Impact of cross-border mergers and acquisitions on short-term gain to shareholders of target firms in India – effect of the mode of payment and industry relatedness

Abstract

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.