The Role of Corporate Governance on Financial Performance Changes Associated with Mergers and Acquisitions

In the present paper, we construct a corporate governance index for a sample of 93 Indian companies listed on Bombay Stock Exchange and National Stock Exchange. The index is based on a comprehensive set of 64 governance attributes for these sample companies, the companies, then, have been classified into four governance portfolios using their corporate governance ranking. Furthermore, we have calculated average of 3 years post - mergers and acquisitions (M&A) financial performance and valuation ratios for each governance portfolio. Our findings suggest good governance appears to be of much value as we found significant higher post mergers and acquisitions rate of return ratios for companies in top quartiles. We also report significant higher valuation ratios for companies in top governance portfolio. The present study concludes that companies with higher rank for corporate governance score are good performers which are revealed from better financial ratios. Their post M&A better financial performance and valuation shows that good governed companies bring positive synergies from their M& A activities which is recognized by market reflected in higher valuation ratios.