Financial implications of fintech acquisitions in India: a study on shareholder returns and acquisition dynamics

We examine the effect of announcements of cross-border mergers and acquisitions on short-term gain to shareholders of target firms in India. Using event study, we analyse 137 listed target firms taken from Bloomberg in post-financial crisis era from 2009 to 2019. Our analysis does shows short-term gains on acquisition of Indian firms, with the gains being high in and around the event day. Moreover, the return is positive both for pre- and post-event day windows, though the pre-event day window return is higher as compared to post-event day window. Notably, the return for the shareholders on an acquisition announcement is higher for cash payment, as compared to other payment modes. Further, the wealth effect for acquisitions in the related industry is higher compared to the acquisitions in unrelated industries. We have done multivariate analysis with the cumulative average abnormal return as the dependent variable, and mode of payment and industry relatedness as independent variables. The analysis shows a higher return for acquisitions in the related industry with cash payment. The findings of this research by and large concur with earlier studies, and are useful for foreign investors to appreciate the market behaviour in acquisitions of Indian firms post 2009.

Purpose – Cross-border mergers and acquisitions (M&A) have given the opportunity to the emerging market multinationals to add value while implementing the strategy of internationalization. The Indian pharmaceutical firms are also adopting this strategy and the purpose of this paper is to determine the evidence of value creation for their international M&A activity. Design/methodology/approach – In total, 30 cross-border M&A are examined for value addition through accounting (PAT as percentage of net worth, PAT as percentage of capital employed, research and development (R&D) expenses as percentage of operating expenses) and shareholder return (cumulative abnormal returns) measures of the acquirer firm ex-ante and ex-post M&A. The difference in mean values of the variables after the M&A event is determined through Student's t-test. The time horizon selected for accounting variables was five years and the abnormal stock market returns were calculated using domestic market model with the event window being 40 days. Findings – The results indicate no statistically significant difference in the mean values of all the measures except R&D expenses as percentage of operating expenses for the acquirer Indian firms before and after the M&A event. The mean values of abnormal returns were less than those before the M&A activity. Research limitations/implications – The study does not include a control group of Indian firms engaged wholly in domestic M&A activity or those firms who have not merged or acquired at all. Practical implications – The study may point out toward no significant ex-ante value creation in terms of the selected profit measures but it suggests the probability of the strategy being adopted as a solution to problems like the transfer of tacit knowledge in case of technology led competitive advantages in the pharmaceutical industry and the rise of R&D activity. Originality/value – The Indian pharmaceutical industry has been experiencing waves of international M&A activity since 2005 after the implementation of Product patent Act, 2005. However, little research has been done on the sector to understand the value creating implications of such corporate strategic decisions.

Use of celebrities for endorsing brands is a popular marketing tactic. Marketers tend to shell out mind boggling amounts to rope in celebrities for brand endorsements. Some Indian cricketers and Bollywood actors have become money minting machines as a result of this trend. The million-dollar question that begs an answer is : Are celebrity endorsements worth it? This question has intrigued many followers of marketing and has made the subject of celebrity endorsements a widely researched one. This paper explored the impact of celebrity endorsement announcements on the stock prices of the firms by examining 36 brand endorsement announcements. The celebrity endorsement announcements under study were made in India between 2008 and 2015. The standard event study methodology was followed to examine whether cumulative abnormal returns accrued to firms on the announcement day, (-1, +1) window, (-2, +2) event window, (-5, +5) event window, (-10, +10) event window, and (-40, +40) event window. The study found little evidence to establish that positive and substantial cumulative abnormal returns were accrued to firms when celebrity endorsement contracts were made public. Neither the firms in the consumer goods industry nor in the automobile industry were beneficiaries of celebrity endorsement contracts. The gender of the celebrity or the type of celebrity did not have any significant impact on the cumulative returns recorded by firms in different event windows at the time of announcement of such contracts. The returns recorded by firms that followed a corporate branding strategy as well as firms that followed a house of brands strategy were not statistically different from zero.

