Synergy, Diversification and Firm Performance in Mergers and Acquisitions

Abstract

Synergy from merger and acquisition (M&A) theoretically increases firm performance. However, diversification leads to coinsurance effect which reduces firm value. This study aims to analyze the relationship between synergy and firm performance measured using return on assets (ROA) and Tobin’s Q, with diversification as moderating variable. Analysis was carried out using data from 33 M&A cases by non-financial firms listed in the Indonesia Stock Exchange, done between 2010 and 2016. Results show that synergy has a positive effect on both ROA and Tobin’s Q. Meanwhile, diversification moderates the impact of synergy towards both ROA and Tobin’s Q, thereby decreasing firm performance. Keywords—Merger, Acquisition, Synergy, Diversification, Firm Performance