Indian Acquirers Research Articles

Propensity Score Matching and a Difference in Difference Approach to Assess ESG’s Influence on Indian Acquirer Performance

This research involves an in-depth analysis of the intricate relationship between Environmental, Social, and Governance scores and the financial and operational performance of Indian acquirers. The research methodology employed herein entails a meticulously crafted design, incorporating a blend of the Propensity Score Matching and Difference-in-Differences model. This strategic amalgamation serves to rigorously assess the impact of ESG factors on the performance outcomes of Indian acquirers involved in M&As. The empirical findings of this study reveal a robust and statistically significant correlation between M&A endeavours and ESG considerations. Notably, the research discerns that M&A activities tend to exert an adverse influence on ESG performance metrics within the Indian corporate landscape. This nuanced insight underscores the multifaceted interplay between strategic corporate actions and the broader sustainability and governance landscape, thereby offering valuable implications for scholars and practitioners in finance and corporate strategy.

Unveiling the relationship between ownership structure and sustainability performance: Evidence from Indian acquirers

Sustainability goals are a new trend among corporates as they play a significant role in attracting additional investments for entities that follow sustainability practices. The relationship between a corporate board's composition and the firm's performance has been well studied in the literature. However, the relationship between a firm's ownership structure and the firm's sustainability performance remains to be empirically unidentified for firms participating in mergers and acquisitions (M&As) as M&As lead to major board restructurings. Therefore, we considered Indian listed M&A-participating firms for the period 2013–2022 and the results reveal a positive association between institutional and foreign ownership and firms' sustainability performance, whereas promoters' ownership is negatively related. This study contributes to the literature on corporate governance and M&A by demonstrating that a corporate board's attributes affect the firm's sustainability performance.

Financial Performance of Firms Pre- and Post-M&A: A Study of Selected Indian Acquirers

The objective of the study is to analyse and compare the pre- and post-acquisitions financial performance of 50 Indian acquirers. The selected acquirers are publicly listed companies. The study has used the secondary data obtained from the financial statements. The M&A for acquiring firms become questionable if the financial performance of the acquirers does not improve in the long run. This research study analyses the financial performance of M&A deals in respect of the publicly listed Indian acquirers using accounting ratios at three different levels: all deals, manufacturing industry and service industry. The deals taken for this study constitute 85% of the value of the M&A market for the period chosen between 2010 to 2014. The financial analysis has been compared for three years pre-and-post the deal. The data has been obtained from companies’ annual reports and online databases available in the public domain. The study leads to the conclusion that the acquirers failed to gain financially even after three years of the deal.

Do cross border acquisitions increase shareholder's wealth The case of Indian pharmaceutical firms

Indian pharmaceutical firms have been on an acquisition spree and witnessed around 216 cross border acquisition deals worth more than $11,350 million during January 2005 to March 2019.1 The primary motive of this study is to analyse the impact of cross border acquisition (CBA) announcements on the short-run abnormal returns to Indian acquirers in the pharmaceutical sector. This study applied event study methodology and analysed 55 CBAs that happened in 24 foreign markets by 27 Indian pharmaceutical firms, from the year 2005 to 2018. Both parametric and non-parametric tests were applied to examine the robustness of abnormal returns. It was found that the announcements of foreign acquisitions by Indian pharmaceutical firms have created wealth gains for the shareholders. Further, there is strong evidence that Indian pharmaceutical firms experience significant positive abnormal returns surrounding the acquisition announcements of target firms in the developed markets and in contrast experienced insignificant negative abnormal returns when the acquired target firms were based in developing markets.

Determinants of stock market reaction to cross-border acquisitions: evidence from emerging economies

PurposeThe global economy has witnessed an exponential increase in cross-border acquisitions (CBAs) by emerging market companies (EMCs), demanding a relook at their internationalization strategy. The purpose of the study is to investigate whether the announcement of CBAs by EMCs creates value for the equity-holders of acquiring firms and identify factors affecting the valuation of acquiring companies.Design/methodology/approachThe paper investigates the announcement impact of CBAs of CNX Nifty 500 Indian and SSE 380 Chinese companies. The event study analysis of 553 Indian and 125 Chinese acquisitions supports the contention that CBAs are indeed a strategic choice of EMCs for value creation.FindingsCBAs generate positive and statistically significant abnormal returns for shareholders of both Indian and Chinese acquirers. The markets, however, differ in terms of their motivations; country-level factors have been observed to exert significant influence on the returns of Indian acquirers. Indian companies experience larger value creation on acquiring firms established in developed, institutionally closer and/or economically distant markets. The findings support the asset-seeking motive of Indian companies.Originality/valueThe research work contributes to the evolving stream of CBAs literature with a focus on the globalization strategies of EMCs. The present study is a modest attempt to lay the foundation for a new theoretical framework (asset-seeking perspective) of overseas acquisitions from emerging economies. The existing studies on emerging economies have emphasized, in isolation, either Indian CBAs or international acquisitions by Chinese firms. Being so, the study is unique and original in the sense that it is a comparative study of India and China.

