The Impact of Mergers on Firm Performance
during the Asian Financial Crisis

(joint with Brijesh Pinto )

This paper provides an empirical analysis of the effects of merger and acquisition (M&A) on firm performance in a sample of publicly listed companies from five East Asian countries during the financial crisis episode. In particular we compare the growth rates of sales during the 1996-2003 period of domestic firms that merged with or were acquired by a foreign firm with those that did not. To control for the selection bias we use propensity score matching techniques. We first estimate the propensity score for a domestic firm to be involved in a M&A and then match firms using nearest neighbor, radius matching and kernel matching methods. We find that M&A had a significant positive impact on firms performance independently of the matching method that we use. In our Probit regressions we find that a low liquidity is strongly associated with a higher probability of M&A similarly to Aguiar and Gopinath (2005). We argue that the findings in this paper support liquidity-based explanations of the East Asian crisis. 

Summary of the propensity score estimation results. Mergers did have a positive and significant effect on the performance of  firms in East Asia during the financial crisis.  One interpretation of this result:  an improvement in a firm's liquidity had a positive effect on its performance. In this respect   the findings in this paper support liquidity-based explanations of the East Asian crisis.