encouraging for gathering top-level executive intentions as
articulated in public documents to shareholders and government authorities while
removing the barriers of survey non-response error and self-selection bias (Daly et al.,
2004). This was the primary driver for the use of content analysis as a methodology of
defining managerial intentions in the present study.
There are several studies of managerial intentions which have indicated that most
intentions could be captured under four major categories of M&A. The four categories
are as follows: synergy, market power, market discipline and diversification (Andrade,
Mitchell & Stafford, 2001; Morck, et al., 1990; Mukherjee, Kiyamaz & Baker, 2004;
Seth, et al., 2000; Walter & Barney, 1990). Synergy was defined as an attempt to create
efficiencies by elimination of overlap in the combination of two separate entities (Chang,
1988). The effects of synergy on post-merger performance are widely discussed given
that this is the single most important reason given by management for pursuing M&As
(Chang, 1988; Chatterjee, 2007; Harrison, Hitt, Hoskisson & Ireland, 1991; Seth, et al.,
2000). The specific terms relating to synergy listed in research are process
improvements, shared resources (Fulghieri & Hodrick, 2006), redundancies (Chatterjee,
2007), pooled negotiating power (Barragato & Markelevich, 2008), vertical integration
(Sirower & Lipin, 2003), gain efficiencies (Mukherjee, et al., 2004), cost-cutting
(Chatterjee, 2007), cross-selling opportunities (Mukherjee, et al., 2004), and cross
promotional opportunities (Mukherjee, et al., 2004).
Market power was defined as the attempt by a company to limit competition in a
field through acquisitions (De Bondt & Thompson, 1992). Market power is also related
to attaining competitiveness through higher market share or position as studied by Walter

8
and Barney (1990), trying to achieve comparative advantage as demonstrated by Amihud,
Dodd and Weinstein (1985), and enhancing or protecting a strategic position in the
marketplace as illustrated by Philippatos and Baird (1996). These studies contributed to
the list of search terms and phrases related to market power as follows: consolidation,
improve competitiveness, deregulation, meet competition, industry changes, industry
challenges, use acquired expertise, and scale.
Market discipline was defined as the tendency by markets to punish poor
management when a better managed firm in the industry merges to acquire mismanaged
assets and remove incompetent or ineffective management (Andrade, et al., 2001). The
researchers that investigated the connections in M&A concerning market discipline
developed the following focal points: market erosion (McConnell, 1986), replace
management (Dodd, 1980), change mission (Andrade, et al., 2001), lack of confidence
(Morck, et al., 1990), opportunity to purchase at discount (De Bondt & Thompson, 1992),
and capture value (Walter & Barney, 1990).
Diversification occurs when the acquisition of a company leads to expansion or a
compliment of the acquiring companys portfolio of customers and products (McConnell,
1986). The search terms and phrases deemed best to use from the research are market
penetration (Walter & Barney, 1990), market expansion (McConnell, 1986), grow
product portfolio (Amihud, et al., 1986), and expand customer base (Andrade, et al.,
2001). These terms were used to search the statements made by top executives in their
10-K statements to determine management intentions.
In the study of M&As, financial and accounting measures of corporate success
have been used to assess outcomes (Schoenberg, 2006). The key to success in such
9
analyses were in identifying an acceptable measure of success as applicable to different
companies in different businesses so that a consistent measure could be applied
(Cartwright & Schoenberg, 2006). This author builds upon previous works of accounting
returns (Chatterjee & Meeks, 1996; Dierks & Patel, 1997; Philippatos & Baird, 1996;
Ramaswamy & Waegelein, 2003; Yook, 2004) as opposed to the studies of stockholder
returns (Agrawal & Jaffe, 2003; Andr, Kooli, & LHer, 2004; Dodd, 1980; Sirower &
Golovcsenko, 2004). The assumption of this author is that financial results cannot be
influenced by investor speculation whereas markets are influenced by speculation as
many studies based on stockholder returns from M&A events have exhibited (Philippatos
& Baird, 1996; Ramaswamy & Waegelein, 2003). Financial statement analysis is the
best measure of domestic publicly traded companies since the format and reporting
structure is mandated by the Securities and Exchange Commission (SEC) and the
Financial Accounting Standards Board (FASB). One can look at leverage and how it
affects profitability and asset valuation (Nissim & Penman, 2003) and, ultimately, returns
for stockholders. However, there exists a possibility of exaggerating the effect of the
type of payments used in a merger, since a merger can be financed with leveraged debt,
stockholder equity, or a combination of both types and different forms of these financing
vehicles (Heron & Lie, 2002).
The ultimate measure of a managers mission as widely agreed is value creation
for shareholders (Jaggi & Dorata, 2006). This measure can be the stock price, which
reflects value to the shareholders, but it is a short-term event and does not provide an
accurate picture of long-term value created by a firm (Bouwman, Fuller, & Nain, 2003).
Additional measures of value to shareholders are accounting measures of value. These

10
measures can be affected by changes in regulations and methodology, as indicated by a
summary of past accounting studies in M&As (Chatterjee & Meeks, 1996). The result of
these studies have supported the system of measuring corporate performance by means
other than accounting measures, specifically economic value added (EVA), which this
study employs(Dierks, 1997; Schoenberg, 2006).
The quantitative portion of this study is focused on the accounting measures of
shareholder returns and in measuring the attainment of these returns with managerial
intentions. Many studies in this area historically have had a focus on the measurement of
M&A impact on newly-merged company performance (Agrawal & Jaffe, 2003; Kiymaz
& Baker, 2008; Ramaswamy & Waegelein, 2003); on the measurement of shareholder
reaction to an announced merger or acquisition (Bouwman, et al., 2003; Campa &
Hernando, 2004); the identification of underperformance in takeover targets prior to
merger or acquisition as the cause for the takeover (Agrawal & Jaffe, 2003); or on the
evaluation of merged company performance and any created value (Loderer & Martin,
1992). Agrawal and Jaffe (2003) and Loderer and Martin (1992) also reviewed financial
performance post-merger as compared to pre-merger, as did Ramaswamy and Waegelein
(2003). Yook (2004) advanced these concepts in his paper on Economic Value Added
(EVA) measures of post-acquisition performance (Yook, 2004) which were used as a
general measure of shareholder value in this present study.
Research Questions
In examining the outcome differences of M&As between managers stated
objectives found in Securities and Exchange Commission required documents and actual
results, certain questions should be investigated (Daly et al., 2004; Kiymaz & Baker,
11
2008; Schoenberg, 2006). Zikmund (2003) stated that research questions are a bridge
between problem questions and research objectives. The merged results of qualitative
content analysis and quantitative analysis of the accounting ratios was the bridge in this
study. A result was a model derived from quantitative analysis of financial measures and
management objectives derived from qualitative content analysis and the extent they
converge or diverge to produce a more complete understanding of successful or
unsuccessful mergers. The quantitative research questions addressed in this study were
as follows:
Q1: To what extent, if any, is there a difference between the average 2 years
preceding an M&A event compared to the average 2 years after the M&A of economic
value added as a measure for shareholder return pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of earnings
before interest and taxes as a measure for synergy strategy pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of return on
assets as a measure of market power strategy pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of net income
as a measure of market power strategy pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of operating
profit margins as a measure of market discipline strategy pre and post M&A?
12
preceding an M&A event compared to the average 2 years after the M&A of net sales as
a measure of diversification strategy pre and post M&A?
The qualitative portion of this study is to use content analysis of registered
government documents, form 10-K, to determine managerial intentions. These forms
were searched for words and phrases that determined particular intentions. These
intentions are directly related to the related accounting measures and aid in understanding
the following question:
Q7: Based on the differences determined for each financial measure, how do the
associated management intention categories for each financial measure of M&A success
(Q1 Q6) align as an indicator of a possible outcome for M&A success?
Hypotheses
The hypotheses that were tested to identify which variables exhibited the success
or failures of a merger to create value for the shareholders of the acquiring company are
provided below. These hypotheses were tested using ANOVA (t-test) to verify if there is
a significant difference in the averages of the financial results pre and post-merger. The
hypotheses, stated in null and alternate forms, are:
H10: There are no differences between the average 2 years preceding an M&A
event compared to the average 2 years after the M&A of economic value added as a
measure for shareholder return pre and post M&A.
H1a: There are differences between the average 2 years preceding an M&A

13
event compared to the average 2 years after the M&A of earnings before interest and
taxes as a measure for synergy strategy pre and post M&A.
event compared to the average 2 years after the M&A of return on assets as a measure of
market power strategy pre and post M&A.
event compared to the average 2 years after the M&A of net income as a measure of
event compared to the average 2 years after the M&A of operating profit margins as a
measure of market discipline strategy pre and post M&A.

14
event compared to the average 2 years after the M&A of net sales as a measure of
diversification strategy pre and post M&A.
Nature of the Study
The nature of this convergent parallel design mixed methods study was to
establish a model to help increase the success of M&A strategy. This is categorized as a
mixed method study per the definition compiled by Creswell and Plano Clark (2011)
since both qualitative and quantitative data were collected and inferences drawn from
both sources. This methodology can also be defined as an approach that considers
multiple viewpoints and perspectives that validate a process leading to enhanced
description and understanding (Johnson, Onwuegbuzie, & Turner, 2007). This study is
also an applied study in finance which has been defined by Alise and Teddlie (2010) as
appropriate for this research.
The process began with the sampling of the Mergerstat database of completed US
based M&As over years 1998-2002. There was a purposeful screen used to eliminate
industries (finance, utilities, and insurance) since accounting measures for these firms are
different than most industries and these industries have been driven by regulation and
15
consolidation motives (Andrade, et al., 2004). There were also screens applied for size of
firm, domestic and publicly traded firms since these are the only firms required to file a
SEC Form 10-K. Individual M&A events from this sample were associated with a set of
Management Strategies (MSs) derived from previous research of Daly, et al. (2004) and
these were associated with metrics of strategies that governed the executive rationale for
the merger. The quantitative portion of the study was the statistical analysis of
accounting ratios while the qualitative portion of the study was content analysis of SEC
mandated 10-K statements to ascertain management strategy which cannot be quantified
but can be measured by the quantitative portion of the study. The model was developed
from the examination of findings after comparison of results of each inquiry (Creswell &
Plano Clark, 2011).
Managerial strategies, as defined by previous studies (Andrade, Mitchell &
Stafford, 2001; Morck, et al., 1990; Mukherjee, et al., 2004; Seth, et al., 2000; Walter &
Barney, 1990) were found and identified through content analysis of the SEC regulated
10-K statements required to be issued annually by publicly traded companies in the US.
The research questions were developed based upon the difference between managerial
strategies and financial results and have importance based upon the impact that senior
management M&A strategies have on a firms value (Chatterjee & Meeks, 1996; Fuller,
et al., 2002; Loderer & Martin, 1990; Morck, et al., 1990). Therefore, the use of
ANOVA (t-test) to test the hypothesis for each financial measures average outcome
post-merger data compared to pre-merger data is consistent with prior studies (Daly, et
al., 2004; McConnell, 1986; Ramaswamy & Waegelein, 2003). Content analysis using
NVivo software of the 10-K reports for 2 years prior and 2 years after the M&A was
16
applied. Rank-ordering of the occurrence of words and terms associated with four major
categories of M&A strategies as developed by Daly, et al. (2004) and exhibited in Table
1 of the paper.
Table 1
Dictionary of Content Analysis Categories
Category Definition Examples/Terms
Synergy Attempt to create efficiencies by Process improvements,
elimination of overlap in the shared resources,
combination of two separate redundancies, pooled
entities negotiating power,
vertical integration, gain
efficiencies, cost-cutting,
cross-selling
opportunities, cross
promotional
opportunities
17
Market Power Attempt by a company to limit Consolidation, improve
competition in a field through competitiveness,
acquisitions deregulation, meet
competition, industry
changes, industry
challenges, use acquired
expertise, scale
Market Discipline Markets will tend to punish poor Market erosion, replace
management when a better management, change
managed firm in the industry mission, lack of
merges to acquire mismanaged confidence, opportunity
assets and remove incompetent or to purchase at discount,
ineffective management capture value
Diversification The acquiring of a company to Market penetration,
expand or compliment the market expansion, grow
company portfolio of customers product portfolio, expand
and products customer base
The final step was to perform ANOVA (t-test) of the accounting ratios associated
with management strategies to examine if a change has occurred and how significance of
each category may have differed based on strategies stated by management.
The steps taken in the study included:

18
a longitudinal analysis of Mergerstat database of completed US based M&As
over years 1998-2002;
a defined and screened stratified sample selection based on prior researcher logic
to choose seven companies annually for a total sample size of 35 companies over
the 5 year time period (reference Appendix A);
the collection of SEC mandated and controlled 10-K statements of companies
involved in the M&A;
a qualitative content analysis using NVivo software of the 10-K reports for 2
years prior and 2 years after the M&A;
a rank-ordered occurrence of words and terms associated with four major
categories of M&A intentions as developed by previous research (Andrade,
Mitchell & Stafford, 2001; Morck, et al, 1990; Mukherjee, Kiyamaz and Baker,
2004; Seth, et al, 2000; Walter & Barney, 1990) to establish a hierarchy of intent
by management (See Table 1 and Appendix B for search terms and categories,
and Appendix C for worksheet to capture data rankings);
a financial accounting ratio analysis of financials from the 10-K statements for 2
years prior and 2 years after the M&A. The accounting ratios of the pre-M&A
entities were normalized to percentage differences from average to accommodate
any difference in size of the M&A target and acquirer (See Appendix D). An
M&A event was considered successful if the post-M&A accounting results were
significantly different and incrementally positive from the averaged pre-M&A
accounting results (see Appendix E and Appendix F). The accounting results
were used as the quantitative dependent variables in this study. Use of the
19
statistical ANOVA (t-test) tests of the hypotheses consistent with prior studies
(Daly, et al., 2004; McConnell, 1986; Ramaswamy & Waegelein, 2003)
completed the quantitative analysis and data was captured in worksheets
referenced in Appendices D, E and F;
an ANOVA (t-test) using SPSS statistical software to analyze the data captured in
an Excel spreadsheet (see Materials and Instruments section);
an interpretation of the merged results of qualitative content analysis and
quantitative analysis of the accounting ratios by summarizing and interpreting the
separate results;
a statistical analysis of financial measures (quantitative) and management
objectives derived from content analysis (qualitative data) to produce a more
complete understanding of successful or unsuccessful mergers.
Significance of the Study
The widely accepted agency problem thesis in finance states that executive
mangers are hired by the board of directors who are put in place and sit on the board at
the discretion of the shareholders so ultimately the shareholders hire executive managers
for the sole purpose of managing the company to produce profits which return
compensation to the shareholders for taking on the risk of placing their capital in the
hands of management (Jensen & Meckling, 1967). It was thus critical to understand the
motivations and objectives of management when they pursue M&A strategies.
Performing a content analysis of public documents for ascertaining senior managers'
objectives in pursuing strategies (Kabanoff, 2002) and then relating those motives to
20
measures of economic valuation, rather than to accounting data, should aid in the purity
of the measurements which are secured from manipulation of intentional or chance
influences (Daly et al., 2004; Flostrand & Strom, 2006; Yook, 2004).
The application of content analysis in the studies of M&As was new and
important to establishing managers objectives in pursuing M&As. When a researcher
combines content analysis with the use of economic value added measures for success,
the results should help shed new light on this field of management study which should
help shareholders and stakeholders judge if M&A activity is in their best interests and has
a chance to succeed (Daly et al., 2004; Flostrand & Strom, 2006; Yook, 2004). The
essential contribution of this study was the development of a model to allow these
stakeholders a manner to establish metrics to measure managements decision to pursue
M&A and align compensation appropriately. If this study was not conducted the record
of M&A success may continue without a systematic way to define and measure
managerial intentions in pursuing M&As.
Definitions
Following are terms and concepts that have particular meanings and usages in the
financial field. Because content analysis was used in this study, the definition of terms
was important. The following list of words and definitions appear throughout and are
central to this work.
10-K statement. The 10-K statement is a financial document required by the
Securities and Exchange Commission of publicly-listed companies that includes
managers' discussion of future directions for their businesses and explanations of major
strategic initiatives. This document must be filed annually and was an excellent source of
21
unbiased information to which to apply content analysis in order to ascertain
managements objectives (Securities and Exchange Commission, 2009).
Acquiring firm. Acquiring firm, for the purposes of this study, is defined as the
entity that initiates the merger or takeover and is the named entity after the merger is
complete (Martin & McConnell, 1991).
Agency Problem. The agency problem is the conflict brought about by managers
seeking to maximize their economic position and corporations which exist to maximize
shareholder economic positions. (Jensen & Meckling, 1976)
Cumulative Abnormal Return (CAR). The cumulative abnormal return is a
measure of the return to stockholders based on stock market prices for acquirer stocks
which appreciate over previous established stock average returns. This measure is widely
used as an indication of a change in a companys value by M&A researchers and is
calculated differently depending on which research you use as a reference (Cartwright &
Schoenberg, 2006; Jensen & Ruback, 1983; Paulter, 2003; Savor & Lu, 2009).
Coding. Coding is the process of establishing measures and forms in content
analysis in order to quantify the meanings of certain terms in usage and to assign values
to those terms so that other researchers can repeat the process adhering to certain rules
and definitions (Neuendorf, 2002).
Cross-border merger or acquisition. The term cross-border merger or
acquisition refers to a combination of firms in which the acquirer and target firms are not
from the same country of origin (Seth, et al., 2000).
Economic Value Added (EVA). EVA is a measure of financial performance that
combines the concept of residual income with earnings more than the cost of capital. It is
22
computed by taking after-tax net operating profit minus a capital charge (Dierks & Patel,
1997).
Espoused values. Espoused values reflect what senior managers actually believe
their organizations and goals to be defined as and acted upon by the company (Kabanoff
& Daly, 2002). Implied is a distinction between what others define an organization's
values to be and what the organization states as its values.
Hawthorne effect. The Hawthorne effect refers to the tendency of subject being
studied to change his or her behavior due merely to the fact that he or she is being
observed. Daly, et al. (2004) noted this problem as one reason to use content analysis.
Market efficiency. Market efficiency is a widely held belief in the fields of
economics and finance that markets react quickly to new information and transmit the
effects of this new information directly to market prices. This tenet is used widely in the
research of M&A as a justification for using stock prices as a measure of change in value
for a company (Chatterjee & Meeks, 1996).
Q-theory of mergers. The Q-theory of mergers states that a firms investment
should rise with the ratio of market value to the replacement cost of capital. This theory
can be used to explain why some companies acquire other companies (Jovanovic &
Rousseau, 2002).
Target firm. The target firm, for the purposes of this study, is defined as the firm
that is taken over by the acquiring firm and ceases to exist after the merger or acquisition
is completed (Martin & McConnell, 1991).
Synergy. Synergy refers to the effect of increased value from a merger that either
results in higher sales or lower costs of the combined firms compared to the separate
23
firms. This may be measured by adding the acquisition premium to the difference
between replacement costs and market value of the target firm (Chang, 1988).
Summary
It was evident from this brief review of the literature that the M&A fields have
been studied extensively. This study builds upon the findings of the past several decades
and adds to the field in the areas of agency theory and convergent parallel design mixed
method analysis of qualitatively derived managerial objectives and quantitative measures
of accounting effects of these M&As. Analyzing the convergence or divergence of
objectives of management and whether these outcomes are related to the accounting
value post-merger should be valuable to shareholders of the acquiring corporations. Past
research has shown that the ability to exhibit a conclusive relationship between M&As
and value creation is illusive at best when attempting to look at value creation alone
(Cartwright & Schoenberg, 2006; Lynch & Lind, 2002; Paulter, 2003; Yook, 2004). The
focus of this study was less about whether value creation had taken place but more about
whether management clearly stated an objective for the merger and whether this objective
was reflected in the ultimate financial performance of the merged companies within 2
years after the merger. The variables affecting a merger are many, and some are difficult
to quantify. However, with trillions of dollars at stake in annual M&As, it is imperative
that management more thoroughly understand the factors that influence successful
M&As. This understanding should help stockholders align stated managerial objectives
with financial measures and results resulting in a methodology to improve success of
M&A.
24
Chapter 2: Literature Review
This mixed methods study contains several techniques that required review of
material in different categories of research methodology as well as topical research. The
categories included but were not limited to content analysis, managerial objectives in
M&A, M&A measures of success, accounting methodology, and mixed methods research
application. The overarching theory of agency and related impact of this theory on M&A
was seen as a focal point of interest in approach to this topic. The purpose of this chapter
is to establish the current study in relation to prior work and to show how, with the
incorporation of recent investigative techniques, a unique perspective to an important
field of business has been added to the field of M&A. Several databases were used in the
research of topics including; EBSCOhost, ProQuest, Mergent Online, WorldCat and
primary data accessed from the FactSet Mergerstat (1994-2004) database. Most
databases were accessed through the Northcentral University online library.
Agency theory establishes a foundation for an inherit conflict between
management goals and the needs of the shareholders. Jensen and Meckling (1976) in
their seminal work on this subject stated that implicit with the agency problem are the
associated agency costs of monitoring expenditures by the principal. Nyberg, Fulmer,
Gerhart and Carpenter (2010) extend agency theory as the potential reasoning behind the
lack of alignment of goals and actions between manager and shareholders. Podrug, et al.
(2010) assumed that management will not maximize shareholder wealth because they
each have different goals, different access to information and different propensity toward
risk.
25
The existing M&A literature, while voluminous in terms of depth, seems
concentrated in several categories which limit its breadth. Previous studies primarily
have focused on the areas of strategic fit, organizational fit, and the acquisition process
itself (Cartwright & Schoenberg, 2006) as drivers of success or failure in the area of
M&As. The intent of this study was to examine the motivations of management to
proceed with M&As. Specifically, the purpose of this study was to investigate whether
there is a connection between managements stated objectives and the accounting
consequences of these M&As. De Bondt and Thompson (1992) stated that too few
studies of takeovers tally the financial consequences. This feature, then, distinguishes
this study from others and defines this within the parameters of a finance study and not in
the categories of strategic management research, strategic fit research or process research
since these fields focus on the strategic and process factors for M&A success while this
research focuses on success of managerial intentions (Cartwright & Schoenberg, 2006).
Previous studies (e.g., Amihud, Dodd, & Weinstein, 1986; Doukas & Petmezas,
2007; Loderer & Martin, 1992) have relied on event studies which are based on the
widely accepted Efficient Market Hypothesis (EMH) assumption that the stock price
reflects all available information bearing on the future profitability of the firm. Whereas
cumulative abnormal stock returns were used in the previously mentioned studies, Paulter
(2003) emphasizes the use of accounting data as an alternative. This supports the use of
accounting data in tandem with content analysis of Securities and Exchange Commission
documents as replicated herein. Aggregation of the stated objectives of management, as
reflected in public documents, offers the same advantage as Dalys unique study and
strengthens it due to the stringent requirements of the SEC in preparing 10-K statements.
26
Comparing the financial results of companies undertaking an M&A strategy with the
rhetorical content analysis of comments made by senior management in controlled
documents other than the Presidents letter to shareholders makes this a groundbreaking
study (Daly et al., 2004). The combination of qualitative content analysis techniques
relating to published business documents to ascertain motives pioneered by Kabanoff
(1996) and standardized by Neuendorf (2002) along with the quantitative testing of
accounting returns pre- and post-merger contributes to the uniqueness of this study.
Discussion of the extent and in what manner results from statistical analysis of financial
measures (quantitative) and management objectives derived from content analysis
(qualitative data) converge or diverge to produce a more complete understanding of
successful or unsuccessful mergers is also consistent with the parallel convergent mixed
methods design of this study (Creswell & Plano Clark, 2011).
To adequately organize and present the previous research in M&As that have led
to this study, categories of pertinent material have been established. This author
categorized the fields and differentiated the previous research as follows: analysis
techniques (quantitative and qualitative), effects of M&As, managerial objectives of
mergers or acquisitions, sampling impact on M&A studies, financial analysis, and
valuation techniques of companies pre-merger and post-merger. These categories helped
define and support the areas of research in this study, placed them in the proper context,
and showed how the current research added to the M&A field to contribute a unique
study to the field of M&A research.

