Executive Summary

Editor Editor

Abstract


This study uses accounting based measure to draw implications regarding the performance of the acquired firm. The data were collected for each acquired listed firm for the five years before and five years after the takeover. Only publicly listed Malaysian acquired company whose chief executive officer and / or a majority of its Board members have substantially changed were selected to better reflect the performance of the respective management pre and post takeover. The performance of the companies were measured by the changes in the earning per share, return on equity, return on capital employed, and return on total asset before and after acquisition. In contrast to the actual performance
of the companies, the results have shown that the acquisition of public listed companies did not improve the earning performance after the takeover although the investor's perception on the value of the target increased.
Reasons as to the poor performance after the takeover was further substantiated by looking at the differences in the average ratios of capital structure before and after the takeover. The result showed that a low debt ratio
gives greater capacity for the target firm's ability to borrow. With tax deductible interest, increase in debt capacity increases the after tax value of the firm.
However, this finding may imply an increase reliance on debt by the new management did not actually produce good earning performance.The decline in earning performance ratio could be explained by the
fact that all the takeover sample except one are of a conglomerate type. Secondly, most of these acquisition have been financed by the issue of shares by the bidder to the target's shareholders, resulting in dilution on earning
performance


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