MERGER AND ACQUISITION AND FIRM’S PROFITABILITY: A COMPARATIVE STUDY OF PRE AND POST MERGER PROFITABILITY OF FIRMS IN PAKISTANI TEXTILE SECTOR

Abstract

This study has been carried out to evaluate the impact of merger on firm’s profitability in Pakistani textile sector. Literature suggests inconclusive and limited research in this regard. To understand the impact of merger on firm’s profitability three years pre and post-merger profitability measures (ROA, ROE, NPM) have been considered and mean values and difference of mean values have been compared for these profitability measures. For this purpose paired sample t-test has been applied. A total fourteen mergers taken place between 1995 and 2010 have been taken into account. The findings of study are in alignment with the previous research i.e. inconclusive towards this end. However, in majority of cases the impact of merger on firm’s profitability is negative but insignificant. This negative impact may be due to the fact that many of the mergers took place with the firms which were declared as sick units and hence negatively affected the profitability. This suggests more research efforts to enrich our understanding that why do companies merge if the merger is not this much significant to firm’s profitability.