27
Analysis Techniques
Past studies have used various quantitative techniques to analyze the performance
of M&As or the relationship of different variables on the outcomes of M&As. The
central tool used in many research papers relating to M&As is a regression analysis to
model the relationship between two or more variables. Finance scholars have
concentrated on whether M&As are positive or negative to wealth creation for
shareholders (Cartwright & Schoenberg, 2006). Many studies, called event studies,
concentrate on the effects of abnormal stock returns based on the statistical model
developed by Fama, Fisher, Jensen and Roll in 1969 to measure, through regression
analysis, market reaction encapsulated in the stock price movement (Jensen & Ruback,
1983). Paulter (2003) emphasizes that the effects in the abnormal returns for stocks in
these event studies are based upon the Efficient Market Hypothesis (EMH) which states
that all available information bearing future profitability of a firm is already included in
the stock price. The present study was not presented as an event study due to the
empirical evidence against the EMH. The process of measuring managerial intentions to
merger success based on accounting returns and not based on stock returns also supports
this from being classified as an event study. The study research methodology was based
on similar premises as event studies and thus built upon statistical models referenced in
event studies without being classified as an event study. Studies that have focused on this
similar path have relied upon a variety of success measures and treatment variables. It is
these studies that are now discussed and upon which this author based the quantitative
portion.
28
One of the earliest studies of M&A success based on the Fama model is Peter
Dodds 1980 study of stock returns 40 days before and 40 days after announcement of a
merger. Dodd envisioned the reaction of management to the merger proposal as a proxy
for their ability to maximize shareholder wealth. By extension, if management exercised
a veto over a merger bid that had a positive market reaction in the abnormal stock return
then management could postulate that its motives were not in the best interest of
shareholders and the inverse would also hold (Dodd, 1980). The abnormal stock return
model was used in subsequent studies; as stated by Dodd et al., (1985) , Morck, et al.
using different types of M&As as variables (1990), Fuller, et al.,(2002) sampling
companies who initiated multiple M&As (2002), Doukas and Petmezas (2007) who
measure overconfidence of management in an acquisition (2007). Loderer and Martin
(1990) relied on the same measures of management overconfidence as Doukas and
Petmezas (2007) for a comprehensive sample size to differentiate their study. Andr, et
al., (2004) based their study on Canadian companies as their targeted sample population.
This is just to name a few of the studies that rely on the Fama cumulative abnormal stock
return models and how they differ.
The substitution of financial measures for abnormal stock returns is validated
beginning with De Bondt and Thomson (1992) who stated that too few studies of
takeovers tally the financial consequences of M&A. Harrison, et al., (1991) studied the
effect of synergy through regression of pre and post-merger return on assets (ROA)
adjusted for the industry effects. Philippatos and Baird (1996) measured excess value in
the firm as the difference between market value and book value of the firm. Fulghieri
and Hodrick (2006) measured success of synergistic M&As as a return on assets, and
29
Agrawal and Jaffe (2003) who used accounting measures of operating performance to
judge merger success with a t-test of the difference between industry adjusted return on
assets pre and post-merger. These tests were used to determine a relationship between
pre and post-merger return on assets and inept management based on the hypothesis that
firms that perform poorly will be takeover targets. The previously mentioned authors
tested their hypotheses against the change in return on assets post-merger seeing if there
was significance in the change. Morck, et al., (1990) also used the t-test to compare
merger success pre and post-merger but through the change in equity value of the firm
reflected in industry adjusted return and growth of income. Their findings also supported
the hypothesis that poor managers will make poor acquisitions by choosing the improper
objectives and support which leads to the agency theory that managers choose what is
best for them over what is best for shareholders. These studies established a foundation
for the current use of growth in net sales as an indicator of measurement for managers
who favor a diversification strategy in attempting M&As (Morck, et al., 1990;
Swaminathan, Murshed, and Hulland,2008) as well as the comparison basis of pre and
post-merger.
Chatterjee and Meeks (1996) attempted to evaluate accounting rates of return
within the parameters of accounting regulations by using the measures of profits in the
form of dividend distribution comparison pre and post-merger and the measure of asset
utilization in the form of book value pre and post-merger. Their intention was to evaluate
the EMH and test the efficiency of the market to translate relevant information
immediately to stock prices. Accounting rates of return were also used in Yooks post-
acquisition study (2004), Moeller, Schlingemann and Stulz (2005) study on wealth
30
destruction in M&A, Philippatos and Baird (1996), Ramaswamy and Waegelein (2003)
and Blocks (2000) post-merger performance studies. Their findings supported the
hypothesis that stock market studies alone are not the best measure of merger success
primarily due to the regulatory effect on information reporting.
The use of ANOVA (t-test) in the proposed study helped exhibit the significance
of and the direction of change in pre- and post M&A accounting measures associated
with managerial intentions. Previous studies (Agrawal & Jaffee, 2003; Ahern & Weston,
2007; Block, 2000; Dodd, 1980; Guest, Bild & Runsten, 2010; Jensen & Ruback, 1983;
Kiymaz & Baker, 2008; Loderer & Martin, 1992; Martin & McConnell, 1991) all used
the t-test in place of the ANOVA (t-test). ANOVA and t-test will return the same results
when comparing two different variables. The statistics established if a relationship
existed between pre-merger and post-merger performance of companies involved in
M&A activity, and the intentions stated by management. A positive result in an
accounting calculation indicates that the average accounting ratio measure pre-merger
was larger than the average measure post-merger thus it indicated a failure of
managements strategy whereas a negative value indicated the opposite. The comparison
of the p-value with the significance outcomes was used to conclude that the difference
between the means of the groups had changed and what is the magnitude and direction of
that change (Aczel & Sounderpandian, 2002).
The use of content analysis in M&A research for purely qualitative studies is an
emergent tool. This field is much less rich in precedent than the quantitative portion of
the research and as Daly, et al., (2004) state further research in this area deserves serious
consideration. Flostrand and Strom (2006) conceptualized that the nature of business is
31
changing and thus new ways of ascertaining information is critical further supporting the
use of alternate measures of managerial intentions such as content analysis. Kabanoff
(1996) and Kabanoff and Daly (2002) used content analysis to demonstrate the values
espoused in organizations which helps define the process used in this study to determine
managerial intentions. This author relied heavily on the structure of content analysis
provided by Nuendorf (2002) in her content analysis guidebook and on the methodology
pertinent to establishing motives as developed by Kabanoff and Daly (2002). Validation
of using this methodology in the study of senior managements communications is also
reflected in the studies of McConnell (1986), Sirower and Lipin (2003), Sirower and
Golovcsenko (2004) and ultimately Walter and Barney (1990) as it directly pertains to
management objectives in M&A.
Effects of M&As
Studies of M&As tend to focus on post-merger effects since it is still
undetermined whether M&As create value for an acquirer, given that studies to date have
yielded diametrically opposed interpretations (Loderer & Martin, 1990). The study of
post-merger effects to combined firms financial performance has been the largest field of
interest by researchers of M&As using three types of empirical studies. These are stock
market event studies, large-scale accounting data studies, and case studies of individual
M&As (Paulter, 2003). Because this study was focused on the financial effects of
M&As, investigating whether there was a link between managerial objectives and
financial outcomes post-merger, the literature review herein focuses on studies in these
categories. The research indicates that variables affecting merger performance and
32
financial performance following M&As have a strong relationship, and thus is important
to review (Cartwright & Schoenberg, 2006; Loderer & Martin, 1990; Paulter, 2003).
The event studies are utilized when analyzing post-acquisition stock performance
as an indicator of acquiring firms merger success. The short-run stock performance of
the companies involved in M&As is the most widely used measure of merger outcomes
(Bouwman, et al., 2003; Dodd, 1980; Kiymaz & Baker, 2008; Sirower & Golovcsenko,
2004). These studies recorded the stock market reaction soon after a merger was
announced or completed to extrapolate these movements in stock price to establish a
theory explaining motivation of management when proceeding with an M&A. The
generally accepted theory is that the market reaction to a merger incorporates all
information that is relevant, including future profitability of the firms involved in the
merger. The Dodd (1980), Kiymaz (2008), and Sirower (2004) studies all showed a
negative return for acquiring companies with a corresponding positive return for the
acquired companies. These researchers indicate that mispricing of the purchase may be
the major indicator of this short-term performance and that more study was required of
total gains in M&As (Kiymaz & Baker, 2008). The potential for mispricing or
overpayment being a problem in the present research is minimized with the use of
accounting rates of return methodology. This is due to the fact that the different
economic values used eliminated the impact of payment in the analysis.
The next type of study employed accounting data to determine the effects of
M&As on shareholder value or in meeting merger objectives. The unit of measure of
shareholder value differs from using earnings per share (Barragato & Markelevich, 2008;
Block, 2000), from the Capital Asset Pricing Model, or market model, introduced by
33
Harry Markowitz in 1952 (Bodie, Kane, & Marcus, 2008) to compute returns (Amihud,
et al., 1986; Loderer & Martin, 1992), and from the use of Economic Value Added
(EVA) measures to insure all costs and benefits are considered (Dierks & Patel, 1997;
Yook, 2004). These studies added more reliability to the study of merger effects by
removing speculation and market effects that become part of stock price movements but
added another level of complexity and dilemma when selecting the proper measures
(Cartwright & Schoenberg, 2006; Schoenberg, 2006).
The category that needs to be investigated closely in accounting studies is the
measure of synergy given that synergy is the most cited reason by management for
pursuing M&As (Cartwright & Schoenberg, 2006). Chatterjee (2007) focused on the
difficulties of measuring synergy in M&As while Limmack (1994) attempted to explain
synergistic savings as a source of wealth creation in acquisitions by examining
abandoned bids in the United Kingdom. Limmack's main thesis extended Loderer and
Martins findings of support for the efficiency of markets by testing the assertion that
target shareholders would be more likely to reject bids in the absence of asymmetrical
information, and acquiring companies would be less likely to pursue a purchase if the bid
price reflected all the savings of a synergistic combination (Loderer & Martin, 1992).
This study by Limmack is important to the present research inasmuch as unsuccessful
bids are the focus of both studies regarding the relationship to value creation implications
of these bids in the merger process. Limmack also used accounting-based measures of
operating performance: return on equity and return on assets while adjusting for industry
effects and temporal effects on calculations of M&As that spanned several accounting
periods. It also was implied that the number of newspaper citations relating to each target
34
for 2 years prior to the bid and 2 years after was a valid alternative measure of
information available to test market efficiency. This was relevant to the use of content
analysis of the 10-K statements in validating merger value creation while insuring more
reliability and validity of data examined (Limmack, 1994).
Synergy as a category of managerial intent in M&As is also studied in the 2006
study by Fulghieri and Hodrick as applied to agency conflicts. Their findings reflected
the inherent conflict of managers own interests in avoiding M&A which decreases their
scope of influence and authority (Fulghieri & Hodrick, 2006). This showed that
synergistic savings are likely not to appear due to managements lack of divestiture post-
merger. The warnings to shareholders about the dubious nature of positive returns are
extended by Kursten (2008). Seth, et al. (2000) in their study reinforced the proposition
that the number of firms using synergy as a reason for M&A is the single most given
intention but also support the categories used in the present study of Market Discipline
and Diversification (see Table 1).
Managerial superiority as a determinant of value creation was studied by many
researchers including; Amihud, et al. (1985), Carroll and Griffith (2008), Doukas and
Petmezas (2007), Kiessling and Harvey (2008), Martin and McConnell (1991), Morck, et
al. (1990), Philippatos and Baird (1996), and Williams, Michael and Walker (2008).
These researchers took the premise established by Limmack (1994) and extended it in
several directions. The research by Philippatos and Baird (1996) showed that post-
merger improvements can be attributed to managerial competition by creating a measure
for post-merger performance in excess value in the acquiring firm and target firm. Their
premise was based upon the assumption that better performing firms make better
35
acquisitions and the change in excess value should be positively related to the acquirers
performance prior to the merger while negatively related to the target's premerger
performance. They further measured the performance of these companies in relation to
industry averages to eliminate any systemic effects to the performance and to exhibit how
these firms are managed in a superior manner. The focus was also on improvements
from efficiency, product differentiation, and growth opportunities that accrued to
companies due to the acquisition of companies that had advantages in these aspects of
their operations. A main point derived from their hypothesis was the belief that the
market may not react to managers' claims immediately but would react after the effects
were seen in subsequent years' financial statements. This hypothesis impacted the current
study inasmuch as each merger was viewed longitudinally through analysis of 2 year,
post-merger financial statement analysis to replicate this positive aspect of their research
methodology (Philippatos & Baird, 1996).
Philippatos and Bairds results supported neither hypothesis of management
performance nor that M&As are a solution to the agency problem of management. Their
results are an extension of and reinforcement of Amihud, et al., (1986). Amihud, et al.,
used market models to test agency theory and found that management does not solely
benefit from a merger. Williams et al., (2008) showed that the tendency for management
to pursue an adverse agency relationship is controlled by incentive structure and
alignment with shareholders while Carroll and Griffith (2008) concluded that replacing
management is more expensive than the benefit derived in M&A. Kiessling and Harvey
(2008) examined the intangible value of top management and retention of top
management. Morck, et al., (1990) and Martin and McConnell (1991) helped to illustrate
36
the market discipline intentions and their results in M&A while Doukas and Petmezas
(2007) examined management motivation in the form of overconfidence opposed to
agency theory. The prior mentioned studies, in aggregate, helped support the
examination of managerial intent while helping to further define variables for inclusion in
the study of M&As which insured an unbiased examination of merger outcomes
(Amihud, et al., 1985; Carroll & Griffith, 2008; Doukas and Petmezas, 2007; Kiessling &
Harvey, 2008; Martin and McConnell, 1991; Morck, et al., 1990; Philippatos & Baird,
1996; and Williams, Michael & Walker, 2008).
Another area of M&A study are centered upon a companys earnings and their
measurement with the belief that net earnings are the reason most investors choose to
invest in a company, hence, the variable of earnings per share and M&As must be
investigated. Block's (2000) study was centered on the examination of the effect of EPS
(earnings per share) obsession by management as a proxy for immediate return
requirements by investors. Block hypothesized that the stock market performance of
acquiring firms would change over time, with short-term gains evolving into long-term
losses. The focus by management on EPS leads to short-term decision-making,
sometimes at the expense of long-term profitability from the acquisition of another firm.
The effect of abnormal returns to the shareholder, exhibited by Block, is due to the
market's obsession with EPS, which can be manipulated by virtue of the merger itself and
which is not due to any long-term strategic value creation. The results of the Block study
are supported by the Nissim and Penman study (2003) as well as the Schoenberg study
(2006). The variables these studies focused on were financial attributes of the acquiring
firm, the method of payment, and the post-merger impact on EPS (Block, 2000; Nissim
37
& Penman, 2003; Schoenberg, 2006). These studies informed the present study in that
they offer other variables to search for in the content analysis portion examining
managerial objectives regarding earnings and shareholder benefits as the stated intention
of management for justifying the acquisition of another company.
Barragato and Markelevich (2008) extended the previous studies by examining
earnings quality post-merger from the perspective of future cash flow valuation instead of
market price as a proxy for M&A success and incorporated a perspective on merger
motivation. Their hypothesis was that synergy-related M&As produced higher earnings
than agency-motivated M&As. An agency-related merger was defined by the authors as
motivated by the managers of the companies incentive structure which focuses on short-
term positive returns for the managers versus long-term advantages for shareholders that
accrue from a synergistic combination (Barragato & Markelevich, 2008).
The reliance on cumulative abnormal returns (CARs) to indicate merger
motivation was the hallmark of this study, as it is in many M&A studies such as; Andr,
et al., 2004, Doukas and Petmezas, 2007, Fuller, et al., 2002, Loderer and Martin, 1990,
Moeller, et al., 2005. Barragato and Markelevich followed the precedents of prior
research that certain cumulative abnormal returns indicate and validate certain
motivations while the intention of the present study was to use company leaderships own
words rather than rely on forced logic to validate an ex-ante move in company value.
The results validate Barragato and Markelevichs hypothesis that a synergy-related
acquisition returns higher quality earnings than an agency-related merger. These results
supported the need for alternative methods of measuring and establishing merger
objectives of senior management in a framework where they can be measured in a

38
quantitative manner such as that which the present study provides. Since abnormal
returns in stocks are a central theme in many studies, further investigation is warranted
which leads to the Kiymaz and Baker (2008) investigation of the short-term effect of
merger announcements. They studied whether these effects differ across industries, the
reasons for M&As, and factors that related to abnormal returns from M&As (Kiymaz &
Baker). This study is the most pertinent of the abnormal return studies to the current
study since it aided in further defining merger motivation inasmuch as it also attempted to
verify the results of a previous study by authors Mukerjee, Kiyamaz and Baker (2004)
who found that the primary motivation for CFOs to pursue M&As are synergy related.
Kiymaz and Baker (2008) concluded that existing empirical research is inconclusive
because of the difficulty of clearly distinguishing among the differences in motivation.
This pointed to the need for the present research given that it used content analysis of
managements own statements which are deemed to provide the best opportunity for
clarity. These authors also supported the main theories for merger motivation as being
synergy, hubris, and agency rationales.
Given that returns to companies using stock price as a proxy of wealth creation
seem to be inconclusive (Fuller, et al., 2002) or marginally negative (Sirower &
Golovcsenko, 2004), alternative methods of measuring the value effects of M&As needed
to be researched for this study to effectively discern between positive and negative
results. One methodology that offered an alternative is the use of EVA (Economic Value
Added) (Yook, 2004). This researcher re-examined post-acquisition performance of
acquiring firms using EVA. The use of EVA is a better measure of adding shareholder
value. This is so because it automatically adjusts the results of M&As for market
39
inefficiencies, premium paid in the transaction, tax effects of transaction, and cross-
border effects of currency differences, and essentially measures residual income after all
costs have been recognized. This includes opportunity costs of capital because it focuses
on economic measures of value creation and not accounting values, which generally are
manipulated for tax benefits as shown by Block (2000) or other forms of accounting
valuations which may not truly represent long-term value creation (Yook, 2004).
Yook (2004) hypothesized that there were intrinsic problems with using
traditional accounting measures such as net income given that these measures do not take
into account the required rate of return that compensate shareholders for lost
opportunities in alternative investments, and adjusting this rate of return for market risk is
imperative to justify any merger or acquisition. This measure of value should account for
all costs involved in acquiring a company, not just accounting costs; this includes the
opportunity cost related to alternate use of capital by management that pursues M&As
opposed to other opportunities. The addition to economic value of a company through
M&A was not considered in stock market return studies such as; Andr ,et al., 2004,
Doukas and Petmezas, 2007, Fuller, et al., 2002, Loderer and Martin, 1990, and Moeller,
et al., 2005.
Yook (2004) concluded that using a pure measure of economic value pre-merger
compared to post-merger showed a significantly negative return for stockholders of
acquiring firms primarily due to premiums paid to enable shareholders to acquiesce to a
merger or acquisition. The Yook study further indicated that if these calculations are
adjusted to accommodate different industry structures, the differences in EVA pre- and
post-merger are relatively small. This shows the tendency of markets to quickly transmit
40
valuation data to stock price and thus eliminate systemic influences to valuations (also
known as market efficiency). This author also illustrated that operating performance
increases due to synergy effects or efficiencies are offset by capital costs and large
premiums paid by the acquiring firm. A point missed by studies of M&A synergy effects
undertaken by Campa and Hernando (2004), Doukas and Petmezas (2007) and Fulghieri
and Hodrick (2006). Yooks study was useful for establishing EVA as a valid
methodology for the study of M&As and demonstrates how certain variables (i.e.,
method of payment in the merger and differences in accounting methodology) can be
removed as causes of bias in this study simply by using EVA as the measure of merger
valuation as compared to other methods used in past studies of M&As.
Another study which was relevant due to the adjusted performance measures of
companies cash flow returns on market value of assets following M&As or acquisitions
by industry was the Ramaswamy and Waegelein (2003) study. In this study, the measure
of post-merger performance of the combined firm was an industry-adjusted return on
assets calculation. This study helped this researcher from the perspective of showing
how elimination of variables through definition of sample population characteristics
helped in their estimation of post-merger valuations. The characteristics which were
identified as introducing estimation bias into the population included firms in industries
with special accounting rules (utilities, financial companies and regulated industries),
firms that underwent multiple subsequent M&As, and how long-term study of post-
acquisition M&As (over a 5-year period) helped remove the agency effects of M&As
(Ramaswamy & Waegelein, 2003). This author addressed problem areas in dummy
variable selection which was illustrated in the Bouwman, et al. (2003), Faccio, et al.
41
(2006), Grubb and Lamb (2001), Warusawitharama (2007) and Guest, et al. (2010)
studies of M&A returns versus stock market valuations.
Ramaswamy and Waegelein (2003) used adjusted return on assets for the overall
effect of systematic risk exemplified in different industries by first computing operating
cash flows for each target and acquiring firm by subtracting all costs from sales before
deducting depreciation, interest expense, income taxes, and non-operating cost/revenues
to adjust for changes in tax and leverage factors. The next step was to compute the
market value of assets by taking the value of common stock and adding the book value of
debt and preferred stock at each year end. They then computed the operating cash flow
to market value ratio of each firm for each fiscal year. These results were computed pre-
merger by combining the target and acquiring firms and weighting these values by
market value. Post-merger adjustments were made by using pre-merger market values of
the combined firms as a denominator in the ratio calculation. Macroeconomic forces
were adjusted out of the equation by using industry-adjusted computations known as
DROA (i.e., differences between industry means for return on assets). The results of the
Ramaswamy and Waegelein (2003) survey indicated that firms that acquire relatively
smaller companies in dissimilar industries and have a long-term compensation plan will
experience statistically significant increases in post-merger financial performance. Their
findings supported previous research by Amihud et al. (1985), Fuller et al. (2002) and
Jensen and Rubach (1983). The authors also state that their measure of operating
financial performance was only one alternative among many and those different methods
may provide different results. The rationale used significantly influenced the
conceptualization of the present study in the methodology of culling sample populations

42
through the use of screens to insure elimination of unusual circumstances and estimation
bias in the merger process (Ramaswamy & Waegelein, 2003).
The study of takeover targets conducted by Agrawal and Jaffee (2003) examined
the evidence from both operating return and stock return perspectives by sampling 162
firms over a 10-year period (5 years pre-merger and 5 years post-merger). Their
intention was to test the inefficient managerial hypothesis that states that companies are
prime candidates for merger due to poor performance brought about by the inefficient use
of assets by poor managers. The researchers investigated whether post-merger
performance was similar across acquisitions of companies of different sizes,
compensation plans, methods of payment for the merger, industry type, and overall time
period of returns from acquisition. Similar research was conducted by Ramaswamy and
Waegelein (2003) with similar results.
Ramaswamy and Waegelein (2003) and Agrawal and Jaffee (2003) used two
approaches to test their hypothesis: focus on stock returns over short periods of time and
an investigation into the q-ratios or measures of operating performance over the long
term. These researchers calculated operating and stock performance for acquirer and
target companies prior to acquisition, operating performance adjusted for variables of size
and industry, then calculated long term stock returns. The calculations used in this study
of long-term stock returns used measures of cumulative abnormal returns that were
adjusted for firm size, past returns and book-to-market relationships (Agrawal & Jaffee,
2003). The examination by this author was one of the few to combine methodologies and
was used as a template for the current study.