: M&AA (Structural Changes in India's Inbound M&A and Its Implications)

PurposeThe purpose of this paper is to analyze the relationship between Certified Emission Reductions (CERs) information and a firm’s stock prices.Design/methodology/approachThe present study is based on 193 CERs announcements by Indian firms over a 13-year period 2005–2017. The event study methodology is used to examine the impact of CERs announcements on a firm’s share prices.FindingsThe study suggests that the issuance of CERs did not produce any significant abnormal return. More specifically, the outcomes of event study shows that over a two-day event window from the event day to the day after the event (i.e. days 0 to 1), the mean and median of AARs are −0.25 and −0.34 percent, respectively. The abnormal returns on day 1 are not statistically significant as per the t-test. Moreover, the mean and median of abnormal returns after one day (−1) are negative, indicating that investors react negatively to CERs announcements. However, the mean and median of CAARs over both the two-day (i.e. days −1 to 0 and days 0 to +1) and three-day (i.e. days −1 to +1) event windows are positive, but not statistically significant based on the t-test.Research limitations/implicationsThe findings of the study are quite comprehensive, relatively used only market-based criteria of a firm’s financial performance, e.g., share price, at times, inhibits generalizing the results.Originality/valueTo the best of the author’s knowledge, the present study is a first of its kind to investigate the relationship between the CERs information and a firm’s stock prices.

This paper attempts to explore the motives behind merger and acquisition strategy of Indian corporates. Covering the domestic activity over two decades, 1998--2017, the firm-level determinants of acquiring and acquired firms are studied to analyze the merger motives. The results from Logit and discrete-time hazard model show that firms with higher technological and financial productivity are more likely to go for acquisitions. On the other hand, firms that have potential to grow in the future but are struggling at present owing to low profits or losses are more likely to be acquired. The managements of firms that are not actively involved in research activities are also likely to be replaced. The findings of the article, therefore, suggest that Indian firms are using mergers for expansionary and efficiency-enhancing motives.

Emerging Market Bidder Returns and the Choice of Payment Method in M&A: Evidence from India

This study focuses on the impact of COVID-19 on the stock market in the Asian region, highlighting the impact on stock returns of 15 Asian stock markets while observing the nexus between COVID-19 confirmed cases and stock return. The analysis is based on daily closing price indices of selected 15 markets during the period of 1st January 2019 and 30th June 2020. The Event Study method was employed to examine the impact of COVID-19 on stock returns, by comparing the calculated abnormal return before and after the event day (20th of January 2020) under two event windows such as (0,10) and (10, 20). Fixed Effect Panel Regression Analysis was applied to observe the impact of the number of COVID-19 confirmed cases on stock return in selected stock markets. The analysis reveals that abnormal returns after the event day were negative and therefore it is apparent that the COVID-19 outbreak has drastically affected the stock returns of selected stock markets of the Asian region. Specifically, two event windows indicate that COVID-19 has an immediate negative impact on all selected stock markets while the long-term negative impact has limited only to the emerging and frontier markets. It is observed that COVID-19 confirmed cases negatively affect the stock return of all selected stock markets in the Asian region.

The present study shades light on the short-term wealth effects of the share repurchase decision of Indian IPO firms on their stock prices. For the years 2000–2019, the sample considers the IPO companies who announce buybacks within 5 years after their listing. By evaluating short-term fluctuations in stock prices around the buyback announcement date, wealth effects have been quantified using the event study approach. According to our empirical investigation, investors responded favourably to the news and produced positive 1.13% nonsignificant abnormal returns on the event day. Further investigation finds that these companies likewise endure erratic stock performance in the days that follow the announcement, with the exception of the day when they actually purchase back their shares, which produced positive and significant abnormal returns to investors of 0.92%. Also, over the event window, the results are positive at 10.69% and significant. Our results show that investors favourably view share repurchase by IPO firms and can regard it as a sound investment strategy. This study also adds to the scanty literature about newly listed firms’ payout preferences.

A central problem in conducting an event study of the valuation effects of corporate governance reforms is that most reforms affect all firms in a country. Share price changes may reflect the reforms, but could also reflect other information. We address this identification issue by studying India's adoption of major governance reforms (Clause 49). Clause 49 requires, among other things, audit committees, a minimum number of independent directors, and CEO/CFO certification of financial statements and internal controls. The reforms were sponsored by the Confederation of Indian Industry (an organization of large Indian public firms), applied initially to larger firms, and reached smaller public firms only after a several‐year lag. The difference in effective dates offers a natural experiment: large firms are the treatment group for the reforms; small firms provide a control group for other news affecting India generally. The May 1999 announcement by Indian securities regulators of plans to adopt what became Clause 49 is accompanied by a 4 percent increase in the price of large firms over a two‐day event window (the announcement date plus the next trading day), relative to smaller public firms; the difference grows to 7 percent over a five‐day event window and 10 percent over a two‐week window. Mid‐sized firms had an intermediate reaction.Faster‐growing firms gained more than other firms, consistent with firms that need external equity capital benefiting more from governance rules. Cross‐listed firms gained more than other firms, suggesting that local regulation can sometimes complement, rather than substitute for, the benefits of cross‐listing. The positive reaction of large Indian firms contrasts with the mixed reaction to the Sarbanes‐Oxley Act (which is similar to Clause 49 in important respects), suggesting that the value of mandatory governance rules may depend on a country's prior institutional environment.

