“Using managerial and market tools to measure the impact of acquisition operations on firm performance”

This paper aims to investigate and evaluate the effect of pre- and post-mergers and acquisitions (M&A) on non-financial Egyptian firms’ performance using a balanced scorecard (BSC), as well as to empirically investigate the impact of M&A on share- holder wealth using cumulative abnormal returns (CAR). The paper is limited to non-financial firms listed on the Egyptian stock market (EGX) that have undergone acquisition operations during the time specified in the paper from 2003 to 2016. Four perspectives for the BSC are assessed before and after the acquisition operations to evaluate performance. The final sample for the BSC appraisal is 12 companies for 12 acquisition operations, while the sample for shareholders’ wealth consists of 10 compa- nies. The difference in the sample is that some companies became out-of-counter after the M&A process. Cumulative differential analysis and graph observation show prefer- able values for post-acquisition operations versus pre-acquisition operations for the three non-financial perspectives, namely Customer satisfaction, Learning and growth, and Internal business process, and for two financial perspectives, namely Sales and Profitability. The results show preferable values for pre-acquisition operations for two financial perspectives: Liquidity and Market value. The T-test results failed to estab-lish a relationship between M&A and enhancing BSC perspectives. The results could not find any evidence to support the impact of pre-post M&A on the shareholders’ wealth. The relationship between BSC before and after M&A and CAR is tested using a multiple regression model. The results show a significant relationship only between shareholder wealth and the Learning and growth perspective.


INTRODUCTION
Recent rapid changes in the global business environment force shareholders and managers to make quick decisions to cope with the global technological and strategic changes. Mergers and Acquisitions (M&A) is a vital way to restructure corporations and adjust their property and industrial structure to increase competitive advantage through improving overall performance. M&A have become an inevitable choice for efficient resource allocation and enterprise development under the economic globalization (Chen, 2013). Companies started to combine together to avoid numerous risks evolved nowadays.
Traditionally, ratio analysis was a commonly used tool for firm' performance evaluation. Financial ratios measure the inside operation efficiency and profitability and ignore non-financial perspectives, systematic risk and long-term performance, focusing only on short-term performance. Accordingly, organizations started to use strategic managerial tools such as balanced scorecard (BSC) that take both financial and non-financial perspectives for more consistency and completeness, and to capture an overall view for the organization's value-creat-

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
M&A are explained by a plenty of explanatory theories. In the efficient market, the stock prices respond to the company's announcement (Fama & French, 1969), and thus, an action like M&A would have a great impact on the company's value. In an efficient capital market, M&A can led to either "wealth maximization" or "wealth minimization" through the finding of positive AR or negative AR around announcement days for the company acquirer (Chen et al., 2011). AR is useful in measuring the performance of securities or portfolio when compared to the overall market. AR helps in analyzing portfolio management performance based on risk-return basis to determine to what extent investors are compensated for the selected risk level (Rani et al., 2015).
From the human side, M&A challenges and management problems can be explained by six theories (anxiety theory, social identity theory, acculturation theory, role conflict theory, job characteristics theory, and organizational justice theory), according to Seo and Hill (2005) who integrated those theories into one conceptual framework to explain behavioral and psychological effects for M&A. Anxiety theory is concerned with employees' uncertainty and the impact of the M&A decision on their careers. Social identity theory describes how employees' distinctive characteristics and attributes affect the M&A adoption. Acculturation theory is concerned with the differ-ences in the cultures emerged from combination between different companies. Both role conflict and ambiguity job characteristic theories define the M&A post actions regarding the role of expectation ambiguity and the reflection in job characteristics and work environments respectively. Organizational justice theory also describes the fairness of employees' treatment after M&A.
In last four decades, numerous studies have been directed towards M&A. Several studies have been proposed and studied the economic impact of M&A on both performance evaluation and shareholder wealth. Most researchers have examined a critical question regarding whether the merging or acquiring company achieves the expected results or not. Different measures have been postulated for analyzing M&A success both in the short and long term.
Among the studies examining the impact of M&A on the firms' performance in developing countries is Lois et al. (2021) who used the profitability ratios to study the impact of M&A on 50 post-mergers' performance to compare pre-and post-merger firm profitability around M&A announcements of Greek listed firms in the short and long run. They found no improvement in the short-run performance and decrease in the long-run performance during the financial crisis. They could not find an impact for the method of payment, target's production line, or the internationalization of M&A.
In the same line, Grigorieva and Petrunina (2015) examined the performance of 80 M&A operations in emerging capital markets based on the economic profit model, and they found a declining value post-M&A for combining firms.
In contrast, these three studies concluded that the acquiring firms' overall performance had improved in the post-merger years ( According to the previously discussed literature, the following hypotheses are developed to be tested: There is a significant positive relationship between M&As and financial performance.
There is a significant positive relationship between M&As and customer satisfaction.
There is a significant positive relationship between M&As and learning and growth performance.
There is a significant positive relationship between M&As and internal business process performance.
H 5 : There is a significant positive relationship between M&A and increased shareholder wealth.
H 6 : There is a significant positive relationship between BSC perspectives and shareholder wealth.