43
Agrawal and Jaffee's (2003) study showed that there was no evidence of pre-
acquisition poor performance by the companies that they studied using either
methodology of return performance, thus not supporting the hypothesis that most
takeovers are the result of an efficient company taking over an inefficient company. The
hypothesis of inefficient managerial use of assets as the motivation by acquiring
companies to take over the target companies was called into question by Agrawal and
Jaffee as well as others (e.g., Morck, et al., 1990; Mukerjee et al., 2004; Seth, et al.,
2000), resulting in its elimination as a reason for takeover and applying the methodology
employed in their study to measure the operating performance of companies involved in
M&As as well as sample screening techniques which are incorporated in this analysis.
Managerial Objectives
Managerial objectives or motives for M&A activity have been the focus of many
studies. Cartwright and Schoenberg (2006) reviewed 30 years of merger and acquisition
research and outlined the recent advances and future opportunities. These researchers
stated that the cultural dynamics of M&A was an emergent and growing field. They also
have stated that longitudinal studies in this area remain infrequent. This has led this
researcher to undertake a longitudinal study of top-tier managers' stated objectives as
culled from public documents. They hypothesized that one of the possible reasons why
there has been a lack of M&A performance over the years might be that executives may
be driven by some non-value maximizing motive another illustration of agency theory.
This assertion was also supported by the Fulghieri and Hodrick (2006), Morck, et al.
(1990) and Williams, et al. (2008) studies. This supports the execution of this present
study in regard to this subject area as well as highlights the uniqueness of this study in
44
that content analysis was used to put voice to top managements intentions in undertaking
M&As (Cartwright and Schoenberg, 2006) as well as the use of a convergent parallel
mixed method study as formulated by Creswell and Plano Clark (2011).
De Bondt and Thompson (1992), in their attempt to discern whether economic
efficiency was the driving force behind M&As, detailed five motives for M&As: synergy,
market undervaluation, desire to restrict competition in product markets, corporate tax
savings, and empire building or hubris. Synergy was seen as the attempt to create
efficiencies by elimination of overlap in the combination of two separate entities.
Synergy is the most widely used reason for embarking on M&As given by senior
management and is often used for merger justification (Chatterjee, 2007). Harrison, et al.
(1991) sought to determine that resource allocation patterns in companies related
positively to financial performance of post merged companies. This resource allocation
was used as a proxy for unique synergies in target and acquirer which discounts
companies that are in related fields. The results of this study run counter to empirical
notions of synergy and thus required another form of measurement of success (Harrison,
et al., 1991). This resulted in the reliance of using EVA as evidence that synergy has
resulted in an acquisition since it is essentially residual income that remains after all costs
have been recognized (Yook, 2004). Concentrating on economic units of valuation also
helped negate the co-insurance effect of synergistic M&As as found in Kurstens cash
flow model showing negative wealth distribution to shareholders post-merger due to
costs of financing and return to debt holders in acquirer and target companies (Kursten,
2008). Another methodology to measure the synergistic efficiencies of M&As was
demonstrated by Barragato and Markelevich (2008) are earnings quality. Their study
45
found that synergy motivated acquisitions produce higher quality earnings than agency-
motivated acquisitions. This supported the use of earnings before interest and taxes
(EBIT) as a measure of synergy motivation in this current study.
Target firm market undervaluation assumes that stock prices are not reacting to or
reflect all available information of fundamental value so that a firm in the industry is
better able to evaluate and then take advantage of a value purchase. The research of
Loderer and Martin (1992) concluded that no change over required rate of return takes
place and Agrawal and Jaffee (2000) supported these findings while Tuch and OSullivan
(2007) showed that acquisitions have an insignificant impact on short term stock prices.
These studies would empirically undermine the EMH and the use of event studies in
determining merger success. The findings of these studies suggested that efficiency
motives play less of a role in determining merger motivation (Agrawal & Jaffee, 2000;
De Bondt & Thompson, 1992; Loderer & Martin, 1992; Tuch & OSullivan 2007). The
results also formed the basis for excluding market undervaluation in this present study as
a reason for managers pursuing M&As.
The next reason was monopoly power, or the desire to restrict competition in
product markets by acquiring competitors or partaking in horizontal industry M&As.
This monopoly power argument by De Bondt and Thompson (1992) was augmented by
Amihud, et al. (1986) who established a case in their study that this tactic as a managerial
intention can be seen as a risk abatement tactic due to the preservation of income as a
result of lessening competition in an industry. Further, Ghemawat and Ghadar (2000)
cast doubt on global M&A effectiveness as a management pursuit. This all supported the
use of net income as a measure of monopoly or market power in this study since the
46
intention of management was to increase income and lower costs in these types of M&A
events (Amihud, et al., 1985; De Bondt and Thompson, 1992; Ghemawat and Ghadar,
2000).
The fourth reason firms pursue M&As was to achieve corporate tax savings due
to the ability to write off tax premiums paid in the merger process. This was attributed to
the use of intangible assets write-offs and depreciation for goodwill expenses as well as
accelerated depreciation of assets acquired from the target company when merged with
acquiring companys assets (De Bondt &Thompson, 1992). Recent changes to tax law
and lack of support for this reason in current literature have resulted in omitting corporate
tax savings as a merger motivation. This decision was further supported in the research
of Chatterjee and Meeks (1996) who cited changes to accounting rules by regulators
which will offset any tax savings realized post 1996.
The final reason for M&As was bidder management self-interest or hubris due to
the fact that acquiring firm managements need to make themselves seem indispensable by
acquiring a firm that complements their skill set or in an attempt to build an empire by
adding size to their present company. De Bondt and Thompson (1992) suggested that
efficiency motives are less a reason for M&As and that other motives (p. 44) play a
larger role in M&As than previously thought (De Bondt & Thompson, 1992). Other
motives supported in research are: executive compensation as motivation for M&A
(Jaggi & Dorata, 2006), mistakes or hubris in M&A evaluation (Seth, et al. , 2000) and
costs of CEO replacement being prohibitive (Carroll & Griffith, 2008).
De Bondt and Thompsons (1992) establishment and definition of categories were
the most important contribution to the present study and they are supported by the
47
findings of Seth, et al. (2000) that narrowed the categories to three: synergy, managers
own interests, and management mistakes. Seth et al. (2000) examined the motives of
foreign companies purchasing US firms or cross-border acquisitions. In their study, they
validated the top reason for M&As as being synergy, the belief by senior management
that the sum of the two separate entities was increased when merged, but also found that
mistakes in target evaluation (otherwise known as hubris) and managers own interests
at the expense of the shareholders (managerialism) played a large role in M&A activity
and motivation. Seth, et al. (2000) as well as Chatterjee (2007) found that when there
was an occurrence of total net positive gains in a merged companys finances that the
synergy and hubris hypotheses applied and when there was found to be a total negative
result from a merger that the managerialism hypothesis applied. Seth, et al. (2000)
created a longitudinal survey of the years 1981 through 1990 used stock prices for
valuation purposes, excluded M&As where the acquirer held more than 50% of the
outstanding stock of target company prior to merger, and also excluded small value
transactions measured as less than 2% of acquiring companies market value. A
weakness in their study was the lack of adjusting the sample pool for differences in cross-
border taxation policy and differences in exchange rates of foreign companies. The
ultimate relevance of their study to the present study was one of the elimination of
sample bias by eliminating cross-border acquisitions from the sample set for evaluation.
This was due to differences in currency as well as tax regulations and accounting effects
in the merger return calculations, which negates the ability of a researcher to compare
merged companies on an equal basis. Furthermore, their study established the category
labels this present research used in the content analysis phase of the study (see Table 1)
48
defining the 4 major categories of M&A intentions as supported by previous research
(Andrade, Mitchell & Stafford, 2001; Morck, et al., 1990; Mukherjee, Kiyamaz and
Baker, 2004; Seth, et al., 2000; Walter & Barney, 1990).
Andrade, Mitchell, and Stafford (2001) expanded the categories of managerial
objectives by evaluating merger activity from 1973 to 1998 to determine if M&As occur
in waves and if these waves are clustered by industry. They stated that economic theory
suggests M&As might occur due to the creation of synergy as well as market power,
market discipline, and diversification as being other motivations for combining
companies. Market power was defined as the attempt by a company to limit competition
in a field through acquisitions and thus increasing the market power in that industry.
Market discipline was the hypothesis that markets will tend to punish poor management
when a better managed firm in the industry merges to acquire mismanaged assets and
remove incompetent or ineffective management from the target company (Andrade et al.,
2001).
Andrade et al., (2001) concluded that an interesting measure for investigating
causes of merger activity is one of industry shocks being the reason some
managements use for merger logic. Shocks were defined by the authors as technological
innovations in the industry that would cause excess capacity to exist and thus drive
consolidation, supply shocks to product inputs and deregulation of an industry (Andrade
et al., 2001). Andrade et al., (2001) investigated whether M&As occurred due to industry
changes or shocks as in the wave of deregulation of certain industries during the 1990s.
Studies conducted by Guest, et al. (2010) and Tuch and OSullivan (2007), focused on
M&A events that over-powered managers' abilities to control these industry shocks and
49
thus actions were determined more by circumstances than any other motivation. The
concerns of industry shocks was avoided in this study by eliminating from the sample
pool M&As that were in industries experiencing these types of shocks during the time
period under study. This potential bias also was controlled by eliminating companies that
are involved with multiple M&As within the study timeframe. Companies involved with
multiple M&As do so as a result of an industry consolidation brought about by regulatory
changes which provide inducements to merge companies other than creating shareholder
value (Andrade et al.).
Mukherjee, Kiymaz, and Baker (2004) conducted a survey of chief financial
officers of firms in the US, asking about their objectives for M&As. The primary
reasoning for M&A that emerged were: the achievement of operating synergies,
diversification of company business portfolio, restructuring, acquiring a company below
replacement cost, using excess cash flow, and reducing tax burden, with synergy and
diversification being the two largest reasons by far, with 66% of the respondents citing
these two objectives for M&A. The results of this study combined with previous
research by Andrade et al., (2001), Morck, et al., (1990), Seth, et al., (2000) and Walter
and Barney, (1990) combined to help define the categories this research used in the
content analysis of public documents of acquiring companies. The Mukerjee, et al.,
(2004) study also helped establish discounted cash flow methodology as the preferred
method of chief financial officers in establishing valuation targets for acquisitions, but it
also posits that this methodology was not necessarily best because it is relatively easy for
companies to overlook the effect to cost of capital due to the M&A event. This is
attributed to the fact that they use present costs of capital which do not reflect the new
50
merged status of the companies and the associated risk (Mukherjee et al., 2004). An
intriguing point raised by Mukherjee et al. (2004) was that overpayment by an acquiring
firm may be due to using a cost of capital that is not adjusted for the target companys
cost of capital or the effect of the transaction on the cost of capital. The results of this
survey rejected popular notions that managers pursue M&As for their own interests but
this survey instrument may also be unreliable due to the possibility of self-selection bias.
Alternatively, it was one of the few qualitative studies of primary sources detailing
objectives by senior management outside of the proposed analysis of the content in
published documents that this author used to qualify senior managements objectives.
Kursten (2008) extended the Mukerjee, et al. (2004) study when he examined the
effect of M&As losing synergy benefits due to the fact that debt holders of target
companies must be made whole with re-pricing of debt. This re-pricing off-set any risk
that the combined company must now represent since the combined debt load of existing
debt was the result of the need to pay off target company debt holders combined with the
need to acquire more debt to complete the merger. Kursten (2008) called this the co-
insurance effect. Kurstens model demonstrated that non-synergistic M&As regularly
cause a loss in value to shareholders unless management attempts to enlist shareholders
sympathy for their objectives (p. 259) which implies they need to have very detailed
communications to shareholders of their objectives for the merger and show how the
synergies will add value to the company post-merger. This model was beyond the scope
of the present study although the findings support the use of content analysis in the
current study and topics were introduced that will be worth pursuing in future studies. In
51
this present study an attempt was made to compensate for the co-insurance variables
which may have impacted the results by introducing bias into the study.
Sample Impact on Study of M&As
Another theme that emerges in the previous research was the selection of a target
population, which potentially has a critical impact on any study of M&As due to the vast
number of potential variables that influence the outcome of M&As. This author
attempted to incorporate best practices of other researchers which are consistent with the
goals of this study to insure that the largest and most relevant sample be chosen in a way
not to bias the results of the study. A detailed stratified purposeful sample of companies
involved in the M&A process between the years of 1998 and 2002 was employed prior to
running a random sampling of all companies involved in M&A during this period to
choose companies to study. This rationale was employed to avoid any bias in the
experiment to be conducted and was consistent with previous screens employed by
various studies (e.g. De Bondt & Thompson, 1992; Mukerjee, et al., 2004; Philippatos &
Baird, 1996; Ramaswamy & Waegelein, 2003; Morck, et al., 1990).
Outcomes of M&As are central to this study so that companies that have
subsequent M&A activity were excluded during sample selection. This was important to
the extent that the acquiring and target companies were not involved in multiple M&As
during the study period, thus insuring that cause and effect was not clouded by
subsequent environmental changes and also so there was a clear linear relationship of
financial valuations due. The intention of using this type of sampling was to replicate the
purposeful sampling process of companies by Fuller, et al., (2002) without concentrating
on firms that participated in multiple acquisitions which leads to confounding variables as

52
found in the later study by Netter, Stegemoller and Wintoki (2011). Fuller et al. also
established a solid rationale for removing companies involved in multiple acquisitions
since managers' objectives are clearly focused on a strategy which cannot be clearly
validated by an analysis of either their statements or the finances of their companies as
this research intends to accomplish.
The author then defined the target sample within specific parameters as detailed in
the various studies cited by Chatterjee and Meeks (1996) in their study of financial
effects measured by accounting rates of return and accounting regulation. The Chatterjee
and Meeks study served as a good resource to investigate the incorporated parameters
and to survey the different models and sample sizes used in the study of M&As. The
parameters helped to frame this sample and avoid bias that could otherwise have occurred
in this study.
An additional variable of relevance to the current study was the size of firms
involved in acquisitions. This has been determined to be an important factor by several
authors, including Agrawal and Jaffee (2003), Flostrand and Strom (2006), Fuller, et al.,
(2002). The main influence of increased value through a merger was determined to be
the size of either acquirer or target to the outcome measured against the impact on
financials. Fuller et al. (2002) found that return was greater the larger the target size, as
measured in amount of transaction value which was set at a minimum of 1 billion. This
was included in the screening process by concentrating this study on acquirers and targets
both being over 1 billion in sales revenue, and not factoring in the amount paid for the
target company.
53
Publicly traded companies versus privately owned companies, as illustrated by
Loderer and Martin (1992), also influence the validity of merger valuation in regard to
market efficiency and influence of a company being listed on a trading exchange to trade
shares in the company (public) or not issuing shares which are traded (private). The
lesson that was applicable to the current study is that systematic risk due to listing effect
is increased for public firms versus private firms. The variable of company control was
adjusted for in the present research by eliminating private firms in the sampling and
concentrating only on publicly listed firms. This was necessary due to regulatory
constrictions that public companies have and private companies do not (Faccio, et al.,
2006). To eliminate this form of bias in the present study, only publicly traded
companies were included in this study.
Method of payment was addressed in several studies (Agrawal & Jaffee, 2003;
Flostrand & Strom, 2006; Fuller, et al., 2002), but is best shown by Heron and Lie (2002)
in their study of acquisitions from 1985 and 1997. They noted that previous studies offer
conflicting conclusions about the different financing choices (debt, equity, preferred
equity, cash, or a combination of these) and the overall financial outcome in a merger or
acquisition while their study concludes that there was no significant difference in
operating performance of a merged company with method of financing being the control
variable (Heron & Lie, 2002). This conclusion was enough to substantiate the exclusion
of adjusting for this variable in the current research so method of payment was not a
chosen variable to account for in this research.
The influence of the country of origin studied by Ghemawat and Ghadar (2000)
indicated that cross-border acquisitions are entered into primarily due to globalization
54
and the effect of industry consolidation due to the theory of comparative advantage. This
theory was based on the theory established by David Ricardo at the beginning of the
nineteenth century which stated that in a world where trade knows no boundaries and
where there are limited resources, industries will concentrate in areas where economic
resources can be used with maximum efficiency, leading to industries consolidating in
areas where this happens regardless of country borders. The authors cautioned as to the
wisdom of Ricardo in the current global environment and offered strategies to deal with
international M&As (Ghemawat & Ghadar, 2000). The real value of this study in terms
of the current research was the establishment of logic for removing cross-border
transactions from the current research. Cross-border transactions introduce variables
(i.e., different accounting systems, currency valuation effects, different tax strategies,
different policies in regard to public disclosure) into the study that increase bias beyond
acceptable limits and indicate the need for an additional study of only international M&A
transactions (Andr, et al., 2004; Campa & Hernando, 2004; Ghemawat & Ghadar,
2000).
The Fuller, et al., (2002), report represents a study of shareholder returns for firms
that have multiple acquisitions of five or more and utilized a sound approach to replicate,
except this created the problem that multiple acquisitions tend to obscure the ability of
researchers to delineate post-acquisition performance of the acquiring firm. In this study,
another drawback to obtaining information about the M&As was that companies could be
public or private and the study was conducted from 1990 to 2000. It was difficult to
produce consistent content analyses of public statements from private companies because
they are not held to the same reporting regulations to which executives in public
55
companies are subject, thus making the content analysis process less reliable in this
context.
The intention of the Fuller et al. (2002) study was to test the hypotheses that size
of target impacts returns, companies involved with multiple acquisitions choose different
targets so variation in performance must be due to new information about the bidder, and
that stock or cash used in purchase deal impacts returns (Fuller, et al., 2002). Initial
sample size in the Fuller et al. (2002) study was 3,135 and was filtered with the following
conditions: target firm is less than 50% owned by bidder before acquisition, deal must be
1 million in cost or higher, acquiring firms are public corporations, utilities and financial
firms are eliminated from sample, acquirer completes five or more acquisitions in any 3-
year window between 1990-2000, excluded clustered takeovers (2 or more firms
purchased within 5-day period), and excluded stocks priced below 2 dollars a share. This
resulted in a final sample size of 539 unique acquirers making 3,135 bids for targets. The
benefit of this research to the current study was that the process for screening the sample
data established by these researchers was adopted in the current study with minor
adjustments.
Extending the Fuller et al., (2002) study which bears on the present author's
methodology was the study conducted by Seth, et al. (2000). This study represented a
test of three hypotheses regarding takeovers of US companies by foreign firms: synergy,
managerialism, or hubris. Synergy was when the acquisition takes place and the value of
the combined firm was greater than the sum of the values of individual firms.
Managerialism is when managers perform takeovers to maximize their own utility at the
expense of stakeholders this was exhibited to be the same as agency theory by Podrug, et
56
al. (2010) and based on the seminal Jensen and Meckling study (1976) and was supported
by the Nyberg, et al. (2010) study of CEO and shareholder alignment. Hubris relates to
mistakes in evaluating targets which was related to the Philippatos and Baird (1996)
study of post-merger performance and managerial superiority.
Sample data were screened in the Seth study similarly to the present study being
undertaken to eliminate error. The Seth, et al. (2000) study initially considered all cross-
border acquisitions of US industrial companies from 1981-1990. Stock price data for
both acquirer and target were available from public documents. The acquirer had to have
held less than 50% of target at time of acquisition. The sample excluded small value
transactions (i.e., target less than 2% of acquirer value), and dummy variables were used
to differentiate number of bidders involved and exchange rate effects on returns. Total
gain was computed by difference of combined firms and value of individual firms prior to
acquisition summed. The measure of firm value and focus on industrial companies were
the only critical flaws in this model since it does not adjust for effects other than
abnormal stock returns, but should adjust for differences in capital structures between US
firms and foreign firms, accounting differences, regulatory differences, and other
differences due to cross-border acquisitions studied by the researchers. The benefit was
use of variable descriptions, screening methodology of merger samples, and descriptions
of motives in the current study. Seth et al. (2000) discovered in their sample of M&As
that cross-border acquirers are motivated primarily by the gains they see in synergy, and
it is important to note that these researchers did not measure gains of the combined firms
but rather to each company, acquirer and target. This logic was not applied in the other
research and does not indicate a valid measure of value creation in any listed studies.
57
This appears to be a major flaw in the research of Seth et al. (2000), and has been ruled
out as a basis of valuation for the purposes of this current study.
Loderer and Martin (1990) used a large-sample survey (n = 5,172 M&As) to
determine if this affected the outcome of determining effectiveness of merger and
acquisition outcome analysis in the ultimate profitability of the merger. Their survey,
conducted from 1966 through 1984, represents one of the largest samples available in the
M&A research and was cited in several other studies (Faccio, et al., 2006; Jaggi &
Dorata, 2006). The sample included acquisitions of varied financing methods,
acquisitions of privately held companies, and controlled for firm size along with market
anticipation effects on market valuation. Results indicated that, in general, shareholders
do not benefit from M&As, but they did indicate a positive Net Present Value (NPV)
proportionate to the size of the target being acquired. The ultimate value of this study
was that it showed the need for a detailed logic of filtering through merger data to
eliminate firms based upon variables detailed in other sources of research, as mentioned
in the previous section of this paper.
Morck, et al. (1990) sampled 326 US companies between the years 1975 and
1987, comparing returns of three types of acquisitions: diversification strategy, buying
rapidly growing company, and management performance prior to acquisition (i.e., poor
management begged to be acquired). The goal was to show that managerial objectives
drive acquisitions that reduce bidding firms' values due to the indication that returns to a
firm are reduced when an acquirer buys a rapidly growing target company. The first step
in the sample screening process was to choose companies that disappeared from the
Compustat database as the population for study by Morck et al. The authors then
58
subtracted companies that disappeared due to name changes, bankruptcies, leveraged
buyouts, foreign bidder acquisitions, reorganizations, consolidations, and firms where
bidder or target was not part of database to determine the final sample for their study
(Morck, et al., 1990). The measure of relatedness were established by using industry SIC
codes and then determining the correlation coefficient of monthly stock returns 3 years
prior to acquisition. The authors chose as dummy variables multiple bidders, regulatory
changes, and any offer in which stock for payment was used. The companies mean
bidder return by characteristics was measured through the correlation of bidder and target
stock return above sample median and below sample median. A t-test of equality
between related and unrelated industry was performed and a regression of bidders return
by different variables was showed the relationship of managerial objectives to poor
acquisition performance. The implications of the Morck et al. study to the current
research are in the use of certain dummy variables in their statistical summary which was
used in the present study.
Ramaswamy and Waegelein (2003) extended the Morck, et al. (1990) study by
sampling 162 firms to assess whether post-merger performance is similar across
acquisitions of different sizes, compensation plans, methods of payment, industry type,
hostile acquisition, and time frame. The author addressed the variables of method of
payment (financing), executives compensation, and size of target in acquisition, and
used industry adjusted cash flow returns over a 5-year post-merger period versus a 5-year
pre-merger period as a measure of performance. Data from 1975 through 1990 were
examined. The data were screened such that it included only US firms that are publicly
traded, and such that subsequent multiple M&As by the acquirer were eliminated,
59
financial firms and firms in regulated industries due to special accounting rules were
eliminated, and proxy statements 5 years post-merger period versus 5 years pre-merger
period were used. Regression analysis was used to determine if there was any
improvement in post-merger performance by choosing a paired t-statistic on industry
adjusted ROA called DROA (Ramaswamy & Waegelein, 2003). The relevance that was
established here to be considered in researching M&As is the negative relationship of
merger success in relation to target size, which establishes the need to adjust for this
factor in any research sample.
Dodd (1980) conducted study encompassing using of public announcements of
M&As for 7 years, ended December 31, 1977. He sought to assess the effect on
company value after managers vetoed M&As versus those M&As canceled for other
reasons. The sample included all completed M&As, minus stock tender offers and
defensive M&As, which totaled 151 proposals during the period: 71 completed and 80
canceled. Dodd measured abnormal market return using Famas (2000) market model.
He calculated the t-statistic and standard deviation of returns by measuring 40 days
before and 40 days after the announcement date, looking at the stocks price. He defined
the CAR as abnormal returns equal the deviation of the return of security from expected
return (market return for that period) with a disturbance term that captures firm specific
variables and measures the variation for the period return based on market indices. The
Dodd study was one of the early studies of M&As and established a conceptual
framework for the research that was undertaken in this study.

60
Valuation Techniques and M&A Financial Analysis
The majority of prior studies of M&As had looked for value in the outcomes of
merged entities from the perspective of added stockholder value as evidenced in stock
prices. In the present study, the intent was to show the importance of having a valid
measure based on the financial performance of the individual corporations prior to the
merger as well as the post-merger corporation and to compare that measure to the
corporate intentions as established by management in their public rhetoric. In order to
establish acceptable means of measurement, it was critical to examine the various
methods that have been applied in the past in order to choose appropriate financial
measures for the current study.
The financial performance of companies in M&As has been measured in prior
studies from a variety of viewpoints and has led to inconsistency in evaluating the
effectiveness of M&As in creating value given that agreement on how to define value has
not been established (Schoenberg, 2006). Financial performance measures are delineated
along two major fields of study: finance and organizational behavior. This author
focused on the financial aspect, as opposed to the organizational behavior aspect, given
that this area was less researched and provides a much richer opportunity to add to the
field of knowledge as well as being congruent with the more quantitative goals of this
current research paper.
Financial measures of corporate performance post-merger have used a variety of
methods. Q-theory (Jovanovic & Rousseau, 2002; Martin, 1996) is utilized to focus on
asset utilization. The use of operating income (Heron & Lie, 2002) and market price to
earnings per share (Bouwman, et al., 2003) focus on the relationship between profits and
61
share price. The use of price-to-book ratios (Nissim & Penman, 2003) is for an
alternative measure of value creation compared to stock price. The cumulative abnormal
stock market return (Andr, et al., 2004; Doukas & Petmezas, 2007; Faccio, McConnell
& Stolin, 2006; Fuller, et al., 2002; Loderer & Martin, 1990; Moeller, Schlingemann, &
Stulz, 2005) is very popular in M&A study. While economic value added (Patel, 1997;
Philippatos & Baird, 1996; Yook, 2004) is an emerging financial measure of success or
failure in M&As.
Organizational behavior measures have been focused on assigning value to top
management and other intangible assets of organizations (Kiessling & Harvey, 2008),
non-financial information disseminated by stock analysts (Flostrand & Strom, 2006), and
incentives for managers and how this drives merger behavior (Amihud, et al., 1985;
Carroll & Griffith, 2008; Dodd, 1980; Morck, et al., 1990; Williams, Michael, & Waller,
2008). This author focused on financial performance measures and not organizational
behavior performance indicators. Organizational behavior factors were addressed when
filtering through sample data sets from the perspective of quantifiable impact to the
financial statements, but were not the primary focus of this study because this study was
one in which upper managements objectives were tested against financial results to limit
subjectivity in the study results.
The approach of some researchers has been to establish a model to help measure
the financial performance of an acquiring firm post-merger. For example, Loderer and
Martin (1992) attempted to establish a model that measured the post-acquisition stock-
price performance of acquiring firms by adjusting for the inherent systematic risk of
companies involved in M&As. They used a version of the Capital Asset Pricing Model
62
(CAPM) commonly used in finance to dissect the components of an assets return into the
various categories of risk compensation (Bodie, et al.2008). The authors found that this
method of valuation could not be generalized because the firms will naturally find the
required rate of return as the model intends and this was not a valid measure of increased
firm value or increased profits as other models measure (Loderer & Martin, 1992) due to
market adjustments included in the standard rate of return calculation models of prior
studies.
The Tobin Q-ratio (named after economist, James Tobin, who designed this
measure of the ratio relationship of market value compared to the replacement cost of
capital) has been applied to M&As in a number of studies (Agrawal & Jaffe, 2003;
Andrade, Mitchell, & Stafford, 2001; Chang, 1988; Moeller, Schlingemann, & Stultz,
2005; Warusawitharama, 2007). The author that best details the use of Q-theory was the
Jovanovic and Rousseau (2002) report that applies this model directly to the study of
M&As.
Jovanovic and Rousseau used this ratio because they theorized that M&A activity
is essentially the same as the used capital equipment market on a transactional basis.
Since Q-theory states that a firms investment rate should rise with its Q ratio, there
comes a point where high Q firms necessarily need to buy low Q firms since direct
investment of assets to produce revenue cannot expand a company as quickly as can a
merger. This study concludes that their hypothesis of Q theory as an explanation and
measure of merger success was valid since there is a high correlation between acquired
capital and merger activity (Jovanovic & Rousseau, 2002). Although there seems to be a
relationship between acquired capital and M&A success, using the Q-theory of M&As as
63
a measure of success does not seem a valid measure for the present study, although it
does raise interesting points (discussed in the section in which the chosen financial
measure is presented).
Philippatos and Baird (1996) used a variation of Q-theory when they examined
the motivation of managerial superior companies looking to acquire inferior companies in
their industry and measured the post-acquisition performance using regression analysis of
change in excess value (i.e., the difference between the market value and the book value
of the firm) of the acquiring company and acquired company from the year pre-merger to
3 years post-merger. Their position was that using stock market performance as an
indicator of post-merger success was inappropriate because there were as many studies
whose findings supported this hypothesis as opposed it, and this was due to the fact that
measures should be adjusted for managements performance, as better performing
companies usually take over poorer performing companies (Philippatos & Baird, 1996).
This research used a variation of the Philippatos and Baird's (1996) methodology
combined with the Economic Value Added (EVA) approach applied by Yook (2004) in
his study of post-acquisition performance. This addressed the concern of estimation bias
in the long-term studies, such as that of Loderer and Martin (1992) and Agrawal and Jaffe
(2003), as summarized in Andrade, Mitchell, and Stafford (2001). Prior studies exhibit
the tendency for M&As to occur in waves that are focused in a particular industry. The
result of this tendency was that the focus of these studies was industry consolidation
trends and not economic value added as this study intended to investigate.
64
Summary
This review of the M&A literature provides an overview of the relevant research.
In particular, the review demonstrates in what ways the prior research informed the
conceptualization and design of the present study. Finally, the review indicated the gaps
in the previous research and, hence, where the ways in which the present project strives
to make a novel contribution to the literature.
Sampling methodology was critical, as has been demonstrated by the Fuller et al.
(2002) research on firms that make multiple acquisitions. The review of Fuller et al. and
related studies has helped to define parameters which can serve to eliminate various
biases through proper definition of variables under study and to provide a framework for
choosing sub-units within the sample universe of all M&As. The result of the past
literature review was the use of stratified purposeful sampling in the proposed study.
This stratified purposeful sampling methodology also supports the use of mixed method
study as reflected in Creswell and Plano Clarks research and aids in overall study
alignment (Creswell & Plano Clark, 2011).
The Dodd report (1980) represented the analysis of present literature in M&As
research. At the same time, it is a poor example of a study of M&As due to the fact that
Dodd concentrated on immediate market reaction as a measure of proof for success of the
merger or acquisition. The author also ignored other variables, such as form of payment,
tax savings, and synergy objectives, which since have been shown to be very important to
the design of M&A studies (as shown by subsequent research, e.g., Heron & Lie, 2002;
Kiymaz & Baker, 2008; Loderer & Martin, 1990). A large majority of the literature
review was focused on material that has been published within the past 5 years to help
65
keep this study current and to avoid the repetition of problems of omission as evidenced
in Dodd (1980) and studies prior to Dodd.
This focus herein was on the financial aspects opposed to organizational aspects
of M&As, as seen in such studies as Williams, Michael, and Waller (2008), Cartwright
and Schoenberg (2006), and Daly et al. (2004). It also was critical to use an appropriate
filter to select a sample of companies involved in M&As during the years 1994 until 2004
as supplied by the Mergerstat database, as demonstrated by MacDonald (2005), Fuller et
al. (2002), and Cartwright and Schoenberg (2006). Finally, the application of the new
tools of content analysis and Economic Value Added analysis (Yook, 2004) were chosen
based on this review of past practices. The practice of combining quantitative and
qualitative methods in one study to enhance a primary method (Creswell & Plano Clark,
2011) was also a unique aspect of the present study since this mixed methodology has not
been found in research of the topic of M&A.
It has been shown that the effects of M&As are evenly split between positive and
negative outcomes (Sirower & Golovcsenko, 2004). In this study, the focus was not on
repeating past studies' goals of assessing either success or failure (Loderer & Martin,
1992; Block, 2000; Campa & Hernando, 2004), rather, the focus was on investigating the
stated objectives of management against rigorous and commonly used formulas of
financial outcomes for creating shareholder value. After reviewing the literature, this
appears to be a most reasonable area of focus because it has the potential to add to the
field of study and not to the confusion of results (Karitazki & Brink, 2003; Schoenberg,
2006).
66
Managerial objectives were defined with a qualitative study of rhetorical content
analysis using standards accepted generally in the previous studies of Kabanoff (1996),
Kabanoff and Daly (2002), McConnell (1986), and validated by using current software
packages as well as process and procedures outlined by Neuendorf (2002) and Weber
(1990). The accounting consequences were determined using analysis of the financial
statements as published in the 10-K statements. The outcomes of the ratio analysis were
then rank-ordered from highest to lowest occurrence by computed outcome. The next
step was the application of a paired t-test to evaluate whether there was a difference in the
outcomes of the data sets.
It was the intention of this researcher to add to the field of study in a way that
provides managers involved in leading acquisitions and M&As with a methodology to
ascertain value and validate goals that are being established in the quest to add value for
all stakeholders. This research also may aid those who are evaluating companies as
investments to quantify the rhetoric that leads up to a merger and acquisition and to
gauge whether ultimate success can be achieved given the stated intentions of acquiring
company management. Previous studies have acknowledged the need for this research
such as Daly, et al. (2004) and McConnell (1986) who identified the validity of the use of
content analysis in searching the Presidents letter of shareholder reports and stated that
further research in this area was essential. Also, Schoenberg indicated that future studies
should include multiple measures of acquisition performance as this study does to include
a more holistic approach to merger success definition (Schoenberg, 2006). The need to
use multiple indicators of M&A performance is also supported by King, Dalton, Daily
and Covin (2004) and Zollo and Meier (2008).

