Effects of target firm's inventory turnover on post-merger and acquisition performance

Abstract

Firms use merger and acquisition (M&A) as a strategic tool to restructure their business. We explore the factors that determine the success of M&A in manufacturing. The literature has highlighted financial variables as success factors. However the literatures have not considered how operational factors of target firm have effects on the post-M&A performance of the buyer firm. Thus, we hypothesise that operational factors of the target firm also affect the M&A performance. In particular, we look into three different types of inventory, i.e., raw material, work-in-process, and finished goods, simultaneously. Then, we put forth that the turnover of the target firm's work-in-process inventory, which directly reflects its operational efficiency, is the most important factor. Thus, we conclude that in addition to financial factors, the target firm's operational efficiency determines the M&A performance. We elaborate on the analysis results and discuss economic as well as managerial implications.