PurposeThe purpose of this paper is to estimate the direct effects of foreign direct investment (FDI) on domestic target firms’ profitability gains, in India, post-acquisition. In particular, it focuses on identifying the importance of firms’ heterogeneities on the effects, taking into account the source of FDI, the intensity of firm interaction, and the target firms’ technology-absorptive capacity. Most importantly, the paper investigates whether the estimates depend on a combined rather than single impact of these heterogeneities.Design/methodology/approachTo control for the possibility of selection bias and endogeneity, this empirical analysis uses a methodology that combines propensity score matching and difference-in-differences (PSM–DID) in adopting a comprehensive data set of both foreign- and Indian-acquired firms that were purchased through mergers and acquisitions in India between 1991 and 2013.FindingsThe analysis reveals four major findings. First, overall, the post-foreign acquisition target firms’ performance gains were positive and varied by the heterogeneous technology transfer capacity of the foreign investor. Second, it is possible that target firms located in industrial clusters with more foreign agglomeration experienced larger profitability gains through more dynamic firm interactions in terms of spillovers. Third, Indian targets with higher technology-absorptive capacity benefitted in higher profitability gains from acquiring and assimilating the superior technology that is transferred from foreign investors. Finally, an optimal combination of Indian target firms with higher technology-absorptive capacity and foreign investors with higher technology transfer capacity maximizes profitability gains, post-acquisition. This synergy effect is particularly prominent in clusters where more foreign firms agglomerate.Originality/valueThis study captures the true direct effect of FDI by adjusting the combined causal effects of various inherent heterogeneities in the target firms’ performance, thus correcting any possible bias, which few previous studies have addressed.

PurposeThe present research study aims to explore the impact of the most recent Israeli–Palestinian conflict, which unfolded in October 2023, on global equity markets, including a wide range of both emerging and developed markets (as per the Morgan Stanley Capital Investment country classification).Design/methodology/approachThe market model of event study methodology, with an estimation window of 200 days and 28-day event window (including event day, i.e. October 7, 2023), has been employed to investigate the event’s impact on the stock markets of different countries, with 24 emerging countries and 23 developed countries. The daily closing prices of the prominent indices of all 47 countries have been analyzed to examine the impact of the conflict on emerging markets, developed markets and overall global equity markets. Additionally, cross-sectional regression analysis has been performed to investigate the possible explanations for abnormal returns.FindingsThe findings of the study suggest the heterogeneous impact of the selected event on different markets. Notably, emerging markets and the overall global equity landscape exhibited substantial negative responses on the event day, as reflected in average abnormal returns of −0.47% and −0.397%, respectively. In contrast, developed markets displayed resilience, with no significant negative impact observed on the day of the event. A closer examination of individual countries revealed diverse reactions, with Poland, Egypt, Greece, Denmark and Portugal standing out for their positive or resilient market responses. Poland, in particular, demonstrated significantly positive cumulative abnormal returns (CARs) of 7.16% in the short-term and 8.59% in the long-term event windows (−7, +7 and −7, +20, respectively), emphasizing its robust performance amid the geopolitical turmoil. The study also found that, during various event windows, specific variables had a significant impact on the CARs.Practical implicationsThe study suggests diversification and monitoring of geopolitical risks are key strategies for investors to enhance portfolio resilience during the Israeli–Palestinian conflict. This study identifies countries such as Poland, Egypt, Greece, Denmark and Portugal with positive or resilient market reactions, providing practical insights for strategic investment decisions. Key takeaways include identifying resilient markets, leveraging opportunistic strategies and navigating market dynamics during geopolitical uncertainties.Originality/valueAs per the authors’ thorough investigation and review of the literature, the present study is the earliest attempt to explore the short-term and long-term impact of the 2023 Israeli–Palestinian conflict on equity markets worldwide using the event study approach and cross-sectional regression analysis.