67
The content analysis methodology was primarily based upon the work of
Neuendorf (2002), Daly, et al. (2004), Kabanoff (1996, 2002), and McConnell (1986) for
the qualitative design aspects. The use of computer aided content analysis to determine
managerial motivations insured experimental integrity and non-interference or self-
attribution bias introduced in survey type studies like Flostrand and Strom (2006),
Kiessling and Harvey, (2008) and Schoenberg (2006). Kabanoff and Neuendorf both
establish the ability of current content analysis software such as NVivo (used herein) as
reliable and repeatable when attempting to ascertain the validity of this type of
categorical testing. The convergent parallel mixed method design has been validated and
formed by the methodology of Creswell and Plano Clark (2011). This methodology
aided in establishing a unique perspective for this study which sets it apart from previous
research.
While the previous studies including Limmack (1994), Loderer and Martin
(1990), Fuller, et al. (2002), Flostrand and Strom (2006), Doukas and Petmezas (2007),
Andrade et al., (2001), Campa and Hernando (2004) and Agrawal and Jaffe (2003)
established the foundation for the quantitative aspect of this study. This literature review
should establish the foundation for the analysis of M&A as was shown herein as well as
show the relevance within the field of study. The use of content analysis to establish
managerial intention and subsequent relation to accounting measures should prove
additive to the field of knowledge for M&A research and strengthen the study (Creswell
& Plano Clark, 2011).

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Chapter 3: Research Method
Thompson Financial reported that M&A activity from 2002 to September 30,
2007 created the largest transactional dollar value of all time, at 15.5 trillion dollars
(Berman, 2007). Given the magnitude of the monetary flows of these events and the lack
of this type of research in previous studies, this researcher developed questions that
attempted to divine as many aspects of managerial objectives and M&As as possible,
given that they affect enormous sums of shareholder assets.
The focus of this convergent parallel design mixed-methods study was to identify
if there was a relationship between managerial intention and M&A success. The thought
was that this could ultimately help future M&A study, enable stockholders to hold
management accountable for M&A success and aid management to improve success rate
of M&A. This author involved the use of a stratified purposeful sampling of 35 M&As
of US-based companies through the years 1998-2002. Once data was collected, the
qualitative summary of intention of top management for the merger was gathered from
public documents. Securities and Exchange Commission 10-K statements included the
Presidents letters to shareholders which includes managements discussions of strategy
and objectives going forward for the subject companies. Financial results of companies
undertaking an M&A strategy were also determined from pre- and post-merger
accounting data found in the 10-K documents. The financial results were aligned to
certain strategies and compared with the rhetorical content analysis categories to merge
results of content analysis (qualitative) and quantitative analysis of the accounting ratios
by summarizing and interpreting the results thus strengthening this study (Creswell &
69
Plano Clark, 2011) and created a unique study as a result of combining qualitative and
quantitative analysis.
The ultimate goal was to produce a record of upper managements stated
intentions of M&As, relate the intentions to researched categories, and then measure
performance of the companies once the merger or acquisition had taken place. The study
includes discussion of the extent and in what manner results from statistical analysis of
financial measures (quantitative) and management objectives derived from content
analysis (qualitative data) converge or diverge to produce a more complete understanding
of successful or unsuccessful mergers makes this study an ideal convergent parallel
design mixed method study (Creswell & Plano Clark, 2011). The steps to be taken for
the research methodology were as follows:
used Mergerstat database of completed US based M&As over years 1998-
2002 for longitudinal analysis,
defined and screened a stratified random sample based on prior researcher
logic to choose 7 companies annually for a total sample size of 35 companies
over the 5 year time period (see Appendix A);
collected SEC mandated and controlled 10-K statements of companies
involved in the M&A,
performed content analysis using NVivo software of the 10-K reports for 2
years prior and 2 years after the M&A,
rank-ordered the occurrence of words and terms associated with 4 major
categories of M&A intentions as developed by previous research (Andrade,
Mitchell & Stafford, 2001; Morck, et al., 1990; Mukherjee, Kiyamaz and
70
Baker, 2004; Seth, Song & Petitt, 2000; Walter & Barney, 1990). This
resulted in a percentage of terms associated with each category to establish a
hierarchy of intent by management. (See Table 1 and Appendix B for search
terms and categories, and Appendix C for worksheet to capture data
rankings.);
performed financial accounting ratio analysis of financials included in the 10-
K statements for 2 years prior and 2 years after the M&A. The accounting
ratios of the pre-M&A entities were averaged over 2 year periods to
accommodate any difference in size of the M&A target and acquirer (See
Appendix D). Merger & Acquisitions were considered successful if the post-
M&A accounting results significantly differed from the averaged pre-M&A
accounting results (see Appendix E and Appendix F). The accounting results
were the dependent variables in this study. Use of the statistical ANOVA (t-
test) tests of the hypotheses consistent with prior studies (Daly, et al., 2004;
McConnell, 1986; Ramaswamy & Waegelein, 2003) completed the
quantitative analysis. Results of accounting ratio computations were captured
in worksheets referenced Appendices D, E and F.
performed ANOVA t-tests using SPSS statistical software to analyze the data
captured in excel spreadsheet (see Materials and Instruments section) of the
measure of merger success and management goals to examine if a change had
occurred and how it differed based on intentions stated by management;

71
interpreted the merged results of content analysis (qualitative) and quantitative
analysis of the accounting ratios by summarizing and interpreting the separate
results;
identified to what extent and in what manner results from statistical analysis
of financial measures (quantitative) and management objectives derived from
content analysis (qualitative data) converge or diverge to produce a more
complete understanding of successful or unsuccessful mergers.
The general problem addressed in this study is that 60 to 70% of M&As fail
causing loss of shareholder value (Daly, Pouder & Kabanoff, 2004). It has also been
demonstrated that M&A strategy results in the destruction of shareholder value in
approximately 44% of all M&As due to the inability of shareholders and managers to
adequately assign performance measures based on stated management strategies in their
pursuit of M&As (Cartwright & Schoenberg, 2006). The central theme of Agency theory
relates to M&As because shareholders elect a board of directors to hire senior
management who should act in the shareholders best interests as agents of the
shareholders. The specific problem is that in practice it has been found that managers
have an innate conflict between the maximization of their own profits and the
maximization of shareholder profits (Nyberg, Fulmer, Gerhart & Carpenter, 2010;
Podrug, Filipovic & Milic, 2010) creating the agency conflict. A systemic process was
needed to judge whether an M&A will be more likely to increase shareholder value when
management presents an M&A strategy to company boards and shareholders (Andrade et
al., 2001; Flostrand & Strom, 2006). Since managers will be held accountable and
analysis can be put in place to align manager and shareholder interests (Nyberg, Fulmer,
72
Gerhart & Carpenter, 2010) M&A activities should lead to increased shareholder value
creation. In the present study, the purpose was to identify if there was a relationship
between managerial intention and M&A success to ultimately help stockholders hold
management accountable for M&A success and management to improve success rate of
M&A.
Prior studies have indicated the failure of M&A success can be attributed to
management objectives for a merger or acquisition not being correctly defined nor
correctly measured or both (Daly et al., 2004, Flostrand & Strom, 2006, Schoenberg,
2006), due to overconfident management (Doukas & Petmezas, 2007), assumed
synergistic savings that did not materialize (Chatterjee, 2007), and agency conflicts
(Barragato & Markelevich, 2008). Cartwright and Schoenberg (2006), show that the
number of M&As, and the use of trillions of dollars of shareholders assets in an attempt
to increase value and show managerial superiority, continues to be a rich area of study,
especially given the popularity of M&As despite actual positive accounting results
(Cartwright & Schoenberg, 2006).
The purpose of this convergent parallel design mixed method study of a screened
purposeful sample of 35 US based M&As between the years 1998 and 2002 was to create
a systematic approach that shareholders or stakeholders could apply to judge managerial
strategies when the intent to proceed with an M&A strategy is announced by the CEO of
a company. This proposed process has the same advantage as the Daly et al. (2004) study
of espoused values, while also addressing the concerns of De Bondt and Thompson
(1992) that too few studies of takeovers tally the financial consequences. Validation of
the stated objectives of management, as reflected in public documents, offers the same
73
advantage as Dalys study, and yet builds upon it due to the stringent requirements of the
SEC in preparing 10-K statements. A comparison of the financial results of companies
undertaking an M&A strategy with the rhetorical content analysis of comments made by
senior management in controlled documents other than the Presidents letter to
shareholders makes this a groundbreaking study (Daly et al., 2004). The convergent
mixed methods design of this study also adds to the power of the study and the validity of
the results (Creswell & Plano Clark, 2011).
The total value of M&As during the span of this study i.e., from 1998 through
2002 was $5,083,579,700,000 (Mergerstat Review, 2004). Therefore, a study which
may help improve the positive return on future M&As is valuable especially given that
studies have shown that nearly half of the M&As from 1990 to 1996 actually damaged
shareholder value (Lynch & Lind). The number of M&As and their use of trillions of
dollars of shareholders assets in an attempt to increase value and show managerial
superiority continue to be rich areas of study since the popularity of M&As is not clear
when contrasted against management strategy for increasing shareholder value to the
actual accounting results (Cartwright & Schoenberg, 2006). In fact, many M&As failed
to add to shareholder value and actually result in destroying shareholders value (Fuller, et
al., 2002). Because more than half of these transactions resulted in failure (Valant,
2008), with 64% failing to generate positive market returns for the years from 1995 to
2001 (Sirower & Golovcsenko, 2004), it was critical to study the potential convergence
or divergence between management objectives and financial results. This is especially
important given that corporate leadership is responsible for executing policies that
generate the best return for stockholders per the agency theory (Nyberg et al., 2010).
74
This perspective has been absent from the literature as a possible cause for the failure of
M&As. Past studies had assessed the difference in acquiring firms and target firms
espoused values and the effect of post-merger performance based on the measure of
return on assets (Daly, Pouder, & Kabanoff, 2004). Identifying the relationship between
publicly stated managerial objectives and the success or failure of those objectives was
the focus of this study. This is important in the M&A field given its enormous number of
failures (Agrawal & Jaffe, 2000; Cartwright & Schoenberg, 2006; Sirower &
Golovcsenko, 2004) and the vast sums of assets involved (Berman, 2007), which
corporate leaders place at risk on behalf of their shareholders. The cause of these failures
must be determined so as to avoid them, or at least identify which poor financial
management policies tend to lead to failures so senior management can be held
accountable for results from a proposed M&A objective.
In examining the difference between managers stated objectives found in
Securities and Exchange Commission required documents and outcome of M&As, as
measured in accounting returns, certain questions should be investigated (Daly et al.,
2004; Kiymaz & Baker, 2008; Schoenberg, 2006). Zikmund (2003) stated that research
questions are a bridge between problem questions and research objectives. The merged
results of content analysis (qualitative) and quantitative analysis of the accounting ratios
by summarizing and interpreting the separate accounting results was the bridge in this
study. A result was a model derived from quantitative analysis of financial measures and
management objectives derived from content analysis (qualitative data) and the extent
they converge or diverge to produce a more complete understanding of successful or

75
unsuccessful mergers. The quantitative research questions addressed in this study were
as follows:
preceding an M&A event compared to the average 2 years after the M&A of economic
value added (EVA) as a measure for shareholder return pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of earnings
before interest and taxes (EBIT) as a measure for synergy strategy pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of return on
assets (ROA) as a measure of market power strategy pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of net income
(NI) as a measure of market power strategy pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of operating
profit margins as a measure of market discipline strategy pre and post M&A?
preceding an M&A event compared to the average 2 years after the M&A of net sales
(NS) as a measure of diversification strategy pre and post M&A?
In the qualitative portion of this study the author used content analysis of
registered government documents, Form 10-K, to determine managerial intentions.
These forms were searched for words and phrases that determine particular intentions.
76
These intentions were directly related to the related accounting measures and aided in
understanding the following question:
Q7: Based on the differences determined for each financial measure, how do the
associated management intention categories for each financial measure of M&A success
(Q1 Q6) align as an indicator of a possible outcome for M&A success?
Hypotheses
The hypotheses that were tested to identify which variables exhibited the success
or failures of a merger to create value for the shareholders of the acquiring company are
provided below. These hypotheses were tested using paired t-tests to verify if there was a
significant difference in the averages of the financial results pre and post-merger. The
hypotheses, stated in null and alternate forms, are:

77

78
event compared to the average 2 years after the M&A of net sales measure of
Research Methods and Designs
The companies selected for the study were extracted from the Mergerstat database
from the years 1998 to 2002. This database included the most current data available in
M&A and helped determine which companies to secure the SEC documents for which
were used for the study. These years were chosen as containing the most current data
that could be analyzed without abnormal exogenous financial events. The years 2005
through 2007 were excluded because the post-acquisition returns of 2004 need to be
analyzed 2 years post-merger since publication of figures and managements discussions
need to be completed in a longitudinal study to increase validity of research. There was a
purposeful screen used to eliminate certain industries (finance, utilities and insurance)
since accounting measures for these firms are different than most industries and the
eliminated industries have been driven by regulation and consolidation motives
(Andrade, et al., 2004) to participate in M&A so are irrelevant to this study. There were
also screens for size of firm, domestic and publicly traded firms since these are the only
firms required to file SEC Form 10-K. The results of this analysis were captured on
Appendix A, Worksheet to capture screened data from Mergerstat Database.
Managerial objectives for each of the individual M&As in the sample frame were
determined by a qualitative study of rhetorical content analysis using standards that are
generally accepted in the literature and which are validated using current software
packages. The objectives of management were then measured by capturing the amount
79
of occurrences and the percentage of occurrences versus the total commentary in the 10-
K statement. Tabulation and reporting of descriptive statistical measures occurred
(Neuendorf, 2002) which detailed the spread of data and number of occurrences of
certain terms and phrases used by management. First to be determined was how
frequently certain terms and phrases were used in the context of establishing managers'
reasons for attempting a merger or acquisition. Then these were given certain rank-
ordered values to indicate highest managerial intention based upon percentage of content
attributed to each category. The next step was a quantitative analysis of financial ratios
from the 10-K statements of each company involved in the merger. This analysis helped
to quantify the accounting results of the M&A strategies derived from the content
analysis. This activity provided values from the financial statements to apply the
economic value added formulas to which was used as a basis of comparison to determine
if a difference can be measured using ANOVA t-tests.
The workflow of the research process is shown below (reference Figure 1) to
exhibit how the qualitative portion of the research helped to establish a framing of the
quantitative study. This procedure was aligned with processes and procedures distilled
from the research of Creswell and Plano (2011). This methodology can also be defined
as an approach that considers multiple viewpoints and perspectives that validate a process
leading to enhanced description and understanding (Johnson, et al., 2007). This study
also incorporated an applied study in finance which has been defined by Alise and
Teddlie (2010) as appropriate for this research.

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Collect and screen sample of 35 companies from Mergerstat

Database years 1998-2002.
Step 1
Once sample is determined collect SEC 10-K forms for
acquirer and target companies.
Analyze the Quantitative Analyze the Qualitative

data by applying ANOVA data by employing NVivo
to ratios computed from software on 10-K
Step 2
10-K statements for years statements to investigate

in study. management strategy.
Interpret the merged results of content analysis

(qualitative) and quantitative analysis of the accounting
ratios by summarizing and interpreting the separate
Step 3
results.
Discuss to what extent and in what manner results from
statistical analysis of financial measures (quantitative) and
management objectives derived from content analysis
(qualitative data) converge or diverge to produce a more
complete understanding of successful or unsuccessful
mergers.
Figure 1. Mixed method study design flow chart.
For the study, the data set was further narrowed to eliminate small firms those
with valuations under $100 million dollars. This was done to help eliminate the tendency
of small companys negligible impact on larger company financial performance as
demonstrated by Loderer and Martin (1992). Restriction of the sample to publicly traded
companies for which financial statements are readily available for computations was
necessary for consistency of presentation dictated by SEC in 10-K production.
Elimination of currency effects on valuation was achieved by limiting the sample to

81
domestic companies only (i.e., no cross-border transactions were included). Method of
payment distortions, as highlighted by Heron and Lie (2002), were minimized by
focusing on EVA calculations, as detailed by Yook (2004) and Dierks and Patel (1997).
The sample frame of M&As for the study was the Mergerstat database with a
sampling model built upon the collective models derived in prior research as previously
explained. The 10-K statements of the specific companies involved in those M&As was
used to provide the objectives of management which were then determined by content
analyzing statements in those publications for the year prior to the acquisition year and
year post-acquisition. The goal was to choose terms that consistently defined the
intention of management and the results they wish to achieve in terms of gains to
shareholders that were publicly stated in Form 10-K and annual reports.
The financial statements of these companies in the 2 years before and after the
merger then were analyzed to compute operating profit changes, earnings before income
taxes, return on assets and EVA for the shareholders. Gross profit (GP) was defined as
net sales revenue (s), minus cost of goods sold (c). Earnings before interest and taxes
(EBIT), sometimes referred to as operating profit, was defined as GP minus operating
expenses (OE). Net income (NI) was determined by subtracting taxes paid (t) and
interest paid (i) and adding in interest income (I) to EBIT. Return on assets (ROA) was
defined as NI divided by average total assets (Gibson, 2009). Economic value added
(EVA) was defined as OP minus a capital charge (C) with the capital charge being the
cash flow required to compensate investors for the riskiness of the venture, given the
amount of capital invested, and was calculated by taking the OP minus the difference
between ROA ratio (expressed as a percentage) and the required minimum return for cost
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of capital, as defined by taking the Weighted Average Cost of Capital (WACC) times
capital which was defined as cash invested in the business net of depreciation (Dirks &
Patel, 1997) of the post-merged entities average over the 2 years following the actual
merger. This was referred to as AWACC for the purposes herein and was expressed as a
percentage ratio (Yook, 2000).
These calculations are shown via commonly accepted formulae in the field of
finance:
GP = s c
EBIT = GP OE
NI = EBIT (t + i) + I
ROA = NI/TA
EVA = OP (capital *(ROA AWACC))
The results of the financial analysis then were statistically analyzed for difference
between the average result pre-mergers to average result post-merger. Managerial
intentions, as defined through content analysis, were then compared to the statistical
analysis of financial results as computed above to see if there was a significant difference
between pre and post-merger results as reflected in the ANOVA (t-test) between
accounting results for the different categories of managerial merger intentions.
Descriptive statistics also was employed to analyze the outcome of the content analysis in
terms of frequency of occurrence of certain defined terms and phrases, following the
procedure established by Daly et al. (2004).
The first stage in the qualitative portion of this study was a content analysis
procedure. The primary step was to choose a category for the dictionary of terms and
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phrases to be included in the study. To this end, the categories of managerial objectives
established by Andrade, Mitchell, and Stafford (2001); Morck, et al. (1990); Kiyamaz
and Baker (2008); Schoenberg (2006); Seth, Song, and Petitt (2000) and Walter and
Barney (1990) was used. These categories included the standard category of synergy, as
well as market power, market discipline, and diversification, as primary categories for
motivations for combining companies (see Appendices B & C for worksheet framework).
Market power is the attempt by a company to limit competition in a field or it can occur
when industries are consolidating due to changes in regulatory environment through
acquisitions and thus increasing the market power of the remaining acquiring company in
that industry. Market discipline is the hypothesis that markets will tend to punish poor
performing management when a better managed firm in the industry merges to acquire
mismanaged assets and remove incompetent or ineffective management from the target
company, leading to the market punishing poor management. Finally, diversification is
the acquisition of a company primarily to obtain the companys customer base, expand
into a market or geography in which the acquiring company is currently not involved, or
compliment the company portfolio of services and products (Andrade et al., 2001).
Included in this step was the selection of terms and phrases which serve as targets in the
content analysis search through corporation documents to classify managerial objectives.
Table 1 provides the categories, definitions, and examples of terms to be searched for in
the content analysis phase of this work. These categories were built into the NVivo8
software to insure objectivity and repeatability. Worksheets to capture accounting data
for statistical analysis are shown in Appendices D, E and F. This process was in
alignment with procedures established by Neuendorf (2002) and applied in a similar

84
nature to the process Kabanoff and Daly (2002) used in their groundbreaking study of
espoused values of organizations.
Participants
Participants were companies that participated in M&A activity between 1998 and
2002. There first were screenings of the 42,246 M&As compiled in the Mergerstat
database in these years to eliminate confounding variables that have been determined to
detract from prior research. Next, a purposeful sample of M&As was selected from each
year. The primary selection method was choosing the top five size mergers remaining
after screening for confounding variables. The qualitative portion was performed via a
content analysis of the annual reports and 10-K statements of the 35 acquiring companies
as well as the financial statements of the 35 acquiring companies and 35 target companies
before the M&As and the 35 companies post-merger. The result was a rank-ordered
series of nominal variables to qualify managerial objectives from managerial statements
required by law in the 10-K statements. The quantitative statistical analysis of the
accounting ratios was from the same 10-K statements used in the content analysis. Use
of both qualitative and quantitative methods was one unique aspect of the study.
A test for power to help substantiate the required sample size was performed. A
priori computation of the required sample size was determined using an alpha of .95, with
power set at .80, and estimating an effect size of .50. These parameters were submitted to
the g-power 3.1.0 software (Faul, Erdfelder, Lang, & Buchner, 2007). Power analysis
results indicated that a sample size of 35 completed M&As was necessary. A larger
sample can be used in future studies to provide further verification of this study's results.
The present sample size, however, was adequate according to this calculation.
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The population of this study were companies involved in domestic M&As from
1998 through 2002 as selected from the Mergerstat database. The power analysis results
required a total of 35 randomly selected M&As which was achieved. To assess the
longitudinal effect within the sample frame, the years of M&As were selected from over
the 5-year period. Additionally, to meet the sample size requirement of 35 M&As, seven
M&As per year were randomly selected for a total of 35 M&As. Sampling was a
multistage, random sampling process, since M&As from the years 1998 through 2002
was chosen by framing the population of all M&As within the boundaries which was
explained further here in the attempt to eliminate as much selection bias as possible
within the frame. Once the list of all M&As during the years selected was compiled, a
list was generated such that each merger was numbered, and then a randomization of
these was generated to allow for choosing seven from each year.
The sample analysis included the financials of the 2 years prior to the merger and
2 years after the merger. Ultimately, this expanded the study years to 1996 to 2004,
resulting in nearly a decade of data being examined. The 2 year average was used
because data in any single year can be affected by events other than the merger itself. For
example, extraneous events, such as the September 11, 2001 attacks, affect the entire
market structure. These events were market wide and not fundamentally aimed at any
single company hence the effect on financials was minimized by taking an average of
years in this study which should help smooth out variability. This methodology was
supported by the Efficient Market Hypothesis and Capital Asset Pricing Model, which
are generally accepted in the finance community.

