Abstract
Purpose – This paper aims to assess the impact of different financing strategies used in the cross-border acquisitions on the shifts in the risk profile of the acquiring companies in India. The purpose is to discern which of the stated modes of payment, viz., cash, stock and earnout, enables an acquiring company in better hedging the risk of adverse selection in cross-border acquisitions. Design/methodology/approach – Analysis has been conducted by computing unsystematic (alphas, αs) and the systematic (betas, βs) risk of the acquiring companies, for three different estimation periods, that is the pre-acquisition estimation period, the post-acquisition estimation period and the pooled estimation period. The computations of αs and βs, for each company, have been done by using the market model, whereas further analysis of the average αs and average βs has been done by applying analysis of variance and paired sample t-test. Findings – It has been found that of the three modes of payment, earnouts provide bes...
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