engleski

The analysis of takeover effects on economies of scale: Evidence from Croatian target companies

Economies of scale are often given as s reason for companies to involve in takeovers, yet empirical analysis of their impact is rare. Therefore, this study aimed to contribute to analysis of takeover effects solely on this performance indicator. Economies of scale are estimated as a ratio of total costs to total revenues showing the amount of funds that a company needs to invest in order to obtain one unit of revenue. T-test for paired samples was used to test for changes in economies of scale of target companies in period from year t-1 to year t+3, where t denotes the year of a takeover. This test was used in two different ways. The first method involved testing the difference between the values of economies of scale indicators for target and peer companies separately for each year (t-1, t, t+1, t+2, t+3). Therefore, this test was named the sequence test. The second method used t-test for paired samples to test the significance of the difference between the value of indicator of economies of scale in year t+3 and its value in year t-1 and was named the leap test. Besides measuring whether there was a change in economies of scale, this study analysed important determinants of economies of scale for target companies. Ten dynamic panel models (using two-step Arellano–Bond GMM estimator) were formed to test whether profitability, market power and R&D have a statistically significant influence on economies of scale. Profitability was measured with profit margin, EBITDA margin, EBIT margin, ROE and ROA. Two indicators of market share (a company’s share in operating revenues and sales of all companies in industry, when observed at 3-digit level of NACE Rev. 2 classification) were used as a proxy for market power. Due to lack of information on R&D spending for each company, share of intangible asset in total asset was used as a proxy for R&D. The research was performed on the sample of Croatian companies, which were taken over in the period from year 2003 to 2008. Control group consisting of peer companies was also formed using Croatian companies but with strict criteria according to which peer companies were not involved in takeovers in period from year t-3 to year t+3. A peer company was assigned to each of the target companies according to its appropriateness of three segments: a) industry classification, b) the size of the company and c) company’s performance. Year t-1 was chosen as the base year for selecting peer companies, i.e. forming a control group, in order to avoid a strong effect of takeover in the year of its implementation.

ECONOMIES OF SCALE; TAKEOVERS; TARGET COMPANIES; PEER COMPANIES

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