86
The sample was screened to avoid the potential shortfalls as noted in previous
studies (Loderer & Martin, 1990; Paulter, 2003). The first screen applied to the
population sample was the elimination of privately-held companies that take part in
acquisitions. Their elimination was necessary because privately-held corporations are not
held to the same reporting requirements as are publicly-traded companies by the
Securities and Exchange Commission (SEC). Therefore, content analysis of
managements intentions in their cases was not possible (Kiymaz & Baker, 2008;
Ramaswamy & Waegelein, 2003). In addition, as noted by Faccio, McConnell, and
Stolin (2006), there are many unknown variables, including accounting treatments, which
may influence the returns of privately held companies involved in M&As which cannot
be readily ascertained by studying secondary sources.
The next screen applied to the sample was the elimination of companies with
special accounting treatments or heavy regulatory influences on their financial outcomes.
These include financial and insurance companies, utilities, and subsidiaries of major
corporations that are being purchased to change status from minority ownership to 100%
ownership of corporation (Fuller, et al., 2002). This was also supported in Chatterjee and
Meeks (1996) evaluation of accounting rates of returns due to accounting regulations.
The elimination of foreign-held companies was necessary to remove the possible
influence of different accounting procedures and currency effects on the outcomes of the
M&As. This influence of the currency effect was best exhibited by the study of cross-
border acquisitions executed by Seth, Song and Pettit (2000). Future studies may
incorporate international information by applying this model but presently it is not the
focus of this study.

87
The focus of the study was on the randomly selected seven completed M&As in
each year of the study. To eliminate the effect of size on the financial outcomes of the
M&As, only M&As over 1 billion in market value (?) were included in the sample. The
size of the transaction was shown to be important in previous studies (e.g., Agrawal &
Jaffe, 2003; Kiymaz & Baker, 2008), due to post-merger return measurement being more
difficult to measure in companies of vastly different sizes where the target was easily
subsumed into the acquirer and effect of merger was impossible to measure.
The Mergerstat database (FactSet Mergerstat, 1994-2004) contains 42,246
completed M&As for the years 1998 to 2002, with 234 M&As meeting the screening
criteria (detailed below). The resulting sample size of 35 M&As from the total merger
volume of 42,246 was the result of screening the population for a sample frame and then
randomly selecting seven companies each year. This sample produced 105 data points
from the examination of the randomly selected seven M&As in each of the 5 years, with
data from both acquirer and target company over 5 years which encompassed the average
of results 2 years prior and average of results 2 years post- merger. The 105 data points
in the study were derived from: the 35 acquirers, the 35 targets, and the 35 post-merged
companies.
The process to optimize the sample frame to produce the population sample from
this period was critical. The study required a large enough sample size to insure proper
representation, but one that was filtered enough to eliminate companies that may bias the
study outcome (Flostrand & Strom, 2006). The summary of control parameters were as
follows:
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market-traded companies only so that only publicly available financial
information was used;
companies based solely in the United States, so that reporting standards were
equal for all companies studied and currency effects were negated (Jaggi &
Dorata, 2006);
companies over 1 billion dollars in market ?value so that financial measures
were not biased by size of company;
takeovers completed by 2004 so that subsequent financial filings were
available for inclusion in this study;
omission of financial companies, utilities, and foreign-owned companies due
to differences in the way those companies compute returns in their financial
filings.
These sample screening parameters mirror the approach taken by Fuller, et al.
(2002), which includes more parameters than most studies specifically for avoiding
internal bias in the analysis of M&As by framing the population under study. This
approach was very similar to other past studies as well (e.g., Fuller et al., 2002; Heron &
Lie, 2002; Jaggi & Dorata, 2006) and purposely unlike the approach taken in other
studies that focused on relating issues not pertinent to the current study (De Bondt &
Thompson, 1992; Mukherjee et al., 2004; Seth et al., 2000).
Materials/Instruments
The methodology included instruments to capture the statistical analyses to test
the stated hypotheses (see Appendices). The first step was a content analysis of the
acquiring companys communications from the public documents to ascertain the

89
categories of managerial intention. This entailed following a process to check and log the
data found in public documents, such as annual reports and 10-K statements. The focus
was on the 10-K statements because these documents are required of any publicly-traded
company to be filed annually by the Securities and Exchange Commission and must
follow a standardized format of presentation established by the Securities Exchange Act
of 1934. Rule 12b-20 in particular (Securities and Exchange Commission, 2009) requires
that all information presented must not be misleading under strict penalties for misleading
statements that materially affect the company. The standardization of these forms as well
as the consistency of information presented in these documents insured that the content
analysis process remained reliable and that the results can be replicated.
When these steps were completed there was adequate data so as to present the
descriptive statistics of the distribution, central tendency, and the dispersion of the terms
in the public documents. These steps enabled the review of the terms used by
management in public documents leading to identification of the managerial objectives as
reflected in financial performance measures for comparative testing before and after
merger.
The quantitative analysis performed was a multiple ANOVA (t-test) of the results
of the financial statement analysis of the resulting merged company compared to the
average of the premerger companies values 2 years prior to the acquisition compared to
the averages of the acquirer 2 years after to the acquisition to assess whether there was a
relationship between stated objectives and the financial data. Based on the stated
objective, the financial ratio analysis, in terms of accounting measures defined by
previous research (Chatterjee & Meeks, 1996; Chatterjee, 2007; Dierks & Patel, 1997;
90
Ramaswamy & Waegelein, 2003), was applied to the sales average of each pre-merger
acquiring company and each post-merged target and the acquirer company.
Operational Definition of Variables
The independent variables of the managerial intentions are defined as synergy,
market power, market discipline, and diversification. These categories were established
within the context of the content analysis of 10-K statements for words and phrases
commonly associated with the four terms. These terms are described in Table 1 and are
derived from research as previously defined in this study.
Success in an M&A was evaluated by applying the ANOVA (t-test) test to the
sales accounting ratios by the percentages in the content analysis areas as previously
defined. The examination of accounting ratios and the changes in those ratios pre and
post M&A event was primarily focused on the significance, direction and magnitude of
observed changes associated with the different managerial intentions. The results were
evaluated to see if one strategy had more significant changes than other strategies and if
those changes were positive or negative to the financial well-being of companies
involved in M&A activity. The separate independent variables are as follows:
Synergy Intention of management: Independent variable (X1). The
independent nominal variable of synergy refers to the effect of increased value from a
merger that either results in higher sales or lower costs of the combined firms compared
to the separate firms. This may be measured by adding the acquisition premium to the
difference between replacement costs and market value of the target firm (Chang, 1988).
Synergy also relates to the gain in economies of scale in supply of goods and services
resulting in lowered costs of doing business as pointed out by Walter and Barney (1990)
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and Mukherjee, et al. (2004). Process improvements, shared resources, pooled
negotiating power, vertical integration and cost-cutting would also be synergistic goals
(Harrison, et al. 1991; Mukerjee, et al., 2004). Chatterjee (2007) also includes cross-
selling opportunities, cross promotional opportunities and other related business fit and
expansion opportunities as reasons for pursuing a synergistic merger. Sirower and Lipin
(2003) pointed out that many companies now are establishing a base case and specific
numeric goals for synergy forecasts as Pepsi did when taking over Quaker Oats (2003).
Ultimately the value of the combined firm is greater than the sum of its parts and this was
what needs to be identified in the present study (Barragato & Markelevich, 2008; Kiymaz
& Baker, 2008; Seth, et al., 2000; Sirower & Golovcsenko, 2004). This author will use
the following terms to identify the intent of synergy as a managerial intention when
searching for nominal variables within published documents which are mandated by the
SEC in Form 10-K: process improvements, shared resources, pooled negotiating power,
vertical integration and cost-cutting, cross-selling opportunities, cross promotional
opportunities. The terms were searched for within the SEC documents by using content
analysis software and the categories and terms found in Appendix B. The amount of
times that these terms were used in the documents determined the rank order of
dominance in the document (see Appendix C) thus the intent of management through
their own words. The use of these strategies by management led to measurable changes
in asset utilization and operational efficiencies as exhibited in financial ratios which were
then statistically measured.
Market power managerial intention: Independent variable (X2). The
independent nominal variable of market power was defined in a number of ways in past
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literature. De Bondt and Thompson (1992) described market power as a desire to restrict
competition while Walter and Barney (1990) look at the intention of companies to use
economies of scale and attain improved competitiveness, market share or market position
in fulfillment of the vision of the chief executive of the acquiring company. This positive
definition of market power was also reflected in Amihud, Dodd and Weinsteins 1985
study that refers to market power as the desire of achieving comparative advantage by
management. While Philippatos and Baird (1996) pointed out the empirical nature of
managements desire to merge as a strategy designed to protect or enhance a position in
the marketplace.
The present author used the following terms to identify the intent of market power
as a managerial intention when searching for nominal variables within published
documents which are mandated by the SEC in Form 10-K: improve competitiveness,
consolidation, deregulation, expand capacity, meet competition, industry challenges,
industry changes, use acquired expertise and economies of scale. The terms were
searched for within the SEC documents by using content analysis software and the
categories with related terms found in Appendix B. The amount of times that these terms
are used in the documents determined the rank order of dominance in the document thus
the intent of management through their own words. The use of these strategies by
management should have led to measurable changes in asset utilization and operational
efficiencies as exhibited in financial ratios which were then statistically measured.
Market discipline managerial intention: Independent variable (X3). The
independent nominal variable of market discipline was the hypothesis that markets will
tend to punish poor performing management when a better managed firm in the industry
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merges to acquire mismanaged assets and remove incompetent or ineffective
management from the target company, leading to the market punishing poor management
(Andrade et al., 2001). De Bondt and Thompson added to this definition by measuring
the dimensions of stock market undervaluation of the target company due to poor
management which leads to the ability of an acquirer to obtain these assets at a reduced
cost. Other terms and phrases that indicate market discipline as a merger intent by
management are strengthening the organization (McConnell, 1986), building a strong
foundation by using acquired companies expertise in marketing, production or other skills
(Walter & Barney, 1990) , competitive target valuation due to poor management
(Philippatos & Baird, 1996), changing the control of target firms (Dodd,1980) and gain
valuable assets to expand capacity at less cost than building new due to poor performance
of management of assets of a target company (Walter & Barney, 1990).
The present author used the following terms to identify the intent of market
discipline as a managerial intention when searching for nominal variables within
published documents which are mandated by the SEC in Form 10-K: market erosion,
replace management, change mission, lack of confidence, opportunity to purchase at
discount, capture value. The terms were searched within the SEC documents by using
content analysis software and the categories with related terms found in Appendix B.
The amount of times that these terms were used in the documents determined the rank
order of dominance in the document thus the intent of management through their own
words. The use of these strategies by management should have led to measurable
changes in return on assets and EVA as exhibited in financial ratios which were
statistically measured.
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Diversification managerial intention: Independent variable (X4). The
independent nominal variable of diversification intention of management has been
defined as growth, rapidly expanding markets, improving sales trends, expanding market
share or changing product mix by McConnell in his study of corporate literature (1986).
Walter and Barney (1990) as well as Morck, et al. (1990) saw diversification as a way to
penetrate new markets by acquiring the target company, broaden customer base for
existing goods and services, or a way to enter a new line of business in shrinking markets.
Ghemawat and Ghadar (2000) added the dimension of companies desiring to expand
globally requiring girth as a competitive advantage and found that increasing the
company size in the same business or industry was not as desirable as diversification of
business and industry. Additional terms and phrases to define diversification are
enhanced flexibility, reduced costs of capital risk, provide proprietary information
(Mukherjee et al., 2004), spreading risk of concentrated market or product offering
(Andrade et al., 2001) and managements desire to reduce risk by acquiring firms with
unrelated cash flows (Amihud et al., 1986).
The following terms were used to identify the intent of diversification as a
managerial intention when searching for nominal variables within published documents
which are mandated by the SEC in Form 10-K: market penetration, growth, market
expansion, reduce risks and costs, grow product portfolio, expand customer base. The
terms were searched for within the SEC documents by using content analysis software
and the categories with related terms found in Appendix B. The amount of times that
these terms were used in the documents determined the rank order of dominance in the
document thus the intent of management through their own words. The use of these
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strategies by management should have led to measurable changes in net income growth,
earnings growth and growth as exhibited in financial ratios which were statistically
measured.
Economic Value Added: Dependent variable (Y1). The dependent variable of
EVA was a ratio measurement of figures found in the 10-K statement of the M&As that
was examined. Economic value added was defined as OP minus a capital charge (C)
with the capital charge being the cash flow required to compensate investors for the
riskiness of the venture given amount of capital invested. It was calculated by taking the
sales average operating profit (AOP) minus the difference between average return on
assets (AROA) ratio expressed as a percentage and the required minimum return for cost
of capital as defined by taking the weighted average cost of capital (WACC) of the post
merged entities average over the 2 years following the actual merger this was referred to
as AWACC for the purposes herein and was expressed as a percentage ratio (Yook,
2000). This ratio computed from numbers found in the 10-K financial statements of the
acquiring companies balance sheets 2 year sales average prior to M&A and combined
companies average 2 years after the M&A as follows: EVA = AOP (AROA
AWACC).
Earnings before interest and taxes (EBIT): Dependent variable (Y2). The
dependent variable, earnings before interest and taxes (EBIT) was a ratio scale and was
defined as 2 year sales averaged operating profits (AOP) minus sales averaged sales,
general and administrative costs (ASG &A) (Gibson, 2009). This ratio computed from
numbers found in the 10-K statements of the acquiring companies income statements 2
96
year sales averaged prior to M&A and combined companies average 2 years after the
M&A as follows: AEBIT = AOP ASG&A.
Return on Assets (ROA): Dependent variable (Y3). The dependent variable,
return on assets (ROA) was defined as net income (NI) divided by average total assets
(Gibson, 2009). This ratio was computed from numbers found in the 10-K statements of
the acquiring companies balance sheets and income statements 2 year sales averaged
prior to M&A and combined companies average 2 years after the M&A as follows:
AROA = ANI/ATA.
Net Income: Dependent variable (Y4). The dependent variable, net income (NI)
was a ratio scale and was determined by subtracting taxes paid (t) and interest paid (i)
from EBIT (Gibson, 2009). This measure was derived from the ratio analysis of the
balance sheet found in the 10-K statements of the companies involved in the M&As
studied. This ratio was computed from numbers found in the 10-K statements of the
acquiring companies income statements 2 year sales averaged prior to M&A and
combined companies average 2 years after the M&A as follows: ANI = AEBIT - At - Ai .
Operating Profit (OP): Dependent variable (Y5). The dependent variable,
operating profit margin (OP) was a ratio scale and was defined by taking net sales
revenue (s) minus cost of goods sold (c) (Gibson, 2009). This measure was derived from
the ratio analysis of the balance sheet found in the 10-K statements of the companies
involved in the M&As studied. This ratio was computed from numbers found in the 10-
K statements of the acquiring companies income statements 2 year sales averaged prior
to M&A and combined companies average 2 years after the M&A as follows: AOP = As
- Ac.
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Net Sales or Revenue (R): Dependent variable (Y6). The dependent variable,
net sales (NS) was a ratio scale and was defined by taking net sales revenue figures from
the 10-K statements required by the SEC (Gibson, 2009). This ratio was computed from
numbers found in the 10-K statements of the acquiring companies income statements 2
year sales averaged prior to M&A and combined companies average 2 years after the
M&A as follows: (NSyear1 + NSyear2)/2 for company A and B, the results were:
[average net sales company A (ARA)/total average net sales A+B] + [ARB (average net
sales company B)/ total average net sales A+B].
Data Collection, Processing, and Analysis
It was of primary importance in terms of the integrity of the data to select sample
M&As properly so as to eliminate merger types that would skew the results. The types of
things that would skew the results were merger that took place outside the US and thus
were not subject to SEC oversight, industries that report financial statements in an
uncustomary manner and companies that undertook multiple transactions in the periods
studied to name a few. This screening was achieved by applying a filter to the population
of completed M&As that took place from 1998 to 2002 to eliminate these types of M&A
activity.
Qualitative research design steps. The qualitative portion of the current study
used computer aided-content analysis processes to determine management intention as
established by McConnell (1986) in his study of the Presidents letter to shareholders in
annual reports of companies and has been subsequently verified in the works of Kabanoff
(1996), Kabanoff and Daly (2002), and Daly, Pouder, and Kabanoff (2004). References
to content analysis within the M&A field were very few given that this was a new area of
98
research. The references that do exist can be divided into several areas: research that
focuses on methods to evaluate reliability and repeatability of the content analysis
process (Neuendorf, 2002; Weber, 1990), use of this tool specifically for managerial
objectives (Kabanoff & Daley, 2002; McConnell, 1986), investor communications
(Sirower & Lipin, 2003), and post-merger performance measures (Daly, Kabanoff, &
Pouder, 2004). The work of Weber (1990), Kabanoff (1996), and Neuendorf (2002) was
used to establish an unbiased process of reviewing the content of formal documents,
annual reports, and 10-K statements, and to determine the record for managements
reasoning for pursuing certain M&As. These authors have published seminal papers,
including books, describing the use of and process of conducting content analysis in
business research. Steps taken to establish the objectives of management through the
content analysis of the 10-K financial statements and annual reports of acquiring
companies that are selected from the population of M&As for the years 1998 to 2002.
The process was as follows:
Step 1. Established categories of managerial intention. This was accomplished
by reviewing past studies and using the categories other researchers have defined in their
work.
Step 2. Built a dictionary of categories and associated terms that defined these
categories in NVivo8 content analysis software.
Step 3. Collected documents and loaded them into NVivo8 software.
Step 4. Reviewed content in NVivo8 and through sampling analysis determined
the managerial objectives of M&As.

99
Step 5. Assigned nominal values to general categories of references objectives
following the process described by Kabanoff et al. (2004).
The qualitative methodologies of Kabanoffs content analysis of published public
materials were used to determine managerial intent. Kabanoff used annual reports,
Security and Exchange commissions filings (10-K statements), and published reports in
newspapers and magazines to determine managerial intent. Kabanoff then created a
thesaurus and coding system to allow analysis of the communications content (Kabanoff,
1996).
The NVivo8 software package was used to conduct the content analysis of the
published public materials. This program was built specifically for qualitative data
analysis. It allowed for the creation of a vocabulary, with the dictionary function, to help
ensure consistent application of content search in public documents to define managerial
objectives in M&As. There also was a frequency function which will add a dimension of
reliability to the content analysis by weighting the number of times certain phrases are
used in the documents (QSR International, 2006).
Neuendorf (2002) has provided a detailed procedure for establishing proper
methodology in content analysis which builds upon the earlier work of Weber (1990).
Methodology for coding and building a dictionary needs to be precise and repeatable per
Weber and system guidelines was developed using the process developed by Neuendorf
in her guidebook for content analysis.
The methodology used by Neuendorf (2002) first established the theory and
rationale of the content analyzed in this research. The first step was to establish the
research questions that were analyzed. The second part of the methodology was
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conceptualization or description of the variables to be studied. The third part was
operationalization or measures that have internal validity to the conceptualization stage.
Then the coding or the content classification begins. Coding was done in parallel by
human methods of scanning documents for relevant phrases and words as well as using
the software. In manual content analysis of documents, a sampling methodology of the
content must be developed and multiple coders should be used to establish reliability, for
this reason, computer software was used here. Then frequency distributions and
correlations were drawn between objectives of management and the financial outcomes
(Neuendorf, 2002).
The coding provisions used in the content analysis should be consistently applied
and uniformly recognized as a valid use of the coding terminology. The coding problems
with validation of the terminology was minimized through the use of content categories
and computer-aided classification as detailed by Kabanoff (1996) in his studies and use
of these items. The methodology and software helped eliminate bias in the study and
addressed Kabanoffs concern regarding the use of content analysis by ensuring that
repeatability of the data collection was possible for future studies. The main issue raised
by Kabanoff was that unbiased content analysis depends on how the words and phrases in
the dictionary are classified and how the research uses the NVivo8 software to build
rational word groupings and synonyms for searching through published material.
Kabanoff traced the problem to human content scanning techniques and natural flaws in
the methodology of human interaction in the coding process. The NVivo8 software
eliminated Kabanoffs (2000) concern about non-standardization and non-uniform

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application of qualitative methodology by automating the search process and ensuring
unbiased application of content analysis in the documents studied.
The results of the content analysis were rank ordered by the frequency of
occurrence of the terms defined as publicly stated objectives of management, this
provided an answer to the first research question using the same process as Daly, et al.
(2004), Nuendorf (2002) and Sirower and Lipin (2003). The rank ordering of
occurrences showed how the most referred to motive for the acquisition equated to the
importance management places on communicating this desire as indicated by
McConnells study (1986). These objectives then were associated with a financial
measure from the financial statements of the acquirer and target companies as shown in
the hypotheses (see Table 3), this provided a test of the second research question. The
ratio was applied to the acquirer and be averaged for the 2 years prior the merger and
applied as well to the merged company for the average of the 2 years post-merger that
was related to the research hypotheses. Once the ratio analysis of the financial measures
was completed, they were statistically compared through a paired t-test of the population
means between the pre-merger performance and the post-merger performance as reflected
in the ratio analysis of the firms. Managerial objectives as determined through content
analysis and the financial results as computed above were also be compared through
descriptive statistics. This provided results in relation to the third research question. The
descriptive statistics were employed to analyze the outcome of the content analysis in
terms of frequency of occurrence of certain defined terms and phrases that follow the
procedure established by Daly, Pouder, and Kabanoff (2004).

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The use of two different software packages in the context of this study aided in
the consistency and repeatability of this research in the future. The first package, NVivo,
was used to perform the content analysis which aided in establishing managerial
objectives. The second software package used was SPSS for the ratio and statistical
analysis of the financial results of combined companies. SPSS was used to test the
empirical hypotheses of this study as well as running the statistical tests for the research
questions. The results were captured and tabulated to exhibit the ANOVA (t-test) results
and the relationship between the groups of accounting ratios pre and post-merger.
The central objective of the methodology was the coding provisions used in the
content analysis and assurance that the categories will not lead to bias in the process. The
possibility of bias was minimized through the use of content categories and computer-
aided classification as detailed by Kabanoff (1996, 2004) in his studies and use of this
process to insure that objectives are selected in as unbiased and unobtrusive manner. The
methodology and software helped eliminate bias and address Kabanoffs concern in the
qualitative study use of content analysis and insured that repeatability of the data
collection was possible for future studies. The main issue was how the words and
phrases in the dictionary are classified and the research will use the NVivo 8 software to
build rational word groupings and synonyms for searching through published material.
Quantitative research design steps. The quantitative analysis was conducted
via application of the ANOVA (t-test) of the companies at pre-merger and post-merger,
and began with review of the Mergerstat database to choose a screened sample for
testing. The next step included using acceptable standard accounting measures of
business valuations and ratios. This was necessary to gauge the extent to which
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objectives stated by management actually were achieved, since value can be added to the
firm in a merger by other means than what was used as the primary objective established
by management. The Mergerstat database provided by FactSet Mergerstat, LLC was an
industry-accepted database compiled from sources collected from companies involved in
M&A activity, public sources of data, and industry sources of data considered reliable
and reviewed by the editorial board of FactSet Mergerstat, LLC.
This study was unique primarily due to the use of content analysis to determine
managerial objectives. Content analysis of presidents' letters in annual reports has been
used (Daly et al., 2004; Sirower & Lipin, 2003) as have industry analysts' reports
(Flostrand & Strom, 2006). Content analysis of 10-K statements, however, appears not
yet to have been conducted. This leads to following best general practices for content
analysis as established by Kabanoff (1996, 2002) and Neuendorf (2002).
Another factor that contributes to its uniqueness was that this study encompasses
a 5-year time frame, from 1998 to 2002. This permitted the elimination of longitudinal
effects and provided time from the end of the period to find financial results to compare
against the final year of the study (Loderer & Martin, 1990). The hypotheses were tested
using accounting measures as previously used by the many accounting studies reviewed
earlier (e.g., Barragato & Markelevich, 2008; Block, 2000; Limmack, 1994; Philippatos,
1996). These accounting measures were aligned with the definitions and terms in found
in Table 1, as distilled from Daly et al., (2004). The results of the ratio analysis was
performed and averaged for the 2 years prior to the merger for the acquiring company
and the 2 years post-merger of combined companies. The ratio outcomes provided data
to perform paired t-tests and significance results applied against the hypotheses.
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ANOVA (t-test) tests demonstrated whether there was a relationship between the average
accounting results pre and post-merger and exhibit the significance of goal achievement
as related to categories acquired from the content analysis of the 10-K statements.
Analysis Techniques. The references to content analysis within the M &A field
are very few because this was a new area of research in the M&A field. This category
can be divided into several areas of research. The first are the studies that focus on
methods to evaluate the reliability or dependability of the process and recognizes the ever
changing context of information (Trochim & Donnelly, 2007). Another area where this
process adds to the study of M&A was in the repeatability of the content analysis process
(Neuendorf, 2002; Weber, 1990). Use of this tool was specifically to determine and
measure managerial objectives (Kabanoff & Daley, 2002; McConnell, 1986), investor
communications by senior management (Sirower & Lipin, 2003), and post-merger
performance measurement (Daly, Kabanoff, & Pouder, 2004) also help show how this
author adds to M&A knowledge base.
This study of M&As relied on the work of Weber (1990), Kabanoff (1996), and
Neuendorf (2002) for establishing an unbiased process of reviewing the content of formal
documents, annual reports, and 10-K statements to determine the record for
managements reasoning for pursuing certain M&As. Content analysis was a relatively
new research tool for business research and has been almost absent from the M&A
literature. The use of the content analysis process applied to public corporate documents
to establish managerial objectives for a merger or acquisition was one aspect which helps
distinguish this study from previous ones.

