Accounting metrics as critical factors affecting financial performance: Evidence from M&A in Mexico

Abstract

Mergers and acquisitions operationes in Mexico has been increasing in recent years. Literature´s opinion is divided among results on financial performance after the acquisition, there is evidence of gains and losses depending on several characteristics of the merger like the way of payment, the operation and financial synergies, and the macroeconomic scenario. The risk-return relationship has been estimated efficiently by the CAPM from Sharpe (1964). The model assumes mean-variance efficiency in market equilibrium under uncertainty, considering that all systematic risk is measured by the model’s beta. Literature supports that accounting and market metrics are proper measuring tools for financial performance analysis. Synergies are the main motive for acquisitions; one way of analysis is by comparing the explicatory power of accounting metrics before and after the acquisition process related with the financial performance of the acquiring firm. Accounting metrics consider fundamental variables related with the firm’s financial statements data and explain in an efficient manner, any change on the financial performance after the merger process. For acquiring firms quoting on the Bolsa Mexicana de Valores that had an approved acquisition by the Comisión Federal de Competencia Económica during 2010 and 2011, the accounting metrics ROA and ROE using size and debt as proxy variables, show significant positive correlation with the market capitalization.