METHOD
The paper follows the deductive approach, which is composed of two parts: the first is a theoretical study and literature review used to examine the impact of M&A on the performance and shareholder wealth in the Egyptian market. For the purpose of this paper, data was collected from relevant journal articles, books, and historical studies. These sources provided the background information required to identify gaps in literature and develop the collection of data. The second part is an empirical part, which consists of three sections. First, using BSC to evaluate the effect of pre-and post-acquisitions on non-financial Egyptian firms' performance; second, to empirically investigate the impact of M&A on shareholders' wealth using CAR, and third, to test the relationship between BSC perspectives of pre-post M&A and CAR 60 and 120 using a multiple regression model for acquiring companies.
The paper is limited to non-financial firms listed on the Egyptian stock market (EGX) that were involved in acquisition operations within the time period 2003 to 2016. There were no merger operations in Egypt within the research period time.
The firm population in Egypt involved in acquisition operations consists of 215 firms. The paper examines a year before and a year after M&A. According to the data collected, there was no full acquisitions for Egyptian non-financial firms happened within the period 2017-2019, and the year 2020 is not taken because the annual reports for the year after i.e., 2021 are not issued yet.
All acquirer companies that did not follow the Egyptian Accounting Standards (EAS) No. 29 and that were not fully controllers are excluded from the paper sample, as well as all cross border and unlisted Egyptian companies. The number of listed firms in the EGX out of the acquisition population is 49 firms, including 7 banks, 7 financial firms, 8 firms with insufficient data, and 15 firms with the acquisition percentage less than 30%.
Balanced scorecard (BSC)'s final sample for the paper is 12 firms for 12 operations within the period from 2003 to 2016. Four perspectives (i.e., financial, customer satisfaction, learning and growth performance, and internal business process) are measured for the BSC before and after the acquisition decision by a year to compare the results of the decision to examine the firm performance before and after the acquisition operation. The financial perspective involves sales, liquidity, profitability, and market. The non-financial perspective includes customer satisfaction, learning and growth performance, and internal business process performance.
The sample for CAR model consists of 10 out of 13 companies under study, this difference in the sample is due to the difficulty of data access for some companies that became out-of-counter after the M&A process.
The four BSC perspectives and their variables and measures are illustrated in Table 1.

