Impact of Organizational Learning and Absorptive Capacity on the Abnormal Returns of Acquirers: Evidence from Cross-Border Acquisitions by Indian Companies

Abstract

The intent of the research paper has been to evaluate the short-term performance in terms of abnormal returns to the announcement of cross-border acquisitions (CBAs). This research work is based on 139 acquisitions undertaken by Indian companies during 2012–2016. The event study methodology has been applied to assess the effect of acquisition announcement on the short-run performance of the bidding firm. Later on, adopting the conceptual framework of organizational learning and absorptive capacity of the organization, a disaggregative analysis has been conducted to ascertain the factors affecting short-run performance. The results indicate that on an average, CBAs have statistically significant and positive valuation effects for the Indian bidders in the short-run. Further, a disaggregative analysis shows that previous CBA experience and horizontal acquisitions have positive and significant valuation effects for the acquirers. Similarly, the age of the acquirer has been observed to exert a favorable influence on its own valuation post-acquisition. However, smaller firms vis-a-vis mid- and large-sized firms generate more abnormal returns. The paper attempts to extend the application of organizational learning theory and absorptive capacity to the field of corporate mergers and acquisitions by analyzing the equity market response to the public announcement of cross-border acquisitions and antecedents of such response.