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Weber (1990) established content analysis as a research method that used a set of
procedures to make valid inferences from examining text in documents. He noted several
advantages that content analysis has over other analysis techniques. These include that
communication was central to social interaction and content analysis relies directly on
texts of human communication, content analysis helps combine quantitative and
qualitative studies which usually are seen as conflicting methods, documents exist over
time and aid in longitudinal analysis which was otherwise difficult or impossible to
achieve, and content analysis is unobtrusive in nature. Weber (1990) also defined a
rudimentary process for conducting content analysis: define recording units as words,
sentences, phrases, paragraphs; define categories; test coding on sample text; assess
accuracy and reliability of process on sample; revise coding rules if necessary; re-test
coding; code all text; and assess achieved reliability.
Neuendorf (2002) refined this process by relating the process to statistical
analyses and providing examples of coding techniques. Neuendorf established the
groundwork which enables a researcher using content analysis the ability to help make a
seemingly qualitative or empirical methodology most quantitative. She contends that
counts must be established in key categories and measurements of the amounts of
variables taken result in data which are reliable, verifiable, and, most importantly,
repeatable, by other independent researchers. The sampling section of this literature
review aided in establishing the categories and associated measures for the content
analysis of the public documents that led to quantitative measurement of managerial
objectives for the M&As they choose to undertake and alignment with financial
measures.
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The M&A study most relevant to the present study in terms of the use of content
analysis were conducted by Daly and colleagues (2004). They showed that content
analysis of shareholder letters is unobtrusive and avoids bias of self-selection,
retrospection and the Hawthorne effect (2004, p. 336). Their study concentrated on the
effects of the differences in espoused values as determined by content analysis of the
letter to shareholders found in the annual report of companies involved with M&As.
Their work serves as a template for this study. Theirs was one of the first studies to apply
content analysis to the study of M&As.
Daly et al. (2004) defined the features of values within four organizational
structures and then associated words that reflected those value structures to use in their
search of published material of Australian companies. The dictionary Daly et al.
developed contained nine values for use in their computer-based text analysis. These
values were authority, leadership, team, participation, commitment, performance, reward,
affiliation, and normative. They defined these terms within a power structure and process
structure and placed these terms into four quadrants: the elite quadrant, in which the
two variables measured were unequal power structure and equitable process structure
exist, meritocratic quadrant, in which equal power structure and equitable process
structure exist, collegial quadrant, in which equal power structure and egalitarian
process structure exist, and leadership quadrant, in which with unequal power structure
and egalitarian process structure exist. These values were then assigned strong/positive
and weak/negative values, depending on into which quadrant they were being placed and
how these values would be perceived within organizations to define the characteristics of
this type of organization. Daly et al. (2004) had established the framework for using
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corporate documents and computerized content analysis tools for the study of
management motivation and objectives.
Whereas Kabanoff and Daly (2002) quantified the espoused values of
management as portrayed in their public documents, Daly, Pouder, and Kabanoff (2004)
used content analysis of letters to shareholders to study and quantify managements
espoused values and their effect on post-merger performance. The present author relied
heavily on these two studies to establish validity and repeatability within the sample
selected for this research. It also relied on the work of Sirower and Lipin (2003) that
used investor communications in content analysis to establish managerial objectives.
Kabanoff and Daly (2002) inferred that the use of content analysis to describe
espoused values of firms was valid based on the implication that language mirrors
thoughts and reflects peoples reality. They used z-score statistics to support tests
assessing whether there was a relationship in each of the four value profiles of firms
compared to the type of firm indicated by past definitions of leadership styles. This score
defined critical values by identifying the region of rejection of their hypothesis that the
profiles matched theory based profiles.
Kabanoff et al. (2002) sampled 77 Australian companies and 55 US companies,
all of which were publicly traded. These authors used the chi-square test and produced a
crosstab chart of leadership style by country to illustrate organization type by country and
the frequency of observed types. They sought to correlate the attitudes toward change in
each of the companys management styles as defined in their matrix. Thus, when
combining word grouping in context of the corporate documents, a resulting association
with the organization type would show a strong correlation with attitude toward change.
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Their next step was to suggest that M&As portray the most significant change for an
organization and the study of the success of M&As using content analysis should be the
topic of future studies (Kabanoff & Daly, 2002). Indeed, this was the basis for the
present author's use of content analysis to enhance knowledge in the M&As field.
Daly, Pouder, and Kabanoff (2004) then used content analysis of letters to
shareholders to quantify managements espoused values and their effects on post-merger
performance. Their prime hypothesis was that organizational fit between an acquirer and
acquired company was critical to the success of a merger. Their sample of 54 firms
between years 1989 and 1996 was defined by the following selection criteria: firms were
publicly traded, merger was completed in selected businesses in that year, both firms
were independent at time of acquisition, the acquirer had not been involved in another
merger for 3 years before and after. The independent variable was the difference in
firms initial espoused values. The value themes used in their study were concern for
employees as demonstrated by looking for terms that demonstrated an affiliation or
concern with interpersonal warmth and employee focus or concern for employees. The
other value theme is a concern for production, which is exhibited by continual reference
to goals or performance measures.
Daly, et al. (2004) developed a dictionary of terms separated into four categories:
affiliation, employee focus, goals, and performance, and then associated words and
examples in the definition of these categories. Daly, et al. (2004) formulated a matrix of
these four categories to establish the espoused value landscape. They then performed a
cluster analysis to categorize firms into one of four groups. The dependent variable was
acquisition performance and the control variables were relatedness of target and acquirer
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based on SIC codes, prior acquisition experience of acquirer, relative acquisition size,
and whether acquirer used stock in the transaction.
The process they used in their final stages was as follows:
content analysis of text in presidents letter for each acquiring and target firm;
obtained counts of references made to the four categories within the
dimensions of Concern for Employees or Concern for Production;
standardized counts based on volume of text for each firm as determined by
number of total lines in each document;
performed cluster analysis to determine which values describes each firm;
compared classification of espoused values and assigned a difference score.
The low sample size (n = 59) in the Daly et al. (2004) sample was noted as a
possible negative effect in terms of the power of this study, however, the findings were
statistically significant and are consistent with generally accepted research parameters
(Daly et al., 2004). Indeed, the Daly et al. served as a foundation for the use of content
analysis in a mixed-method study, and influences, then, the work presented here while the
work of Hoberg and Phillips (2010) specifically uses text based analysis of Form 10-K as
used herein.
Methodological Assumptions, Limitations, and Delimitations
The potential issues that evolved in the research of the dissertation topic were
sources of merger and acquisition data, timeframe of study, methodology of choosing
target population, coding and quantification of rhetorical study, and choice of variables
used to quantify outcome of particular merger or acquisition effect on shareholder

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valuations. These issues were addressed through sample selection and computerized
analysis of verbal content to eliminate as many sample errors and biases as possible.
The study of M&As is a study of the history effect on the two entities combining.
The potential negative impact in this area was that companies selected for study may
have subsequent M&A activity during the period of the study. Companies that have
subsequent M&A activity were filtered out in the sample selection so that the acquiring
and target companies will not be involved in multiple M&As during the period of the
study , thus ensuring that cause and effect was not clouded by subsequent environmental
changes.
Past researchers had suggested that no study of M&As can be complete due to the
many variables surrounding these events (Cartwright & Schoenberg, 1985; Loderer &
Martin, 1990). Steps were taken in the sampling process to help minimize the impact of
extraneous variables. However, all studies have limitations, and the present study has at
least five potential limitations. These limitations are as follows:
the small sample size of 35 M&As over 4 years may be seen as too narrow a
focus of this study;
the lack of personal interviews of management as to their objectives may be
seen as a limitation although many times it was not possible to contact these
individuals, and in some cases, they likely are no longer with their respective
companies;
unknown motivations of public officials that are otherwise left out of
published materials due to ulterior motives or subversive intent on the part of
managers involved in M&As are not addressed in this study;

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the method used in this study was unique in that it combines content analysis
and accounting data and it is possible that more effective measures of outcome
should be used which future research should identify;
and finally; the time period of this study was tumultuous and potentially
impacted by the unusual circumstances such as attack of September 11, 2001
and market bubble of internet era companies going public.
Ultimately, however, all attempts had been made to reduce the limitations of this
study in comparison to previous studies. These limitations were seen as foundations for
future study and should not impact the legitimacy of the present studies findings.
Ethical Assurances
Many potential ethical problems were avoided in the present study because there
was no direct involvement with participants, including either testing or personal
interviews. Because the data were derived from audited documents reviewed by
independent accounts and compiled in a manner mandated by the government, all
concerns of validity should be addressed. The ethical concerns of relevance to this study
pertained to data integrity and lack of bias in presentation of the study.
Internal validity was measured from the aspect of six different variables that may
jeopardize the research: history, maturation, testing, instrumentation, selection, and
mortality (Zigmund, 2003). These six threats to internal validity and how they were
handled are discussed next.
The maturation effect that could have potentially impacted this study was a
potential change in a company's senior management over the study period which would
negate the main hypothesis of managerial intention versus financial outcome. The
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sample of the population under study in this area was chosen to remove companies which
experienced a change in management during the time period of the study. This should
have prevented potential bias in that companies that experience changes of leadership
make prior managements objectives irrelevant so they were selected out of the study.
The testing effect was eliminated in this study in that pretesting via contact with
participants did not occur in this study. Data are strictly secondary data. Concerns about
instrumentation also were limited due to the nature of the data. The main concern
regarding instrumentation was with the coding provisions used in the content analysis.
This threat, however, was minimized through the use of content categories and computer-
aided classification as detailed by Kabanoff (1996, 2002).
Instrumentation effects were directly impacted by the methodology used to
compute financial outcomes of profitability. To ensure the best method was used, the
present study used the already established metrics by Loderer and Martin (1992), Chang
(1988), Chatterjee and Meeks (1996), Connell (2010), Nissim and Penman (2003),
Jovanovic and Rousseau (2002), MacDonald (2005), Flostrand and Strom (2006), and
Warusawitharana (2007). This paper also relied heavily on Kabanoff and Daly (2002)
and Kabanoff (1996) for direction regarding the content analysis.
The selection effect was of major concern when selecting the sample from the
population. Researchers have pointed out the effects of sample size (Fuller et al., 2002;
Loderer & Martin, 1992), and still others note both sample size and the sample period as
important considerations (Jensen & Ruback, 1983). Typical criteria for many studies are
the size of the merger value which is usually restricted to over 5 million in market price
(Ramaswamy & Waegelein, 2003). Heron and Lee (2002) established that the method of
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payment (i.e., debt or equity) does not influence the outcome of profitability of the
merger or acquisition so this will not be a consideration of this study. This author
focused on M&A activity within the US to eliminate the effect of inconsistency of
regulations, currency affects, managerial differences, and extraneous additional costs
usually associated with cross-border transactions. Private companies also were not
included because public announcements and financial reporting data are not assessable as
they are in public companies.
The selection methodology was intended to minimize or eliminate the effect of
industry events and cyclical economic events while maintaining a longitudinally random
sample. External validity (i.e., the ability to generalize the finding of this paper) was
consistent with the previously mentioned studies in this area and was assured with
detailed codification charts and tables explaining any qualitative measures fully to insure
repeatability in the future (Zigmund, 2002). The use of computer-aided content analysis
and the use of accounting ratios that are generally accepted standards should enable
anyone to replicate the process employed in this study. Limitations of this methodology
are noted but this should not detract from the dependability of the data (Trochim &
Donnelly, 2007). IRB approval was obtained prior to any collection of data being
conducted.
Summary
The research methods and instruments used here should help provide insights into
the field of M&As such that mangers then can use the resulting information to help
improve the success rate of these events and help increase shareholder values. The effort
was to capture data and reasoning to evaluate merger effectiveness, the best objectives for
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M&A to be set by management for the organization when they establish objectives and
the delineation of measures to objectives will help enrich this field of study. The use of
generally accepted accounting measures aligned with management objectives as stated in
governmental required documents was intended to establish a foundation for future
researchers to use and expand upon while also giving managers and stockholders a
methodology to judge merger outcomes or establish targets for M&A activities.

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Chapter 4: Findings
The purpose of this research study was to explore questions about M&A success
related to managerial intentions stated in public documents and test certain hypotheses
about measurements of financial ratios associated with those intentions leading to the
development of a model to increase the potential for positive financial gain in M&A
strategy. The goal achieved was to establish a methodology or model for management
and shareholders to use to help improve strategy formulation and or communication
which would lead to increased chance of success of the M&A venture. Increased success
could be achieved in several ways, management could help define financial goals to
measure success, communicate throughout the organizations to clearly show how the
reformulated entity would create added value for shareholders, give shareholders a clear
benchmark for compensation of executives, and avoid the possibility of the agency
problem from actualizing.
In this chapter the results of this examination are displayed and analyzed in both
the quantitative and qualitative results. Qualitatively the results of the content analysis of
public documents are captured and displayed by ranking the number of occurrences
certain terms and phrases are captured within published public documents using methods
established by Flostrand and Strom (2006), Hoberg and Phillips (2010), Kabanoff (1996),
Kabanoff and Daly (2002), and Neuendorf (2002). Quantitatively the statistical results
described in the research questions of pre and post-merger accounting measures are
detailed and results described similarly to past studies by Agrawal and Jaffe (2003),
Ahern and Weston (2007), Block (2000), De Bondt and Thompson (1992), and Dodd
(1980). Significance and description of statistics are in the first section with qualitative
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results also exhibited to complete the mixed method study. These results are then
evaluated within the framework of the research questions and hypothesis to establish a
framework to evaluate M&A worthiness and potential as a goal of management.
Results
Since this study was a mixed-methods study there are quantitative and qualitative
results. The qualitative exploration was conducted for the purpose of determining
managerial intent through the use of content analysis of published documents. The
results for establishing management intentions were captured using NVivo software,
categorized (see Appendix B and Table 2), and then rank ordered and tabulated on a
worksheet to capture management intentions (see Appendix C).
The results of the content analysis are shown in Table 2 and it was evident that the
management intent of Synergy was rated as the number one reason in 20% of the sample
M&A events and 31% of the cases it ranked number 2, number 3 in 43% of the events
and number 4 in 6% . The management intent of market power was ranked number one
in 51% of the M&A events, number two in 29% of cases, number 3 in 17% of cases and
number 4 in 3% of cases. The management intent of Market Discipline was ranked
number one in 0% of the M&A events, number two in 0% of cases, number 3 in 9% of
cases and number 4 in 91% of cases. The management intent of Diversification was
ranked number one in 29% of the M&A events, number two in 40% of cases, number 3
in 31% of cases and number 4 in 0% of cases (see Table 2 below).

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Table 2
Category Results of Content Analysis
Category Ranked #1 Ranked #2 Ranked #3 Ranked #4 Overall

rank
Synergy 7 11 15 2 #3
Market Power 18 10 6 1 #1
Market 0 0 3 32 #4
Discipline
Diversification 10 14 11 0 #2
The next portion of this study was the quantitative portion focusing on the
research questions, hypotheses and statistical results of these studies. The research
questions and hypotheses are as follows:
Research Question 1: To what extent, if any, is there a difference between the
average 2 years preceding an M&A event compared to the average 2 years after the
M&A of economic value added (EVA) as a measure for shareholder return pre and post
M&A? The hypothesis to test this was as follows:
event compared to the average 2 years after the M&A of economic value added (EVA) as
a measure for shareholder return pre and post M&A.
event compared to the average 2 years after the M&A of economic value added (EVA) as
a measure for shareholder return pre and post M&A.
Economic value added is used as a measure for all companies while the remaining
five measures are associated with specific topic areas of management intent. The
differences between pre- and post-M&A events ratio computations of EVA were not
statistically significant (see Table 3 below) with a p-value of 0.115. Since the p-value is
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greater than 5% then the null hypothesis cannot be rejected. Therefore, the alternative
hypothesis measuring change of EVA pre-merger and EVA post-merger cannot be
considered as contributing to increased shareholder wealth and profits. The result is in
alignment with expectations that EVA would not change when comparing pre and post
M&A event financial positions. This shows that the M&A event did not add to the
economic value of the combined companies and is consistent with a failed M&A event
which would definitely show a positive change in EVA.
M&A of earnings before interest and taxes (EBIT) as a measure for synergy strategy pre
and post M&A? The hypothesis to test this was as follows:
taxes (EBIT) as a measure for synergy strategy pre and post M&A.
taxes (EBIT) as a measure for synergy strategy pre and post M&A.
The differences between pre- and post-M&A events ratio computations of EBIT
were not statistically significant (see Table 3 below) with a p-value of 0.565. Since the p-
value is greater than 5% then the null hypothesis cannot be rejected. Therefore, the
alternative hypothesis measuring change of EBIT pre-merger and EBIT post-merger
cannot be considered as contributing to increased shareholder wealth and profits. The
result is in alignment with expectations that EBIT would not change when comparing pre
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and post M&A event financial positions. This shows that the M&A event did not add to
the profitability of the combined companies and is consistent with a failed synergy
strategy by management which would definitely show a positive change in EBIT.
M&A of return on assets (ROA) as a measure of market power strategy pre and post
M&A? The hypothesis to test this was as follows:
event compared to the average 2 years after the M&A of return on assets (ROA) as a
measure of market power strategy pre and post M&A.
event compared to the average 2 years after the M&A of return on assets (ROA) as a
measure of market power strategy pre and post M&A.
The differences between pre- and post-M&A events ratio computations of ROA
alternative hypothesis measuring change of ROA pre-merger and ROA post-merger
cannot be considered as contributing to increased shareholder wealth and profits. The
result is in alignment with expectations that ROA would not change when comparing pre
and post M&A event financial positions. This shows that the M&A event did not add to
the profitability of the combined companies and is consistent with a failed market power
strategy by management which would definitely show a positive change in ROA.

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M&A of net income (NI) as a measure of market power strategy pre and post M&A?
The hypothesis to test this was as follows:
event compared to the average 2 years after the M&A of net income (NI) as a measure of
event compared to the average 2 years after the M&A of net income (NI) as a measure of
The differences between pre- and post-M&A events ratio computations of NI
alternative hypothesis measuring change of NI pre-merger and NI post-merger cannot be
alignment with expectations that NI would not change when comparing pre and post
profitability of the combined companies and is consistent with a failed market power
strategy by management which would definitely show a positive change in NI.
M&A of operating profit margins (OP) as a measure of market discipline strategy pre and
post M&A? The hypothesis to test this was as follows:

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The differences between pre- and post-M&A events ratio computations of OP
alternative hypothesis measuring change of OP pre-merger and OP post-merger cannot be
alignment with expectations that OP would not change when comparing pre and post
profitability of the combined companies and is consistent with a failed market discipline
strategy by management which would definitely show a positive change in OP. The
measure is also not significant since the intent of market discipline was not an evident
choice for management in this sample set. The lack of management choosing market
discipline as a strategy is consistent with the non-significance of the statistical results.
M&A of net sales (NS) as a measure of diversification strategy pre and post M&A? The
hypothesis to test this was as follows:

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event compared to the average 2 years after the M&A of net sales (NS) as a measure of
event compared to the average 2 years after the M&A of net sales measure of
The differences between pre- and post-M&A events ratio computations of NS
were statistically significant (see Table 3 below) with a p-value of 0.040. Since the p-
value is less than 5% then the null hypothesis can be rejected, supporting the alternate
hypothesis of net sales (NS) increasing when management pursues a diversification
strategy. Empirically this would meet expectations since net sales of two separate entities
when combined naturally equate to an increase over the two separate entities prior to an
M&A event.
Table 3 illustrates that the changes in the first five pairs of data (EVA, EBIT,
ROA, NI and OP) are not significant but that the final pair of data (Sales) are significant.
Using online calculators (Soper, 2012) the power of each pair was also established as
follows: Pair 1, 18.4%; Pair 2, 33.8%; Pair 3, 33.0%; Pair 4, 34.8%; Pair 5, 10.6% and
Pair 6, 4.2%. Based on these outcomes it was possible to now place the research
questions within the context of the sampled data which is shown in Table 3 within the
parameters of the paired samples test results.

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Table 3
Paired Samples Test Results
Paired Differences t df p-
Mean Std. Std. 95% value
Deviation Error Confidence
Mean Interval of the
Difference
Lower Upper
Pair 1 POST:RQ1
-2,969 10,863 1,836 -6,700 763 -1.617 34 .115
EVA PRE:RQ1
POST:RQ2
Pair 2 -665 6,769 1,144 -2,990 1,661 -.581 34 .565
PRE:RQ2
EBIT
POST:RQ3
Pair 3 -.087 .337 .057 -.203 .028 -1.535 34 .134
PRE:RQ3
ROA
POST:RQ4
Pair 4 -1,738 9,250 1,563 -4,915 1,440 -1.111 34 .274
PRE:RQ4
NI
POST:RQ5
Pair 5 1,450 5,598 946 -473 3,373 1.532 34 .135
PRE:RQ5
OP
POST:RQ6
Pair 6 4,383 12,121 2,049 220 8,547 2.140 34 .040
PRE:RQ6
Sales
These six research questions were aligned with six different accounting ratio
measures generally accepted and used in financial management of companies which
comprised the quantitative portion of the study. The ratios were computed from the
financial information required by the government for publicly traded US companies in
the 10-K statements filed with the Securities and Exchange Commission. These six
measures were associated with specific categories of managerial intentions derived from
Andrade, et al. (2001) and supported by Chakravorty (2012). The accounting

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computations were considered indicators of success if changes between Pre- and Post-
M&A events were positive and failure if negative to achieve the goals stated by
management.
In the qualitative portion of this study the author used content analysis of
registered government documents, Form 10-K, to determine managerial intentions.
These forms were searched for words and phrases that determine particular intentions.
These intentions were directly related to the related accounting measures and aided in
understanding the following question:
Research Question 7: Based on the differences determined for each financial
measure, how do the associated management intention categories for each financial
measure of M&A success (Q1 Q6) align as an indicator of a possible outcome for
M&A success?
The final step in the process was to answer the research question number 7 by
examining the aggregate results of the difference of accounting ratios pre- M&A and
post-M&A event. Since this was the research question associated with the qualitative
portion of the study the focus was on the categories of intent associated with an
accounting ratio measure and the outcome (either positive or negative delta of pre-M&A
compared to post-M&A event) for each of the 35 M&A events studied and statistical
analysis is limited to descriptive statistics. Table 4 below illustrates the categories of
independent variables, the associated managerial intent category, the dependent variables
of accounting measures as well as the gross results of the accounting ratios post M&A
prior to statistical analysis.

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Table 4
Managerial Intention and Associated Accounting Measure
Independent Research Accounting Negative Positive

Variable Question (s) # Measure Results Results
Category (Dependent
Variable)
All categories 1 EVA 8 27
Synergy 2,3 EBIT, ROA 7 7
Market Power 4 NI 13 5
Market 5 OP 0 0
Discipline
Diversification 6 NS 2 8
A positive result means that the accounting ratio has increased due to the M&A
and a negative means that the ratio has decreased. There were a possible 42 outcomes, 22
or 52% of the computed accounting ratio results were negative and 20 or 48% of the
results were positive.
Table 5 contains results for the comparison of EVA and net sales deltas (pre-
M&A event compared to post-M&A event). The difference in the pre-M&A and post-
M&A EVA was positive in 8 out of 35 samples or 23% of the time while it was negative
in 27 of 35 or 77% of the samples. The difference in the pre-M&A and post-M&A net
sales was positive in 24 out of 35 samples or 69% of the time while it was negative in 11
of 35 or 31% of the samples. This corresponds to the finding of statistical significance
for this variable and is empirically consistent with those findings. The expectation here
would be a positive result since combining two independent firms should result in more
total aggregate sales that a single firm.

