Quasi-Experimental Study of M&A Examining Residual Income and Economic Value Adde

Mergers and acquisitions (M&As) are considered a strategic tool for increasing profitability, entering new markets, and introducing new services and products to market. M&A's are popular amongst senior management because this type of growth strategic increased shareholder's value by increasing access to more resources, gain economies of scales or scopes, synergies, tax benefits, and market share gains. Organic growth is when a firm grows internally. This type of growth is more cost-efficient, requires minimum cultural adjustments, and failure to achieve growth organically is not usually visible. The problem addressed in this quantitative ex-post facto study is that M&A result in high rates of failure and empirical research has not clearly identified if M&As are more effective then organic growth strategies. Prior research has failed to identify the real benefits of M&A. The purpose of this quantitative ex-post facto study was to determine if there was significant difference in the mean of residual income (RI) and economic value added (EVA) for global industrial products firms who pursued growth through M&As and those firms that grow through organic growth strategies. The study explored if M&A is more effective for achieving corporate growth than organic growth. In this study, a quantitative comparison of the means between two non-equivalent groups was completed to examine the calculated RI and EVA three years post-M&A. An ex-post facto design was employed to support the development of the research questions using the independent variables RI and EVA. The result of study found that M&A activities do not result in significant improved economic gains when compared to organic activities. There is need for more quantitative research for this issue to understand the value in engaging in one form of growth strategy over another one. The study encourages further research to consider EVA and RI as measurement of the success or failure of growth strategies.