Strategic Asset-Seeking During in a Cross Border Acquisition Wave

Cross border acquisition (CBA) waves are periods of concentrated acquisition activity characterized by a cyclical pattern. These waves are triggered by exogenous shocks and provide a time bound window for firms to respond either by seeking newer markets or by upgrading themselves by acquiring strategic assets. We draw on the extant literature that emphasizes the challenges faced by emerging markets firms in pursuing cross border acquisitions. Our findings suggest a U-shaped relationship between entry timing within a wave and strategic asset-seeking acquisitions, which is driven by a trade-off between acquisition of high quality assets and reduction in uncertainty surrounding the acquisition deal. Further, acquirer’s ownership structure conditions the relationship between entry timing and acquisition motives. Specifically, business group affiliation and foreign institutional ownership strengthen the relationship between timing within a CBA wave and strategic asset-seeking motive. Our findings, based on a sample of Indian acquirers provide robust support to our theoretical arguments.

Do frequent acquirers outperform in cross-border acquisitions? A study of Indian companies

Purpose The purpose of this paper is to examine the impact of cross-border acquisitions (CBAs) on the financial and operating performance of acquiring firms from emerging economies in the long-term; the acquiring firms have been segregated into frequent (multiple) and first-time (single) acquirers based on their prior cross-border experience. The intent is to identify if overseas activities bring over and above advantage to multiple acquirers in terms of enhanced financial synergies and reduced costs, motivating them to engage in sequential international transactions. Design/methodology/approach The paper analyses the impact of CBAs announced and completed during 2004–2013 by Indian companies listed on the NIFTY 500 index. The post-acquisition financial and operating performance of Indian cross-border acquirers has been compared with their pre-acquisition performance. The average performance over three-years immediately preceding the acquisition year constitutes the benchmark for the post-acquisition performance. The post-acquisition period includes a year of integration followed by three successive post-integration years. Therefore, in operational terms, the research period extends from 2001–2017. The long-term performance of frequent (multiple) and first-time (single) Indian acquirers has been investigated comprehensively using a set of 16 financial ratios. The performance has been assessed using the secondary data collected from financial statements of acquiring companies; the financial statements and the list of CBAs by Indian companies have been obtained from Thomson Reuter’s EIKON database. Findings The financial and operating performance of frequent as well as first-time acquirers have depicted a similarly deteriorating trend during the post-acquisition period. These findings indicate that the international expansion of Indian companies is not guided by synergy creation potential and may be pushed by the overconfidence or over-optimism and agency conflicts of managers. This, perhaps, indicates that firms are being imprudent in investing free cash flows available with them. Originality/value The study is the first of its kind. No study, to the best of the authors’ knowledge, has analysed the performance of acquiring firms by segregating them into frequent and first-time acquirers using accounting measures of performance. More so, an extensive analysis of the long-term financial and operating performance of acquiring companies is rare to come across in the extant literature.

Operating performance of acquirers after acquisition: evidence from India

Purpose The purpose of this paper is to examine the operating performance of Indian using difference-in-difference (DD) methodology. It, further, examines whether there is a difference in the operating performance of acquirers doing partial and full acquisitions. Design/methodology/approach Four different benchmark criteria are used to select control firms, namely, size, size and industry, size and leverage, and size and book-to-market ratio. To measure the operating performance, return on assets (ROA) is calculated as the ratio between earnings before depreciation, interest, tax and amortization (EBDITA) and total assets (TA), expressed in percentage. This paper examines the ROA of event and control firms for three years in each pre- and post-acquisition period and finally compares them using the DD method. Findings Using a sample of Indian acquirers, the results show that the operating performance of Indian acquirers neither improves nor deteriorates after accounting for an appropriate benchmark. Operating performance of event firms significantly reduces in the post-acquisition period. However, non-acquiring firms of similar size and pre-operating performance also exhibit similar results. Finally results show that, the operating performance of acquirers making full acquisitions deteriorates. Originality/value It provides insights into the operating performance of Indian acquirers with an improved methodology, which accounts for the performance of control firms. The author also uses multiple matching criteria to find control firms to overcome the possible bias of the results dependent on the matching criteria. To the best of the author’s knowledge, the author could not find other studies comparing the operating performance of acquirers making partial and full acquisitions.