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Table 5
Results for EVA and Net Sales
EVA Change Net Sales Change
Positive Negative Positive Negative

Occurrences Occurrences Occurrences Occurrences
8 27 24 11
The statistical testing was a comparison of the average of the 2 years preceding an
M&A event to the average of the two years after an M&A event of the accounting ratio
measure assigned as a result of the content analysis to see if there was a significant
difference between the two results. A paired t-test was conducted against each of the
averaged results of the pre- and post-merger accounting ratio results. This type of
statistical test was extensively used in previous research which laid the foundation for
this study. A sample of some studies that used similar tests in their research papers were;
Agrawal and Jaffee (2003), Ahern and Weston (2007), Block (2000), Dodd (1980),
Kiymaz and Baker (2008), and Ramaswamy and Waegelein (2003). The final step of
analysis was a comparison of the intentions as determined qualitatively to the associated
accounting measures to determine if goals as stated by management could be associated
to results of the ratio computations.
Table 3 (referenced previously) and Table 6 (referenced below) encapsulate the
descriptive statistics and statistical results of the paired t-tests conducted in this study of
35 M&A events. The results in Table 5 show the descriptive statistics of the data
evaluated in this study. The paired data correspond to the study research questions as
follows: Pair 1, economic value added post-M&A event compared to pre-M&A event to
Research Question 1, Pair 2, earnings before interest and taxes post-M&A event
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compared to pre-M&A event to Research Question 2, Pair 3, return on assets post-M&A
event compared to pre-M&A event to Research Question 3, Pair 4, net income post-
M&A event compared to pre-M&A event to Research Question 4, Pair 5, operating profit
margin post-M&A event compared to pre-M&A event to Research Question 5 and Pair 6,
Net Sales post-M&A event compared to pre-M&A event to Research Question 6.
Table 6
Paired Samples Descriptive Statistics
Mean N Std. Deviation Std. Error Mean

POST:RQ1 32 35 15,444 2,610
Pair 1 EVA
PRE:RQ1 3,001 35 8,793 1,486
POST:RQ2 2,962 35 14,714 2,487

Pair 2 EBIT
PRE:RQ2 3,627 35 9,640 1,630
POST:RQ3 -.0304 35 .3267 .0552

Pair 3 ROA
PRE:RQ3 .0569 35 .0687 .0116
POST:RQ4 -387 35 9,953 1,682

Pair 4 NI
PRE:RQ4 1,351 35 2,217 375
POST:RQ5 9,996 35 18,428 3,115

Pair 5 OP
PRE:RQ5 8,546 35 14,927 2,523
Pair 6 Sales POST:RQ6 29,747 35 38,086 6,438

PRE:RQ6 25,364 35 36,712 6,206
It was evident in Table 6 that the means, standard deviations and average error of
the samples after the M&A events have changed. The first four pairs of data EVA, EBIT,
ROA, and NI means have been reduced and increased only in the final two pairs (OP and
Sales) while the standard deviation and errors have increases in every pair. This data
indicates that the overall effect of the M&A events on these sample companies has been
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negative even when the ratio outcome is still a positive number. Overall, these results
exhibit that there is no linkage between managerial intentions and financial results. This
can be attributed to a number of factors which will be discussed in Chapter 5. The
findings are consistent with expectations since this reinforces the previous research and
facts that 50 to 70% of M&A events fail to meet positive shareholder expectations.
The following is a summary of outcomes to research questions:
RQ1: This result is in alignment with expectations that EVA would not change
when comparing pre and post M&A event financial positions. This shows that the M&A
event did not add to the economic value of the combined companies and is the sign of a
failed M&A event.
RQ2: The lack of change in EBIT illustrates the lack of achievement of the
synergy intent by management. This means that the result of these M&A was a failure to
meet managerial objectives.
RQ3: The lack of change in ROA illustrates the lack of achievement of the market
power intent by management. This means that the result of these M&A was a failure to
meet managerial objectives.
RQ4: The lack of change in NI illustrates the lack of achievement of the synergy
intent by management. This means that the result of these M&A was a failure to meet
managerial objectives.
RQ5: The lack of management choosing market discipline as a strategy is
consistent with the non-significance of the statistical results.
RQ6: This was the only alternative hypothesis that there was support for in the
statistical testing. Empirically this would meet expectations since net sales of two
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separate entities when combined naturally equate to an increase over the two separate
entities prior to an M&A event.
RQ7: Overall, these results exhibit that there is no linkage between managerial
intentions and financial results. The findings are consistent with expectations since this
reinforces the previous research and facts that 50 to 70% of M&A events fail to meet
positive shareholder expectations as a result of management not aligning their goals with
shareholder goals.
Evaluation of Findings
The following is an evaluation of each of the seven research questions for this
study within the context of prior research. The expectation of this research was to find a
model which could help shareholders hold management more accountable for
establishing clear goals and measures to M&A pursuits. Since the results overall were
not statistically significant this would support the assertion that clear goals and measures
were not established in the M&A activity studied.
In research question number 1 EVA is found to be statistically insignificant when
compared pre and post M&A. The dependent variable of EVA was used to measure
shareholder return across all the samples in this study. The difference in the pre-M&A
and post-M&A EVA was positive in 9 out of 35 samples or 26% of the time while it was
negative in 26 of 35 or 74% of the samples. These findings are in line with Yooks study
(2004) and supported similar studies that used different methods of calculating
shareholder returns (Daly et al., 2004; Devos et al., 2009; Tuch & OSullivan, 2007).
This is in alignment with Yook (2004) and Dierks and Patel (1997) and their results
which supported the assertion that M&A activity does not add to EVA of a company.
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This is also consistent with the fact that there was little to no mention of EVA as a
strategic or tactical goal when content analysis of the 10-K statements was completed.
Research question number 2 shows EBIT to be statistically insignificant when
compared pre and post M&A. Chatterjee (2007) related to these findings showing that
synergy related savings are often illusive. He used examples such as AOL and Time
Warner and Rubbermaid, which are part of this sample, to illustrate the difficulty of
achieving synergistic savings through M&A. Fulghieri and Hodrick (2006) explained
this outcome in terms of managerial entrenchment as an extension of agency theory:
synergistic savings do not materialize due to managers protection of their best interests
over shareholders. Kursten (2008) determined that shareholders need managers to
provide specifics on where synergy savings will come from which supports the
formulation of a template for shareholders to use when voting on M&A activity.
Barragato and Markelevich (2008) extended the above concept and stated that identifying
the motive for M&A by management is critical for success.
Research question number 3 shows ROA to be statistically insignificant when
compared pre and post M&A. This confirmed the results of Agrawal and Jaffe (2003)
and Kumar (2009) who found no improvement with asset returns of companies involved
in M&A activity. These researchers also concluded that focusing on synergy results are
more important than focus on market power in M&A strategy (Agrawal & Jaffe, 2003;
Kumar, 2009).
Research question number 4 results indicated that the change in NI was
statistically insignificant when compared pre and post M&A. The consideration here can
be that near term the emphasis on stock gains focuses management on net income
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generation since this is directly related to earnings per share. This would then support the
findings of Block (2000) that these firms have an initial insignificant return and long term
negative outcomes. Since Guest et al. (2012) suggested that accounting rules allow for
short term manipulation of this measure this study used two measures from different
financial reports, net income and ROA, for this outcome to insure that effect was
minimized. Botsari and Meeks (2008) confirmed manipulation of net income by
acquiring companies as a strategy to increase stock price to de facto lower the price paid
in a stock purchase M&A this study found no such support for that strategy.
Research question number 5 showed OP to be statistically insignificant when
compared pre and post M&A. One can attribute the lack of change in OP to savings
being generated by lack of investments or avoidance of added costs. This would result in
operating profit not being changed because without the M&A activity it would have
decreased due to required investments and charges (Devos, et al., 2008). The lack of
change in OP could also be attributed to the lack of management discipline being the
driving force of the M&A which is supported by the qualitative analysis results of this
study.
Research question number 6 showed Net Sales to be the only statistically
significant result when compared pre and post M&A. This is expected to a certain degree
due to the diversification of the new entity into markets and with new products offered in
existing markets that would naturally lead to an increase in sales (Hoberg & Phillips,
2010). The elimination of a certain amount of competition through the M&A event
would also lead to this increase in sales in a consolidating industry (Marks & Mirvis,
2011).
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Research question number 7 was directed at establishing a connection between
the financial measures and the associated categories of managerial intent. It is shown
above that the six categories of measures were substantiated by prior research. Economic
value added for a general measure of value was established by Yook (2004) and Dierks
and Patel (1997) and was used to help measure the overall effectiveness of the M&A
activity. Earnings before interest and taxes aligned with research question 2 per
Barragato and Merkelevich (2008) as well as Chatterjee (2007). Return on investment
was used for research question 3 and was supported by the previous research of Agrawal
and Jaffe (2003) and Kumar (2009). Net income was used for research question 4 and
this is supported by Block (2000), Botsari and Meeks (2008) and Guest et al. (2010).
Operating profit was used to align with research question 5 and was supported by the
research of Devos et al., (2008). Net sales was aligned with research question 6 and
supported by the research of Hoberg and Phillips, (2010). These results are captured
below in Table 7 and the numbers discussed further as they are associated with each
managerial intent category.
Table 7
Numeric Results of Content Analysis (see Table 3)
Top content
Negative Positive
analysis
result result
results
Independent
Rank # of # of
Variable # of % %
# times times
Category times %
Market Power 1 18/35 51% 13 72% 5 28%
Synergy 2 10/35 29% 7 50% 7 50%
Diversification 3 7/35 20% 2 20% 8 80%
Market
Discipline 4 0/35 0% 0 0% 0 0%
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Market power was the number one ranked outcome of the content analysis results.
This reason for M&A activity is found in 18 out of the 35 sampled M&A events or 51%
of the sample. This dependent variable was measured against the change in the
independent variable of NI (net income). The change in NI was negative 13 out of the 18
occurrences or 72% of occurrences (see Table 3). The finding that market power was the
number one reason in this sample for pursuing M&As is supported by the prior studies of
Devos, et al. (2008); Hoberg and Phillips (2010); and Netter, et al. (2011).
Diversification was the second ranked outcome of the content analysis results.
This reason for M&A activity is found in 10 out of the 35 sampled M&A events or 29%
of the sample. This dependent variable was measured against the change in the
independent variable of NS (net sales). The change in NS was positive 8 out of the 10
occurrences or 80% of occurrences (see Table 3). The finding that diversification is the
second most often reason given in this sample for pursuing M&As is supported by the
prior studies of Hoberg and Phillips (2010), Marks and Mirvis (2011), Swaminathan, et
al. (2008).
Synergy was the third ranked outcome of the content analysis results. This reason
for M&A activity is found in seven out of the 35 sampled M&A events or 20% of the
sample. This dependent variable was measured against the change in the independent
variables of EBIT (earnings before interest and taxes) and ROA (return on assets). The
change in EBIT and ROA occurrences were evenly split at seven times negative and
seven times positive (see Table 3). The finding that synergy is the third most often
reason given in this sample for pursuing M&As is supported by the prior studies of
Chatterjee (2007) who suggested this is due to difficulties in identifying synergistic

134
savings before integration or completion of the M&A event as well as Devos, et al.
(2008), who determined that synergy is more related to cost avoidance which would also
be difficult to define pre-M&A. The lack of synergy being identified in management
statements may also be due to poor communications of intentions as documented by
Chakravorty (2012), Flostrand and Strom (2006), Sirower and Lipin (2003), and Walter
and Barney (1990).
The final independent variable of market discipline did not rank in the first choice
of any of the M&A events sampled. It is evident that this intention of management is
rarely found in the content analysis when reviewing the results and see that it is the last
ranked in 32 out of 35 M&A events sampled (see Table 2). This confirmed the finding of
Agrawal and Jaffe (2003) that investigated this concept and found no evidence that
ineffective management was a motivation for corporate M&A strategy. Further
confirmation is seen in the results of the Martin and McConnell (1991) study that
disproved the connection between management replacement post M&A as an indication
of market discipline and Philippatos and Baird (1996) who found no correlation of
managerial performance and M&A strategy.
The next step in the process was the quantitative analysis of the categorized
accounting measures of managerial intent was derived from the content analysis. The
analysis resulted in the acceptance of the null hypotheses of research questions 1 to 5 and
the rejection of the null hypothesis for question 6. This showed that there was not
significant statistical differences in the averages at a 95% confidence level of the various
accounting returns pre and post M&A but that there was a statistically significant
difference in net sales. This also illustrated how managerial intentions for M&A are not
135
aligned with creating shareholder value overall since the only significant change was
increased sales which did not lead to any significant change in items that created
shareholder value like EVA, NI or EBIT. This was supported by previous research
studies including; Daly et al. (2004), Kumar (2009), and Guest et al. (2010).
Summary
The findings of this study illustrated that management does not establish clear
outcomes for measuring success of M&A events since a clear alignment between motives
and measures was established but shows no positive change. The most often recognized
strategy is establishing a stronger market presence or power by acquiring or merging with
a competitive or complementary business. The quantitative findings of this study support
the lack of clearly achieving any positive difference when comparing pre and post M&A
events. These research findings are supportive of Guest, et al. (2010) that the impact on a
companys value of a company that is involved in M&A activity is slightly negative but
statistically insignificant.
The findings helped illustrate how a clearly articulated and defined outcome-
based strategy and measurement system could help improve the positive outcomes of any
given M&A event. This should lead to stakeholder oversight of management to insist on
and implement a specific metric for the given M&A strategy that can then be tied to
continued employment or compensation of top management. This study also supported
the development of systems like S-A-P-P framework developed by Mittal and Jain (2012)
for continuously monitoring managements performance in light of a proposed M&A
strategy. Ultimately, successful M&A activity will not happen if management does not
communicate at inception how the deal will be measured, tracked, and reported (Zollo &
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Meier, 2008). If the message to shareholders is unclear then the value may never
manifest itself (MacDonald, 2005).

137
Chapter 5: Implications, Recommendations, and Conclusions
The focus of this convergent parallel design mixed-methods study was to
determine if there was a relationship between managerial intention and M&A success to
ultimately help future stockholders hold management accountable for M&A success and
to help management to improve success rates of M&A activities. The sample used in this
study was a stratified purposeful sampling of 35 M&As of US-based companies through
the years 1998-2002. The intention of top management was determined by the use of
content analysis of published 10-K documents which eliminated self-attribution bias and
any potentially unethical interactions or harm to human subjects. A statistical analysis of
associated accounting measures found no positive change pre and post M&A which
supports the assertion of this author for the need of a process where shareholders can hold
management responsible for M&A strategy and eliminate any agency problems.
However, all studies have limitations, and the present study was no exception.
These limitations are shared by other studies and can be influenced by the interpretation
of M&A performance measurement as suggested by Meglio and Risberg (2011). The
limitations do not diminish the value of this study and offer opportunities for future
researchers to build on this model as intended. The central items that need to be
discussed are detailed below.
The small samples size of 35 M&As over 5 years may prove too narrow a focus
of this study but power calculations indicate the observations are adequate to allow for
proper assessment. The sample size was also dictated by the purposeful screen that
eliminated many M&A events during the time period studied to avoid adding
confounding variables and expanding the time period would have skewed results due to
138
exogenous circumstances. Similar studies have had comparable sample sizes: Chatterjee,
2007; Kabanoff and Daly, 2002; Kumar, 2009; MacDonald, 2005; McConnell, 1986;
Seth, et al., 2000; and Walter and Barney, 1990 to name a few.
The lack of personal interviews of management as to their objectives may be seen
as a limitation. Many times it was not possible to contact these individuals, and in some
cases, they were no longer with their respective companies. The possibility of self-
attribution bias was eliminated in this study by virtue of using 10-K statements which are
written at the time of these events and subject to government sanctions if incorrectly
stated. The material was also assessed with computer aided content analysis which helps
to insure consistency and minimize the occurrence of data manipulation (Kabanoff, 1996;
Neuendorf, 2002).
Unknown motivations of public officials that are otherwise left out of published
materials due to ulterior motives or subversive intent on the part of managers involved in
M&As are not addressed in this study. No study can account for managers that have
ulterior motives but this study does provide a framework to help hold these managers
accountable and to define parameters for M&A. This accountability should diminish the
chances for concealing motivations and, at a minimum, will hold executives responsible
for achieving stated strategies.
The method used in this study was unique in that it combines content analysis and
accounting data. It was possible that more effective accounting measures of M&A
outcome should be used to evaluate M&A outcomes. The outcomes used in this study
are generally accepted and verified as legitimate measures but these may not be suitable
139
in all instances. Future research should identify those methods and incorporate them
within the parameters stated in this study.
The time period of this study was tumultuous and potentially impacted by the
unusual circumstances such as attack of September 11, 2001 and market bubble of
internet era companies going public. However, there is no indication that any other time
period would be less influenced by other exogenous events. This actually substantiates
why a study should be conducted before this time period since the current period since
2002 has not been any more stable than prior periods and possibly less stable due to
world events.
Ultimately, however, all attempts had been made to reduce the limitations of this
study in comparison to previous studies. These limitations are seen as foundations for
future study and should not impact the legitimacy of the present studies findings. The
study of M&A is extremely complex and must be examined from different perspectives
(Zollo & Meier, 2008) and this study proposes an approach and perspective which is
unique in construct and application.
In this chapter, the implications of this study will be demonstrated as well as
recommendations for practical application of this study and future direction of additional
potential research. The research questions are exhibited within the context of outcomes
and previous research, the final model for application in M&A performance improvement
is assembled and suggestions for future research are defined.
Implications
The qualitative portion of this study included the use of content analysis to
demonstrate the need for management to formulate, articulate, and then demonstrate
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measures that align with strategy was one unique aspect of this study. Kabanoff and Daly
(2002) used this approach applied to 10-K statements to define espoused values of
management, Flostrand and Strom (2006) validated the use of non-financial information
as relevant to valuation practices, and Hoberg and Phillips (2010) applied this
methodology to M&A. This study is the first to use a combination of these approaches to
validate managerial intent in M&A and then extend that research to quantify the
accounting results in a screened subset of specific M&A events over a period of time.
The statistical results had the following implications;
M&A of economic value added (EVA) as a measure for shareholder return pre and post
M&A? The present study outcomes coincide with the findings of Guest, et al. (2010)
who found impact of M&A to be slightly negative and indicate that long-term the
findings of Loderer and Martin (1992) that returns are neither negative nor positive. The
differences between pre- and post-M&A events ratio computations of economic value
added (EVA) were established as a valid measure of financial performance by Yook
(2004) and Dierks and Patel (1997). In research question number 1 EVA was found to be
statistically insignificant when compared pre and post M&A. This is consistent with the
fact that there was little to no mention of EVA as a strategic or tactical goal when content
analysis of the 10-K statements was completed. This can lead one to the conclusion that
the use of EVA as a measure of success could help establish a benchmark to link
compensation for management that pursues an M&A strategy to align managements
interests with shareholders interests. Shareholders can demand that a certain metric of
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increased EVA within a certain time-period post M&A be used and tied to executive
compensation. Aligning compensation with EVA may help avoid any agency challenges
and create more positive M&A results by giving management outcome based targets for
pursuing a certain articulated M&A strategy (Nyberg, et al., 2010; Williams et al., 2008).
M&A of earnings before interest and taxes (EBIT) as a measure for synergy strategy pre
and post M&A? Since this study concluded that there was no significant change in EBIT
as a measure of a synergy strategy by management in pursuing an M&A this indicated
that the managerial intent of synergy was not achieved. This ratio would need to be one
focus of shareholders in keeping management accountable for positive M&A results
when the intent is synergy. Papadakis and Thanos (2010) put forth the concept of using
multiple criteria to measure performance so the measure of EBIT should definitely be one
of those criteria in a synergy related M&A strategy. Since the model developed here
utilizes multiple criteria to measure performance the use of this model may help
management focus more on obtaining synergistic savings in M&A strategy if that is the
intent that management pursues.
A further implication of the insignificant change in earnings before interest and
taxes is that synergistic savings are sometimes accomplished by cutbacks in investment
expenditures (Devos, et al., 2008). The result from this sample would further support the
premise by Devos (2008) that there are various sources of synergy savings and these
savings may not be evident in the two years studied here and may call for a longer time
period to be studied. The challenge here would be the confounding of the variable results
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due to other management imperatives undertaken as time increases the odds increase that
other activities will take place to impact the financial results.
M&A of return on assets (ROA) as a measure of market power strategy pre and post
M&A? Research question number 3 showed ROA to be statistically insignificant when
compared pre and post M&A. This confirms the results of Agrawal and Jaffe (2003) and
Kumar (2009) who found no improvement with asset returns of companies involved in
M&A activity. The implications of the statistical results regarding ROA changes in
M&As researched could lead to the assumption that this measure does not change due to
the inability of management to articulate this goal or properly measure the achievement
of a particular M&A strategy.
The lack of significance in changing this measure could also support the need for
additional criteria for further research and measurement of M&A success or possibly a
larger sample size to increase the possibility of statistical significance in the return on
assets ratio. The investigation of target and acquirer strategy prior to M&A may be
required here since in any M&A event the assets purchased should lead to an increase in
total combined value but possibly one that is best achieved in a purchase of companies
who have high strategic alignment as suggested by Swaminathan, et al. (2008). This
criterion of return on assets is nonetheless important as a success measure and could be
aligned with executive compensation to improve M&A performance as exhibited by
Ramaswamy and Waegelein (2003) in their study.

143
M&A of net income (NI) as a measure of market power strategy pre and post M&A?
The differences between pre- and post-M&A events ratio computations of NI were not
statistically significant (see Table 6) with a p-value of 0.274. Since the p-value is greater
than 5% then the null hypothesis cannot be rejected. This result should be combined with
research question 3 result since market power was being measured by both ratios.
Market power was the highest ranked intention for M&As in the qualitative section of
this study so a second accounting measure for this management intent seemed beneficial.
The focus on net income is the best linkage to the many stock market studies that have
been produced in the past since stock prices are a reflection of the markets perception of
earnings power (Barragato & Markelevich, 2008; Block, 2000). There is some debate on
the difference between profitability and share price market reaction post M&A (Guest, et
al., 2010) but this measure combined with return on assets should lend more credence to
these measures for managerial performance (Papadakis & Thanos, 2010; Schoenberg,
2006). The implication here is that this studys results may need to be combined with a
stock market study to verify that this measure is a valid measure of market power
strategy. It is recommended that further study take place on this intent since this study
has found market power intent to be the most referenced strategy by management in
pursuing M&As.
M&A of operating profit margins as a measure of market discipline strategy pre and post
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M&A? This ratio was able to be statistically analyzed even though it was not evidently
chosen as intent by management in M&A strategy. The lack of statistical significance in
the operating profit margins of the companies analyzed support the results of Philippatos
and Baird (1996), Doukas and Petmezas (2007) and Carroll and Griffith (2008) that
market discipline is not evident as an M&A intent of management. Ultimately, poorly
managed companies are not takeover targets for that reason alone and even if they were
management of the acquirer would not publicize this fact due to post-merger integration
needs (Agrawal & Jaffee, 2003; Chakravorty, 2012; Devos, et al., 2009). In other words
nothing is to be gained in pursuit of or communicating this type of strategy in public
since everyone would need to work together after the M&A event to insure success and
saying that you pursued a company because it was poorly managed is counter-productive
to a properly functioning post- M&A environment. A future study that helps define what
poorly managed companies look like from a financial perspective would also help in this
area since this intent cannot be properly articulated if the target cannot be defined as
poorly managed.
M&A of net sales (NS) as a measure of diversification strategy pre and post M&A? The
final area of research, net sales, turned out to be the only measure that was statistically
significant in post-merger outcomes. Marks and Mirvis (2011) suggest that M&A is the
quickest way to enter a new market or product space and thus would naturally lead to
incremental increases to net sales. Increased sales could also be the result of the type of
compensation offered by many companies based on this single metric and the effect that
145
would have on management intent as exhibited in the studies of Nyberg, et al. (2010) and
Jaggi and Dorata (2006). Further analysis of diversification strategy needs to be done
from the perspective of developing other types of measures for this strategy and to test
the findings herein.
Research Question 7: The overall question of this study was, based on the
differences determined for each financial measure, how do the associated management
intention categories for each financial measure of M&A success (Q1 Q6) align as an
indicator of a possible outcome for M&A success? The lack of statistical significance in
all measures except net sales indicates that managerial intentions for M&A do not align
with proven measures of financial success. The findings of this study are in alignment
with previous research that indicates most M&A activity results in failure to generate
added value for shareholders (Chakravorty, 2012; Daly, et al., 2004; Sirower &
Golovcsenko, 2004; Valant, 2008). The categories of managerial intent determined the
accounting measures for statistical analysis and since the results of the changes indicated
that there was not substantial change due to the M&A strategy the implications are that a
need exists to address the lack of change in financial measures. This lack of change
supports the use of the proposed model by stakeholders of a company where management
has chosen to pursue particular M&A strategy. Stakeholders can use this model as a way
to establish the firms financial goals for M&A, a method to test of communications
effectiveness of those goals, measurement of success in M&A pursuit which can then be
tied to compensation and other ways to align managerial intent with stakeholder needs.
146
Figure 2. M&A model for stakeholder/management alignment.
M&A Success Model
One outcome of this research is the development of a model to be used by
corporations to enable them to increase the chance of targeted and completing a
successful M&A strategy. Since more than half of M&A transactions resulted in failure
(Valant, 2008), with 64% failing to generate positive market returns for the years 1995 to
2001 (Sirower & Golovcsenko, 2004), the costs of failed M&As are so great that the
challenge to make them more successful is urgent (Lynch & Lind, 2002), for firms and
147
the economy (Fuller, et al., 2002), and for return for shareholders (Kursten, 2008). The
model developed here (see Figure 2) consists of five stages which when completed
should increase the chances of M&A success by addressing areas of concern from prior
research as well as extending findings of the present study.
Phase 1: Management establishes M&A goals
The general lack of definition of specific goals in an M&A by management has
been shown to lead to M&A failure (Daly, et al., 2004; Nyberg, et al., 2010). The way to
align management self-interest with shareholder interests and avoid the agency conflict
inherent in decisions of this magnitude is to clearly establish agreed upon goals prior to
M&A activity (Jaggi & Dorata, 2006). The incentives used to control risk in M&A will
surely be based on equity performance which can be driven by establishing specific goals
up front in the process (Nyberg, et al., 2010; Williams, et al., 2008).
Phase 2: Goals are linked to accounting measure
The accounting measures for success used in this study for each research question
began with economic value added to judge overall increase in the M&A resulting
combined firm (Yook, 2004) for research question one. Earnings before interest and
taxes were related to synergy results (Barragato & Markelevich, 2008; Gibson, 2009) for
research question two. Return on assets (Agrawal & Jaffe, 2003; Ramaswamy &
Waegelein, 2003) and net income as confirmation of market power strategy (Block, 2000;
Botsari & Meeks, 2008) associated with research question three and four respectively.
Operating profit (Sirower & Lipin, 2003; Devos. et al., 2009) related as an outcome
measure of market discipline in M&A in research question five. Net sales (Ghemawat &
Ghadar, 2000; Hoberg & Phillips, 2010) were used to reflect the outcome of a
148
diversification strategy associated with research question six. These ratio measures were
used in previous studies as noted and are also generally accepted in the field of
accounting to measure the various areas of financial statement performance (Gibson,
2009).
Phase 3: Stakeholders associate measures to compensation
It has been shown that alignment of managerial compensation and association
with attainment of multiple accounting measures is the optimal manner to align
managers to shareholders interests (Jaggi & Dorata, 2006; Nyberg, et al., 2010;
Williams, et al., 2008). This addresses the agency problem of managers only being
interested in their own well-being and not the shareholders best interests through the
alignment of managerial goals, outcomes, and compensation (Nyberg, et al., 2010).
Phase 4: Management communicates goals and measures
Communication of goals with the associated measure of success will positively
influence the organization and aid in integration focus (Chakravorty, 2012; MacDonald,
2005; Sirower & Lipin, 2003; Walter & Barney, 1990). If an investor monitors specific
goals aligned with measures success will likely increase (Zollo & Meier, 2008) while
communication to the organization helps focus people on a common plan (McConnell,
1986) and shareholders need this communication to understand the attempted value
proposition (Chakravorty, 2012).
Phase 5: Transparency and greater success results
Transparency of motives and goals for M&As can only lead to greater chance of
success due to multiple factors. There have been many studies that focused on the
cumulative abnormal stock returns and this measure needs to be improved by factoring in
149
more variables in the measurements and augmenting with accounting returns to help
improve M&A success (Dodd, 1980; Fuller, et al., 2002; Loderer & Martin, 1992).
Transparency of motives and alignment with accounting results will clearly communicate
to shareholders how the incremental value of the company will increase leading to higher
gains in stock returns (MacDonald, 2005).
Recommendations
Some of the results of conducting this study are recommendations for the practical
application of the model developed here and some potential areas for future study. This
section will be separated into those two areas of future potential. The intention is that
this paper will serve as a basis for research and practices that will lead to improvements
in the results of M&A financial performance.
Recommendations for practice. The evidence presented here indicates that
stakeholders require management to state specific goals in M&A strategy when seeking
approval to pursue an M&A. The model developed in this study can aid shareholders in
the identification of these goals which can form the basis for measurement of success
when they are associated with accounting ratios for measuring the outcome of that
strategy. Performance measures for successful M&A strategy are needed as established
in prior research (Connell, 2010; MacDonald, 2005; Marks & Mirvis, 2011; Mittal &
Jain, 2012) and validated with the results found in this study herein
The results of this study also show that M&A activity may not necessarily
maximize the wealth of shareholders. This emphasizes a need for managers to articulate
motives and develop accounting performance measures for M&A success so that
shareholders can validate the strategy being espoused. Further, to control for the natural
150
effects of agency conflicts, managerial compensation can be based on these accounting
measures of shareholder wealth defined within this study and supported by recent
research (Nyberg et al., 2010; Schoenberg, 2006; Williams et al., 2008). One
recommendation would be for stakeholders to use this model presented as a basis for
holding managers responsible for goal attainment and thus increasing the possibility of
success in pursuing a particular M&A strategy.
The lack of management using terms and terminology to clearly articulate a
specific strategy when pursuing M&A activity may also indicate the lack of a strategy or
lead to improper implementation of an implied strategy. The poor performance results of
M&A should not be surprising given that visible goal setting has not been enunciated
clearly to help create the vision for the new organization. This study demonstrates how
clear definition in 10-K documents of managerial intentions for pursuing M&A could aid
shareholders in holding management responsible for specific accounting metrics as well
as give the entire organization clarity in the new mission as a result of the M&A event.
This requirement for clarity in the 10-K statement may also come from government
sources who may add more specific requirements in 10-K statement formulation as
increased transparency for investors and shareholders in companies pursuing M&A
strategies.
Recommendations for future studies. Future researchers may wish to study
specific industries and investigate which measures may be more suitable than measures
utilized in this study for capturing added value in M&A strategy. Typical studies may
include, but not be limited to, using this methodology of study applied to specific
industries, use of this methodology to validate a survey of CEOs and CFOs regarding
151
their intentions for M&A, use this study methodology to concentrate on cross-border
M&A and further study of market discipline as an M&A strategy may be required due to
the results of this study. Managers know that their counterparts in target companies are
potential team members so disparaging remarks about their performance will not be
found in published documents. Market discipline or market undervaluation of a company
may also occur not because management is inept but may be that the market
misinterpreted the value proposition and investors overlooked potential of company.
This establishes a potential reason why further research is necessary in the area of market
discipline. Most importantly this research establishes new context and methodology for
future studies that wish to aid in the improvement of M&A financial performance.
Conclusions
The current study has achieved what was intended for the outset: illustrate a
process to measure the effectiveness of M&A intent by management to increase M&A
effectiveness. Combining content analysis to determine managerial intent and measuring
those intentions against specific accounting returns has established a valid methodology
for shareholders and future researchers to use to help maximize positive results in
companies that pursue M&A strategies. Further refinement may be necessary to establish
this model as a tool to be applied to M&A strategy but the validity of this approach has
been established.
The ultimate need realized within this study is for management to clearly establish
measureable goals for an M&A strategy, clearly articulate these goals to all stakeholders
and be held accountable or compensated within strict accounting returns as defined by
shareholders and stakeholders in the acquiring company. If and when a system such as
152
this model presented is enacted by companies or required by government regulators in
10-K filings; shareholders and executive leadership may see more positive results from
M&A activity. The amount of tangible economic value added lost is exhibited and if this
rather small sample is as representative as it seems, adoption of this model could possibly
lead to the addition of significant dollars added to our economy each year.
153
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Appendixes
162
Appendix A:
Worksheet to Capture Screened data from Mergerstat Database
Year Acquiring Company Dollar Reason for not selecting in Sample