RESULTS
The BSC perspectives for each acquisition operation results for each company under study are summarized in Appendix A.
The results for Olympic Group show an extreme increase in post-M&A in learning perspective, a slight increase in internal, market, and customer perspectives, and a decrease in sales perspective.
The results for Orascom Telecom show an extreme increase in post M&A in sales perspective, a slight increase in liquidity, profitability, market, and customer perspectives. The rest perspectives remained approximately unchanged. The results for Sharm Dream show a slight increase in profitability and learning perspectives, and a decrease in sales, liquidity, market, and customer perspectives, while the rest perspectives remained approximately unchanged. The results for Egyptian Tou r ism show an extreme increase in post M&A in learning perspective, while the rest perspectives remained approximately unchanged.
The results for Orascom Development show an extreme decrease in post M&A in learning perspective, a slight decrease in market perspective, and approximately no change in the rest perspectives.
The results for Orascom Construction show an increase in learning perspective, a slight increase in sales, liquidity, market, and customer perspectives, and approximately no change in the rest perspectives. The results for Telecom Eg y pt show an increase in liquidity, customer, and internal perspectives and a decrease in profitability, market, and learning perspectives. The results for Suez Cement show an increase in learning perspective and a slight decrease in market perspective, while the rest perspectives remained approximately unchanged. The results for Oriental Weavers show a decrease in learning perspective, a slight decrease in market perspective, while the rest perspectives remained approximately unchanged.
The results for Alexandria Portland show an increase in sales, profitability, and learning perspectives and a decrease in liquidity and market perspectives. The results for Sperea Misr show an increase in both liquidity and customer perspectives and a decrease in profitability, market, learning and internal perspectives. The results for National Navigation show an increase in liquidity, market, and customer perspectives, and a decrease in learning and internal perspectives.
The results for the financial perspective are shown in Figure 1, compromising the four main financial variables: sales, liquidity, profitability, and market value. For more illustration see Appendix B.
Sales   The results for the non-financial perspective are illustrated in Figure 2, compromising the three main non-financial variables: customer, learning and growth, and internal business process. For more illustration see Appendix B.
Customer perspective increased in 9 firms and decreased in 3 firms. The second part of the BSC model is the t-test in Table 2 (see Appendix C for statistical results). The results for the mean show preferable values for pre-M&A than post-M&A for the four financial perspectives: sales, liquidity, profitability, and market value at the insignificant level. It can be concluded that the mean shows preferable values at the insignificant level for post-M&A than pre-M&A for three non-financial perspectives: customer satisfaction, learning and growth performance, and internal business process performance.
The shareholders' wealth is investigated by 120 days using CAR analysis for the acquiring companies under study after excluding the companies that became out-of-counter after the M&A process. Shareholder wealth is further investigated by 60 days using CAR analysis for the companies under study.
It was expected to find different results between CAR 60 days and CAR 120 days after finalizing M&A for the following reasons; First regarding the narrow window around the M&A event, analyzing 60 days before and after the event detected the acquirer shareholders' expectation for more gain that led to a rapid increase in the stock price for the acquiring company, which would mani-fest itself in an increase in AR. Second, measuring AR for the first period after announcement does not reflect the main financial problems associated with M&A, i.e. for the 60-day period, the acquirer focuses more on non-financial factors such as marketing and technology to attract more customers and shareholders, but for the wider window the acquiring company starts to focus more on its financial problems. The narrow window would give more accurate and determined information because it excludes other factors affecting the event.
From Table 3 it can be concluded that differential CAR 120 days for the non-financial sector involves three companies with positive differential CAR, which are Olympic Group, Sharm Dreams for Hotels and Suez cement, while in CAR 60 days, only Telecom Egypt has a positive CAR differential.
For further investigation, the t-test is used to compare between post-CAR 60 days and pre-CAR 60 days, as well as between post-CAR 120 days and pre-CAR 120 days for acquiring companies. Table  4 shows that post-CAR 60 days are higher than pre-CAR 60 days and that pre-CAR 120 days is higher than post-CAR 120 days. These results are insignificant.
The relationship between BSC pre-post M&A and CAR 60 and 120 is statistically tested by a multiple regression models for the acquiring companies. Appendices D and E illustrate a comprehensive table, including data used for BSC and CAR. The statistical results shown in Appendices F and   Table 4. T-test for comparison between pre-and post-CAR 120 days and pre-and post-CAR 60 days Regarding the literature for wealth effects, the general conclusion indicates that takeovers generate ARs for the shareholders of target companies. There is still a strong debate among researchers about the acquiring company wealth gains that will benefit to enhance or destroy shareholder wealth. Regarding  T-test (Table 3 Lusk et al. (2006) the CAR results, the differential analysis could not support H 5 , which stated that "There is a significant positive relationship between M&A and increased shareholder wealth". H 5 is rejected for both CAR 120 days and CAR 60 days for the acquiring companies, since the results are insignificant.
Under t-test analysis, which is used to compare between post-CAR 60 days and pre-CAR 60 days and between post-CAR 120 days and pre-CAR 120 days for the acquiring companies, H 5 is reject-ed for both CAR 120 days and CAR 60 days as the results are insignificant. The multiple regression model used to test the relationship between BSC pre-post M&A and CAR 60 and 120 proved that there was a significant relationship between shareholder wealth and the learning and growth perspective. The results do not find any evidence for the other perspectives; then H 6 is rejected. The summary for paper results and their connection to literature is illustrated in Table 5.

CONCLUSION
The results for the BSC model show that M&A enhances the internal management, production and marketing processes through learning and internal business efficiency and, as a result, increases sales and profitability through customer satisfaction. In contrast, CAR results showed no enhancement in the acquiring value after the M&A. The shareholder value declines due to the method used in the acquisition process, be it asset or stock acquisition. Liquidity is affected by the purchase cost or cash released for acquiring the target in case of asset acquisition. The market value measured by the stock price is sensitive to methods of payment for both the acquirer and target in the short run. The results show a significant positive relationship between shareholder wealth and learning and growth perspective. This enhances the idea that shareholders care about R&D and new technology that may result from M&A.
It is recommended for future research to measure the value creation for both the acquirer and the target in the long run and take into account other external factors, add cross-border comparative studies, and use other managerial accounting tools to assess the M&A performance, such as Theory of Constraints (TOC) and Economic Value Added (EVA).