Mergers and Acquisitions in Relation to Economies of Scale and Profitability : An Analysis

Among other reasons, the aim to gain efficiency and increasing profitability are generally cited as important reasons for the firms to undergo mergers. Mergers and Acquisitions (M&As) have been considered as an important means through which companies can achieve economies of scale, remove inefficient management or respond to economic shocks. In this paper, an effort has been made to analyze the impact of M&As on the efficiency of seventy seven acquiring firms undertaken for the study in terms of scale economies and profitability. For the acquiring firms in the year 1999, the time period 1996-99 has been taken as pre-merger period and 2000-04 as post-merger period. The pre-merger and post-merger period for firms in year 2000 has been taken as 1996-2000 and 2001-04, respectively. The study indicates that M&As have no significant positive impact on the firms under study. It can be concluded from the discussion related to the results of the study that majority of the firms under study have experienced diseconomies of scale and profitability of many of the firms have declined during the post-merger years