This paper investigates the short‐term response of the Saudi stock market (Tadawul) to the COVID‐19 outbreak. Event study methodology applied to data derived from the 21 industry groups that constitute the Saudi stock market to calculate abnormal returns for the trading days after the announcement of the COVID‐19 in both China and Saudi Arabia. The results indicate that the estimated CARs for the industry groups and their sum on the event day were not statistically significant. Furthermore, the formal announcement of the first case of the COVID‐19 in China had a negative but not significant impact on the Saudi stock market. In contrast, in the first 9‐days event window, the announcement of the first confirmed case in Saudi Arabia had a negative and significant effect. Moreover, the most negatively affected industry groups were banks, consumer services, capital goods, transportation and commercial services, whereas telecommunication services and food and beverage were positively affected at the event window (+1, +9). In general, the Saudi stock market's response had become weaker in the event windows come after (+1, +9), and different industry groups were found to have different responses to the COVID‐19 outbreak.

Çalışmada, Türkiye’de faaliyet gösteren iki ticari bankanın kazandığı uluslararası inovasyon ödülü duyurularının pay getirileri üzerindeki etkisinin incelenmesi amaçlanmıştır. Olay çalışması yönteminden yararlanılmıştır. Olay çalışması, pay fiyatlarının önemli olaylar karşısında nasıl uyum sağladığını incelemekte ve dolayısıyla kamuya duyurulan önemli bir olayın pay getirileri üzerindeki etkisini ölçmektedir. Olay çalışması yöntemi ile bir olayın firma değeri üzerindeki etkisi finansal piyasalara ait veriler kullanılarak ölçülmektedir. 2012 ile 2018 yılları arasında yapılan 7 adet inovasyon ödülü duyurusu, olay günleri olarak belirlenmiştir. Bu ödüller, Amerika Birleşik Devletleri merkezli bir araştırma kuruluşu olan Bank Administration Institute (BAI) tarafından bankacılıkta inovasyon ödülleri adı altında verilmektedir. Olay penceresi, olay günlerinin beş gün öncesi ve beş gün sonrası dikkate alınarak oluşturulmuştur. Zaman çizelgesinde olay penceresinin uzunluğu (Tolay) 11 gün, tahmin döneminin (Ttahmin) uzunluğu ve olay öncesi penceresinin uzunluğu 244 gün olarak ele alınmıştır. Çalışmada incelenen dönemin toplam uzunluğunun 250 gündür. Analiz sonuçları, inovasyon ödülü açıklamalarının pay getirileri üzerinde önemli bir etki oluşturmadığını göstermiştir. Ulaşılan bu sonuç, pay piyasasının yarı güçlü formda etkin olduğunu ifade etmektedir. Çalışmada ulaşılan, ödül duyurularının pay getirileri üzerinde önemli bir etkiye sahip olmadığını gösteren sonuç, Tuck (2005b), çalışması ile aynı yöndedir.

Bu çalışmanın amacı, ilk halka arz sonrasında sermaye artırımı yoluyla satışa hazır bekletilen payların satışının pay getirileri üzerindeki etkilerinin araştırılmasıdır. Çalışmanın kapsamını 2013-2020 yılları arasında satışa hazır bekletilen pay satışı yapan BİST şirketleri oluşturmaktadır. Olay etüdü yönteminin kullanıldığı çalışmada, olay günü olarak satışa hazır bekletilen payların satış tarihi belirlenmiştir. Olay penceresi olarak ise olay gününden 5 gün öncesi ve sonrası (-/+5) incelenmiştir. Payların beklenen getirilerinin hesaplanmasında Sermaye Varlıklarını Fiyatlama Modeli (SVFM) kullanılmıştır. Sonuç olarak sermaye artırımı yoluyla satışa hazır bekletilen payların satışının pay getirilerini olumlu yönde etkilediği fakat bu uygulamayı takip ederek yatırımcıların büyük miktarlarda ve uzun süreli pozitif getiriler elde edemeyeceği, ancak kısa dönemli pozitif anormal getiri elde edebilmenin mümkün olduğu tespit edilmiştir. Ayrıca test edilen dönem ve şirketler açısından BİST pay piyasasının yarı güçlü formda etkin bir piyasa olmadığını yönünde bulgulara ulaşılmıştır.