Industry-Adjusted Post-M&As Operating Performance of Indian Acquirers

This paper examines the post-merger and acquisitions (M&As) operating performance of Indian companies occurred during 2006-2012. The study focuses onindustry-adjusted operating performance measures using data from 2001 to 2017. With the use of Wilcoxon Ranked Test, the study found the deteriorating post-M&As performance of Indian companies on an average. The mode of payment has a significant role in explaining post-M&As performance. It is found that the post-M&As operating performance is worst in stock financed deals than that of cash financed deals.

Merger waves, entry-timing, and cross-border acquisition completion: A frictional lens perspective

We study the impact of deal announcement and entry-timing within a cross-border acquisition (CBA) wave on the likelihood of acquisition completion. Drawing upon the frictional lens perspective, we identify two types of frictional forces- wave-friction and partner-friction within merger waves. We follow a simulation-based methodology and identify three CBA waves for Indian acquirers between 1995 and 2015. Our findings suggest that acquisition announcement within a merger wave as compared to outside of a wave is negatively related to the likelihood of deal completion. Further, within a merger wave, we find an inverted U-shaped relationship between entry-timing and the likelihood of deal completion.

Impact of Company Financials on Wealth of Indian Acquirers

Impact of Company Financials on Wealth of Indian Acquirers

Impact of Company Financials on Wealth of Indian Acquirers

Impact of Company Financials on Wealth of Indian Acquirers

M&As in India: Trends and Evidence

This chapter reviews the evidence on various aspects of M&A activities to, in, and from a single large emerging market economy, India. The purpose and justification for focusing on exclusively Indian M&As is to be bring out a few of the special features of emerging economy M&As found in the recent literature as distinct from the general findings about M&As in the global context. Starting from a negligible base barely a quarter century ago, India now adds considerable deal volume and value to begin to matter in the global league tables. However, more than its growing importance, Indian M&As are important to study as repeated studies seem to indicate their success in a field where the average deal is known to be value-destroying. There is, therefore, value, in carrying out an inquiry of the extent of the success of these M&As and more importantly, of the possible reasons behind their performance. While the evidence is still preliminary and the explanations speculative in nature, the literature seems to suggest that Indian acquirers have a more strategic “complementary capabilities” approach towards acquisitions, tend to disturb the target management less, and appear to have greater success in combining complementary advantages between home and destination countries to obtain more efficient and competitive supply chains and product portfolios.

Impact of Company Financials on Wealth of Indian Acquirers

This article analyzes the effect of the various financial ratios on the long-term performance of M&amp;A deals in India in terms of shareholder wealth of acquirers using binary logistic regression. The ratios used were Working Capital/Total Assets, Retained Earnings/Total Assets, Earnings Before Interest and Taxes/Total Assets, Market Value of Equity/Book Value of Total Debt, Total Income/Total Assets, Current Assets/Current Liabilities, Debt/Equity Ratio, and Retained Earnings/Profit after Tax. It was found that increases in average Total Income/Total Assets ratio are positively related to M&amp;A performance. <b>TOPICS:</b>Private equity, fundamental equity analysis, emerging, performance measurement

Cross-Border vs. Domestic Acquisitions: Evidence from India

Firms in a fast growing emerging economy have opportunities to either grow organically or inorganically through domestic and cross-border acquisitions. Using a broad sample of 1,508 deals by Indian acquirers in the nine-year period from 2002 to 2010, we examine the impact of firm characteristics, firm governance and product market competition on the acquisition decision. We show that the probability of a firm making a cross-border vs. a domestic acquisition is not independent of the probability of firms choosing to make an acquisition in the first place. Using a sequential LOGIT framework, we find that larger and younger firms are more likely to make an acquisition. We also find that relatively overvalued firms with high industry-adjusted Tobin Q are more likely to make acquisitions. Firms with lower leverage are likely to make an acquisition but among acquirers, firms with more cash are more likely to make a cross-border acquisition. Firms with higher levels of promoter (founder) holdings are less likely to make an acquisition and make a domestic acquisition rather than a cross-border acquisition However, firms belonging to an ownership group are more likely to make an acquisition. Product market competition within the industry is an important determinant of M&A activity, with firms in more competitive industries more likely to make an acquisition and more likely to make a cross-border acquisition. The short-term market reaction to the announcement of acquisitions by Indian firms is positive and significant, but is driven by acquisitions made during the initials years post liberalization.

