An Analysis of Business Combinations within the Automobile Manufacturing Industry: The Effects of Mergers, Acquisitions, and Alliances on Firm Performance and Value
Date
2023
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Haverford College. Department of Economics
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Award
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eng
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Bi-College users only
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Abstract
This paper analyzes business combinations among automobile manufacturers from 1979 to the present, a subset of the automotive industry that provides consumers with personal transportation. It is designed to assess the effects of mergers, acquisitions, and alliances (termed “events”) between and among automobile manufacturers on company performance and value. To do so, this paper will calculate the effect of these events on (i) the affected companies’ performance, as measured by earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and (ii) the value of the affected companies’ publicly-issued stock outstanding held by the general public (the “public float”). Because events typically cause changes in the number of employees who work for the affected companies, the analysis also considers the effect on performance per worker by dividing company EBITDA by the number of employees. Similarly, events typically cause changes in the public float, so measuring the effect on company value also needs to account for this change. Understanding the relationship between events and company performance and events and company value will help determine whether business combinations in the automobile industry have been effective or ineffective, both in aggregate and concerning a particular company’s merger, acquisition, or alliance. The results of this analysis show a strong statistically significant negative effect of business combinations on valuations for automobile manufacturers. However, the results of such business combinations on performance are inconclusive. Further research will be needed to fully understand the factors that contribute to the conditions for a successful business combination.