Name value of sample Selection
merger number
1998 Exxon Corp 77,213.4 1998-1

SBC Communications 61,388.0 1998-2
British Petroleum Co PLC 56,482.0 Foreign Owned Company
Multiple Acquisitions in
Bell Atlantic Corp 52,845.8 Year
Financial Services
Nations Bank Corp 43,158.3 Company
AT&T Corp 37,017.3 Year
Financial Services
Travelers Group 36,031.6 Company
Financial Services
Norwest Corp 31,660.2 Company
Daimler Benz AG 31,156.0 Foreign Owned Company
Privately Owned
Berkshire Hathaway 20,947.2 Company
Privately Owned
USA Waste Services 18,726.8 Company
Financial Services
Banc One Corp 18,616.9 Company
American International Financial Services
Group 17,799.9 Company
McKesson Corp 14,142.8 Year
Tyco International LTD 11,158.5 1998-3
Deutsche Bank 8,863.4 Foreign Owned Company
Compaq Computer Corp 8,652.2 1998-4
Household International Financial Services
Inc. 8,626.0 Company
Financial Services
SunTrust Bank 8,590.0 Company
Albertson's Inc. 8,289.9 1998-5
Financial Services
Star Banc Corp 7,889.7 Company
Scottish Power 7,760.4 Foreign Owned Company
163
Kroger Co 7,531.6 1998-6

Texas Utilities 7,327.4 Foreign Owned Company
BCE 6,673.2 Foreign Owned Company
Financial Services
Washington Mutual 6,392.8 Company
Financial Services
Conseco 5,903.8 Company
Newell Co 5,799.2 1998-7
Privately Owned
1999 MCI WorldCom Inc. 115,972.6 Company
Pfizer 82,399.6 1999-1
Vodafone Group PLC 62,768.0 Foreign Owned Company
Qwest Communications
Inc. 34,748.0 1999-2
Viacom Inc. 34,454.0 1999-3
BP Amoco PLC 26,611.3 Foreign Owned Company
Monsanto Co 25,760.3 1999-4
Lucent Technologies 24,132.4 Year
Clear Channel
Communications 17,308.0 1999-5
Allied Signal Inc. 14,597.6 1999-6
Financial Services
Fleet Financial Group 12,894.8 Company
Motorola Inc. 11,466.7 1999-7
2000 America Online Inc. 101,002.5 2000-1
General Electric 44,156.9 Year
Duetsche Telekom AG 41,577.3 Foreign Owned Company
JDS Uniphase Corp 38,127.6 Year
Chevron Corp 35,761.0 2000-2
Financial Services
Chase Manhattan Corp 31,270.1 Company
Financial Services
Citigroup Inc. 26,415.5 Company
Financial Services
Firstar Corp 20,991.6 Company
Unilever NV 20,211.5 Foreign Owned Company
JDS Uniphase Corp 17,410.1 Year
VeriSign Inc. 15,289.3 2000-3
Philip Morris Inc. 14,740.1 Multiple Acquisitions in
164
Year
Viacom Inc. 12,798.8 Year
PepsiCo Inc. 12,775.7 2000-4
Financial Services
UBS AG 12,039.3 Company
Privately Owned
Private Group 11,661.6 Company
RJ Tobacco Holdings Inc. 9,763.6 Year
El Paso Energy 9,754.3 Utility
Financial Services
Axa SA 9,655.3 Company
Privately Owned
Phone.com 8,611.7 Company
Georgia Pacific 7,374.3 2000-5
Financial Services
Chase Manhattan Corp 7,371.5 Company
Tribune Corp 7,302.8 2000-6
Cap Gemini SA 7,023.0 Foreign Owned Company
International Paper 7,017.2 2000-7
Privately Owned
2001 Comcast Corp 44,047.1 Company
EchoStar Privately Owned
Communications 29,658.5 Company
Hewlett-Packard Co 25,734.6 2001-1
American International Multiple Acquisitions in
Group 22,378.3 Year
Amgen 15,877.7 2001-2
Phillips Petroleum Co 15,159.2 Year
Financial Services
First Union Corp 13,996.7 Company
Financial Services
Tyco International LTD 10,416.2 Year
Nestle SA 10,405.8 Foreign Owned Company
Vivendi Universal SA 10,300.0 Foreign Owned Company
Bristol-Myers Squibb Co 7,800.0 Year
Phillips Petroleum Co 7,254.9 Year
ALLTEL Corp 5,991.9 Year
165
Privately Owned
Danaher Corp 5,223.5 Company
Proctor & Gamble Co 4,950.0 Year
Schlumberger LTD 4,906.6 Foreign Owned Company
Financial Services
Privately Owned
Sanmina Corp 4,816.8 Company
RWE AG 4,591.6 Foreign Owned Company
Carnival Corp 4,587.8 Foreign Owned Company
Conoco 4,359.2 Foreign Owned Company
Societe Europceene Des
Satellotes 4,342.2 Foreign Owned Company
Equity Office Properties Privately Owned
Trust 4,009.1 Company
Valero Energy Corp 3,767.9 2001-3
Duke Energy 3,573.6 Utility
Privately Owned
Devon Energy 3,371.2 Company
AmeriSource Health Corp 3,240.9 2001-4
Medtronic Inc. 3,112.7 2001-5
Privately Owned
Tyco International LTD 3,033.9 Foreign Owned Company
Devon Energy 3,014.8 Year
P&O Princess Cruses 2,977.7 Foreign Owned Company
Mead Corp 2,949.0 statutory merger
Disney Co 2,900.0 Foreign Owned Company
Newmont mining 2,826.0 Foreign Owned Company
Reliant Resources 2,773.5 Utility
Comcast Corp 2,750.0 Year
Privately Owned
Broadcom Corp 2,573.8 Company
Santa Fe International Privately Owned
Corp 2,448.9 Company
Nortel Networks 2,425.7 Foreign Owned Company
166
BNP SA 2,403.0 Foreign Owned Company

Northrup Grumman 2,389.4 2001-6
Millennium
Pharmaceuticals 1,947.7 2001-7
2002 Pfizer 58,293.8 Year
Financial Services
HSBC Holdings 13,644.9 Company
Northrop Grumman Corp 7,645.4 Year
Welsh Carson Anderson Privately Owned
& Stowe 7,100.0 Company
AOL Time Warner 6,750.0 Year
Financial Services
Privately Owned
Blackstone Group 4,725.0 Company
Cadbury Schweppes PLC 4,200.0 Foreign Owned Company
SBC Communications 4,136.4 Year
Financial Services
Anthem Inc. 3,607.3 Company
Privately Owned
KKR & Co 3,600.1 Company
AOL Time Warner 3,600.0 Year
IBM Corp 3,500.0 Year
Privately Owned
South Africa Brewers 3,226.7 Foreign Owned Company
Privately Owned
BCE Inc. 3,201.8 Company
Privately Owned
Westfield Trust 3,053.1 Company
Privately Owned
Guidant Corp 3,000.0 Company
Univision
Communications 2,961.0 2002-1
Financial Services
M&T Bank 2,883.2 Company
Financial Services
JP Chase 2,870.0 Company
167
Fomento Economico 2,769.3 Foreign Owned Company

Bertelsmann AG 2,740.0 Foreign Owned Company
Nestle SA 2,600.0 Foreign Owned Company
Dryers Grand Ice Cream 2,341.6 Foreign Owned Company
Vodafone Group PLC 2,260.1 Foreign Owned Company
Donnelley Group 2,230.0 statutory merger
Publicis Groupe SA 2,215.1 Foreign Owned Company
EON AG 2,144.8 Foreign Owned Company
IBM Corp 2,050.2 Year
Hitachi Ltd 2,050.0 Foreign Owned Company
Privately Owned
Brascan Corp 1,996.3 Company
Privately Owned
Sears Roebuck & Co 1,860.8 2002-2
Royal Dutch Petroleum 1,757.0 Foreign Owned Company
Privately Owned
Privately Owned
Bain Capital 1,654.4 Company
ALLTEL Corp 1,650.0 Year
The Limited 1,638.2 2002-3
Financial Services
Bank of America 1,578.8 Company
Dynergy 1,500.0 Utility
B F Goodrich 1,500.0 Year
ING NV 1,500.0 Foreign Owned Company
Financial Services
State Street Group 1,500.0 Company
Financial Services
Morgan Stanley 1,474.9 Company
Privately Owned
eBay Inc. 1,432.1 2002-4
Anglo American 1,420.0 Foreign Owned Company
Goldman Sachs 1,362.0 Financial Services
168
Company
Microsoft 1,318.6 Foreign Owned Company
Financial Services
Ameritrade 1,300.0 Company
DelMonte Foods Co 1,255.0 2002-5
Privately Owned
Pharma Services 1,250.1 Company
Financial Services
Financial Services
Tesoro Petroleum 1,225.0 Foreign Owned Company
Parking International 1,200.0 Foreign Owned Company
Privately Owned
Enterprise Products 1,200.0 Company
Pepsi Bottling group 1,142.2 Foreign Owned Company
Privately Owned
L-3 Communications 1,130.0 Company
Privately Owned
Booth Creek 1,130.0 Company
Privately Owned
HCA Inc. 1,125.0 Company
Financial Services
Prudential Financial 1,112.7 Company
Intersil Holdings Corp 1,075.3 2002-6
Williams Cos Inc. 1,000.0 2002-7
Appendix B:
Categories Related to Key Words and Phrases
Category Key words and phrases
Synergy process improvements

shared resources
redundancies
pooled negotiating power
vertical integration
gain efficiencies
cost-cutting
cross-selling opportunities
cross promotional opportunities
Market Power improve competitiveness

consolidation
deregulation
expand capacity
meet competition
industry challenges
industry changes
use acquired expertise
economies of scale
Market
Discipline market erosion
replace management
change mission
lack of confidence
opportunity to purchase at
discount
capture value
Diversification market penetration

growth
market expansion
reduce risks and costs
grow product portfolio
expand customer base
170
Appendix C:
Worksheet to Capture Rank Order of Content Analysis
Sample Synergy Market Market Diversification

Number Power Discipline
Rank of Rank of Rank of Rank of Content Top Ranked Category
Content Content Content
1998-1 1 2 4 3 Synergy
1998-2 3 1 4 2 Market Power
1998-3 1 2 4 3 Synergy
1998-4 1 3 4 2 Synergy
1999-1 2 3 4 1 Diversification
1999-6 1 2 4 3 Synergy
2000-1 1 2 4 3 Synergy
2000-4 1 3 4 2 Synergy
2001-4 1 3 4 2 Synergy
171
Appendix D:
Worksheet to Capture Pre M&A Accounting Ratios
Sample Economic Earnings Return on Net Operating Net Sales

Number Value Before Assets Income Profit (NS),
Added Interest & (ROA), (NI), (OP), PREA+PR
(EVA), Taxes average PREA+ PREA+PR ET
PREA+PR (EBIT), PREA+PR PRET ET RQ 6
ET PREA+PR ET RQ 4 RQ 5
RQ 1 ET RQ 3
RQ 2
1998-1 49,243 56,361 0.14 10,473 88,071 209,450

1998-2 11,100 12,760 0.08 8,104 13,423 39,608
1998-3 347 1,034 0.06 595 3,335 11,450
1998-4 1,888 2,376 0.07 1,601 9,479 36,102
1998-5 1,497 1,343 0.07 763 8,422 32,089
1998-6 264 751 0.05 425 7,391 29,442
1998-7 859 1,114 0.08 618 2,101 5,431
1999-1 3,040 4,221 0.15 3,850 17,259 21,876
1999-2 1,868 702 (0.13) 649 1,865 4,834
1999-3 1,391 791 0.01 556 1,861 17,477
1999-4 102 732 0.03 555 8,634 14,753
1999-5 203 256 (0.00) (76) 1,204 2,208
1999-6 3,876 4,425 0.10 3,023 8,782 37,827
1999-7 (1,987) 408 0.01 121 9,256 31,472
2000-1 12,838 2,547 0.04 807 5,956 18,550
2000-2 1,879 3,729 0.04 2,159 15,142 45,637
2000-3 (1,809) 12 0.13 11 133 394
2000-4 2,196 3,263 0.13 2,387 15,122 26,141
2000-5 864 1,685 0.03 679 5,186 22,475
2000-6 1,038 2,006 0.16 1,785 3,056 6,008
2000-7 (765) 1,448 0.01 369 7,037 29,737
2001-1 12,967 13,083 0.04 2,507 22,381 86,074
2001-2 1,033 1,635 0.17 1,217 3,580 3,824
2001-3 629 1,122 0.05 485 4,512 26,816
2001-4 226 (18) 0.10 (258) 449 32,295
2001-5 640 1,290 0.15 820 5,063 4,877
2001-6 90 1,185 0.04 631 2,289 9,585
2001-7 (696) (503) (0.12) (412) (70) 271
2002-1 37 224 0.03 122 637 1,115
172
2002-2 (1,501) 1,753 0.02 1,080 15,092 42,474

2002-3 952 1,633 0.16 919 5,069 14,609
2002-4 (231) (55) 0.01 (69) 462 650
2002-5 1,592 1,409 0.06 677 3,423 10,906
2002-6 (232) (8) 0.02 31 341 513
2002-7 (413) 2,234 0.01 82 3,164 10,755
173
Appendix E:
Worksheet to Capture Post M&A Accounting Ratios
Post-merger results averaged for 2 years after

M&A event
Economic Earnings Return Net Operating Net Sales

Value Before on Income Profit (OP), (NS)
Added Interest & Assets (NI), Post M&A 2 Post
(EVA), Taxes (ROA), POST year avg M&A 2
RQ 1 (EBIT), RQ 3 RQ 4 RQ 5 year avg,
RQ 2 RQ 6
Sample
Number
1998-1 78,859.9 83,338.0 0.15 21,650.0 106,254.5 209,100
1998-2 1,811.5 7,270.0 0.09 8,063.0 11,170.5 50,504
1998-3 903.4 3,832.6 0.08 2,771.0 9,532.1 30,714
1998-4 (964.0) 904.5 0.02 569.0 9,227.0 33,785
1998-5 611.6 1,900.0 0.04 679.5 10,015.0 35,653
1998-6 63.1 1,305.0 0.02 430.0 11,527.5 47,176
1998-7 (302.1) 458.5 0.04 258.5 1,781.0 6,823
1999-1 5,702.9 8,055.0 0.16 5,757.0 25,786.5 30,807
1999-2 (9,037.9) (2,019.5) (0.03) (2,052.0) 1,321.5 18,153
1999-3 (3,485.1) 4,045.8 (0.01) (519.8) 1,390.6 21,633
1999-4 (782.4) 398.5 0.02 222.0 2,684.0 5,478
1999-5 (6,791.1) (179.5) (0.01) (447.6) 1,967.5 6,658
1999-6 (301.2) 1,431.0 0.03 780.0 4,578.0 24,338
1999-7 (4,578.2) (1,297.5) (0.03) (1,309.5) 11,255.5 33,792
2000-1 (39,221.4) (19,878.5) (0.32) (51,815.0) 16,639.5 39,064
2000-2 1,202.5 6,922.5 0.03 2,210.0 35,999.0 101,729
2000-3 (9,696.3) (9,106.2) (1.84) (9,158.6) 645.1 1,103
2000-4 2,840.1 4,375.5 0.13 2,987.5 13,188.5 24,312
2000-5 (2,458.4) (401.5) (0.02) (571.0) 5,448.0 24,144
2000-6 (439.1) 855.5 0.02 250.9 2,678.0 5,319
2000-7 (2,643.5) 409.0 (0.03) (1,042.0) 6,837.0 25,670
2001-1 (4,726.7) 942.0 0.01 818.0 17,000.0 72,704
2001-2 (2,126.7) 1,153.4 0.00 433.8 5,901.3 6,940
2001-3 (476.8) 846.5 0.02 356.5 2,289.3 33,508
2001-4 93.3 800.8 0.03 393.1 2,135.8 47,446
2001-5 943.0 1,939.7 0.11 1,291.9 5,266.5 7,038
2001-6 (1,412.6) 1,464.5 0.01 465.0 3,493.0 21,706
2001-7 247.4 (589.5) (0.15) (537.1) 339.2 393
174
2002-1 (487.2) 421.0 0.03 205.7 960.4 1,549

2002-2 (620.1) 842.5 0.06 1,445.0 12,497.5 38,612
2002-3 382.9 995.0 0.10 711.0 3,314.5 9,171
2002-4 (87.5) 844.2 0.09 610.0 2,203.0 2,718
2002-5 467.6 1,276.5 0.07 685.3 3,010.4 8,326
2002-6 (281.6) 45.0 0.02 43.3 292.7 522
2002-7 (2,093.8) 80.9 (0.01) (164.3) 1,222.8 14,556
175
Appendix F:
Worksheet to Capture Delta of (Post minus Pre-M&A) Accounting Ratios
Averaged Post-M&A minus Pre-M&A

results
Economic Earnings Return Net Operating Net Sales
Value Before on Income Profit (NS),
Added Interest Assets (NI), (OP), delta
(EVA), & Taxes (ROA), delta delta
delta (EBIT), delta
Sample delta
Number
1998-1 29,617 26,978 0.003 11,177 18,184 (350)
1998-2 (9,288) (5,490) 0.008 (41) (2,252) 10,896
1998-3 556 2,799 0.012 2,176 6,197 19,264
1998-4 (2,852) (1,471) (0.049) (1,032) (252) (2,317)
1998-5 (885) 557 (0.024) (84) 1,594 3,564
1998-6 (200) 555 (0.023) 5 4,137 17,734
1998-7 (1,161) (655) (0.045) (359) (320) 1,392
1999-1 2,663 3,835 0.015 1,908 8,528 8,932
1999-2 (10,906) (2,721) 0.100 (2,701) (544) 13,318
1999-3 (4,876) 3,255 (0.020) (1,076) (470) 4,156
1999-4 (884) (334) (0.008) (333) (5,950) (9,276)
1999-5 (6,994) (435) (0.008) (372) 763 4,449
1999-6 (4,177) (2,994) (0.066) (2,243) (4,204) (13,490)
1999-7 (2,591) (1,706) (0.039) (1,431) 2,000 2,320
2000-1 (52,059) (22,426) (0.359) (52,622) 10,684 20,514
2000-2 (677) 3,194 (0.015) 51 20,857 56,092
2000-3 (7,887) (9,119) (1.973) (9,170) 512 708
2000-4 644 1,113 0.006 601 (1,933) (1,829)
2000-5 (3,322) (2,087) (0.048) (1,250) 262 1,669
2000-6 (1,477) (1,150) (0.145) (1,534) (378) (690)
2000-7 (1,878) (1,039) (0.038) (1,411) (200) (4,067)
2001-1 (17,694) (12,141) (0.027) (1,689) (5,381) (13,371)
2001-2 (3,160) (482) (0.166) (783) 2,321 3,116
2001-3 (1,105) (275) (0.028) (129) (2,222) 6,692
2001-4 (132) 819 (0.069) 651 1,687 15,151
2001-5 303 650 (0.034) 472 203 2,161
2001-6 (1,502) 280 (0.027) (166) 1,204 12,122
2001-7 944 (87) (0.034) (125) 410 123
2002-1 (524) 197 (0.000) 84 323 434
2002-2 881 (910) 0.033 365 (2,594) (3,862)
176
2002-3 (570) (638) (0.063) (208) (1,755) (5,438)

2002-4 144 899 0.075 679 1,741 2,068
2002-5 (1,124) (133) 0.016 8 (412) (2,581)
2002-6 (49) 53 (0.003) 12 (48) 9
2002-7 (1,681) (2,153) (0.012) (246) (1,942) 3,801

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Mergers and Acquisitions: Examining Managerial Strategy Connection to Post

Transaction Accounting Measures

Submitted to Northcentral University

Graduate Faculty of the School of Business and Technology Management

DOCTOR OF BUSINESS ADMINISTRATION

Prescott Valley, Arizona

Mergers and Acquisitions: Examining Managerial Strategies Connection to Post

Transaction Accounting Measures

Member: Becky Takeda-Tinker, Ph.D.

Member: Ying Liu, Ph.D.

currently fails to be productive at rates of 50 to 75%. Agency theory established a

parallel design mixed study was to examine a purposeful sample of 35 US domestic

relationship between managerial intention as stated in Securities and Exchange

measure the range of achievement of managerial strategy by relating the objectives of

M&As through senior managements own words as published in regulatory documents

and the evidence of achievement of those intentions through analysis of financial

statements. M&As represent an extreme commitment of company resources and focus,

so the objectives and outcomes of management M&A decisions need to be evaluated

to which there is an alignment between what senior management has communicated to

measures is established but accounting measures related to success show no positive

foundation for future research.

List of Tables ................................................................................................................... viii

List of Figures .................................................................................................................. viii

Chapter 1: Introduction ....................................................................................................... 1

Chapter 2: Literature Review ............................................................................................ 24

Chapter 3: Research Method ............................................................................................. 68

Chapter 4: Findings ......................................................................................................... 115

Chapter 5: Implications, Recommendations, and Conclusions ...................................... 137

References ....................................................................................................................... 153

Appendixes ..................................................................................................................... 161

Table 1: Dictionary of Content Analysis Categories .......Error! Bookmark not defined.6

Figure 1: Mixed method study design flow chart. ........................................................... 80

The managerial prerogative of engaging in mergers and acquisitions (M&As) over

Song, & Pettit, 2000).

The effect of espoused values pre-merger on companies related to the post-merger

understanding a relationship between management values and accounting results. These

cannot overlook in the study of M&As (Daly et al., 2004).

and of the stakeholders involved in the transactions (i.e., shareholders, employees of

possible cause for the failure of M&As.

M&As caused by the inability of shareholders and managers to adequately assign

performance measures based on stated management strategies (Cartwright & Schoenberg,

proposed by management (Kursten, 2008).

The purpose of this convergent parallel design mixed method study of a

and the destruction of shareholder value in approximately 44% of all M&As. It is

adequately assign performance measures based on stated management strategies in their

Individual M&As were associated with a set of independent variables noted as

by using their method of ascribing values to companies to the determination of

management intentions and measuring those intentions to deliver positive financial

outcomes post-merger is critical to understanding M&A failures and objectives with

events (Paulter, 2003).

content analysis are encouraging for gathering top-level executive intentions as

articulated in public documents to shareholders and government authorities while

defining managerial intentions in the present study.

efficiencies by elimination of overlap in the combination of two separate entities (Chang,

improvements, shared resources (Fulghieri & Hodrick, 2006), redundancies (Chatterjee,

(Chatterjee, 2007), cross-selling opportunities (Mukherjee, et al., 2004), and cross

promotional opportunities (Mukherjee, et al., 2004).

Market power was defined as the attempt by a company to limit competition in a

to attaining competitiveness through higher market share or position as studied by Walter

and Barney (1990), trying to achieve comparative advantage as demonstrated by Amihud,

marketplace as illustrated by Philippatos and Baird (1996). These studies contributed to

improve competitiveness, deregulation, meet competition, industry changes, industry

challenges, use acquired expertise, and scale.