Beta Adjusted Real Returns of Indian Acquirers: A Long-Term Perspective

We analyze long term performance of M&A deals in India in terms of growth of shareholder wealth of acquirers in real terms adjusted by beta value of the shares of acquirers. We use beta value to measure the returns per unit of systematic risk. Beta being a measure of systematic risk, will also consider the effects of entire economy on performance. This would enable us to know how M&A deals perform when their performance is measured in terms of growth in real wealth adjusted for systematic risk. Our research focuses on the returns from the perspective of investors who hold investments for a longer period of time i.e. for one year to three years. We develop a model (BARBHR) Beta Adjusted Real Buy and Hold Return based on Buy and Hold Return model. The study is performed for different sectors as well as all M&A deals together. We find that M&A deals overall and the IT Sector reduced Shareholder Wealth during all observation periods which were found to be statistically significant while the results for other sectors were varied. No sector reported significant positive performance. Wherever significance was observed, the returns were negative.

Do innovative emerging market cross-border acquirers create more shareholder value? Evidence from India

This study attempts to investigate the role of absorptive capacity of emerging market firms in creating shareholder value from developed market acquisitions. It analyzes the cumulative abnormal return of cross border acquisitions of listed Indian firms in Europe focusing on acquirers’ research intensity. The study discovers a U-shaped relationship between research intensity of Indian acquirers and their cumulative abnormal return following acquisitions in Europe. As such, firms with no research capacity can benefit from the acquisition by accessing advanced targets, although firms with extensive research capacity outperform any of their Indian competitors as these firms have the absorptive capacity to not only exploit but also explore the knowledge base of the acquired target. Furthermore, we found a positive effect of the acquisition of a high-tech target company, regardless of the absorptive capacity of the acquirer. We also found that business group membership has a positive impact on shareholder value, although horizontal acquisitions as compared to vertical and unrelated deals have a significantly negative impact for these companies. This result is again linked to the more explorative nature of vertical and unrelated acquisitions in comparison with horizontal deals that are more based on the exploitation of existing resources and capabilities.

Do Acquisitions Add Value to Acquirers in India? A Study on the Sensitivity of the Stock Market and Acquirer Returns

Do acquisitions create value for the acquiring firm's shareholders? This is an unresolved question in the literature of acquisitions. This study analyzes the value creation of acquirers in India on an acquisition announcement and the sensitivity of the stock markets during an acquisition announcement. Most of the literature in the West concludes that, on an acquisition announcement, only the targets create value, and the acquirers are value destructive. This study uses a sample of 78 acquirers in the manufacturing industry who acquired targets in the calendar year 2012. The study develops four hypotheses and uses the event study methodology (market model/ ordinary least square model). The results of the study suggest that acquisitions are neither value creative to Indian acquirers and those acquirers with prior acquisition experience create more value than single acquirers. Surprisingly, the results show that acquirers using cash generate negative returns, which may be due to the presence of the hubris effect. Another important finding of the study is that the acquirers using stock as a method of payment are no longer value destructive, which is contrary to the literature which states that acquirers using cash are value creative and acquirers using stock are value destructive. This is an important contribution to the existing literature of the method of payment, and it implies that the theories in the West may not necessarily hold well in India, and they need to be reassessed before being implemented in the Indian context.

Impact of Domestic and Cross-Border Acquisitions on Acquirer Shareholders’ Wealth: Empirical Evidence from Indian Corporate

The present paper compares the impact of domestic acquisitions and cross-border acquisitions on Indianacquirer shareholders’ wealth during 2003-2008. A segregated analysis has also been conducted to measure theimpact of stake/control acquired, based on a sample of acquisitions of 268 domestic and 255 target firms acrossborder. Further, this paper also analyses the short-run performance of percentage of stake/control acquired inboth type of acquisitions. The stake/control acquired is divided into two categories: (i) complete acquisition and(ii) partial/majority control acquisition. Event study methodology has been conducted to analyse the share priceperformance of Indian acquirers in short-term. The findings reveal that cross-border as well as domesticacquisitions enhance shareholders’ wealth of the acquirer company on the announcement. The results indicatethat cross-border acquisitions generate higher returns than domestic acquisitions. Nonetheless, the segregatedanalysis makes it evident that the shareholders of acquiring firms of complete cross-border acquisitions earnhigher abnormal returns (significant at 5 per cent). The abnormal returns are higher (though statisticallyinsignificant) for partial/majority control domestic acquisitions.

Role of industry relatedness in performance of Indian acquirers—Long and short run effects

We explore the effect of industry relatedness on the performance of Indian acquirers using both short run and long run performance measures. We argue that mergers and acquisitions are distinct strategies, because of the unique regulatory structure and equity ownership pattern that exists in India. Their choice depends on control considerations on the one hand and regulatory imperatives on the other. Correspondingly, their sources of value creation or destruction do not always correspond to extant theories of synergy or agency. We present a modified synergy story and illustrate that, while related acquisitions create value and non-related acquisitions destroy value, both related and unrelated mergers create value.