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Analyzing determinants of value creation in domestic and cross border acquisitions in India

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  • Kohli, Reena
  • Mann, Bikram Jit Singh

Abstract

The present study seeks to assess the acquiring company announcement gains, and determinants thereof, in domestic and cross border acquisitions in India. For this purpose, 268 acquisitions comprising of 202 cross border acquisitions and 66 domestic acquisitions constitute the sample set. Standard event study methodology has been employed for computing the announcement returns. Further, regression analysis has been conducted to assess the sources of wealth gains in domestic and cross border acquisition. The results of event study indicate that cross border acquisitions have created significantly higher wealth gains than the domestic ones. Further, the results of regression analysis highlight that cross border acquisitions, pursued by the acquiring companies in technology intensive sector, for the target companies also in technology intensive sector, create superior wealth gains. The reason being, such cross border acquisitions provide an opportunity to the acquiring company to combine and judiciously utilize intangible resources of both the companies on a broader scale across new geographies. Thus, the study contributes to the existing literature on internalization theory by extending it to an emerging market like India.

Suggested Citation

  • Kohli, Reena & Mann, Bikram Jit Singh, 2012. "Analyzing determinants of value creation in domestic and cross border acquisitions in India," International Business Review, Elsevier, vol. 21(6), pages 998-1016.
  • Handle: RePEc:eee:iburev:v:21:y:2012:i:6:p:998-1016
    DOI: 10.1016/j.ibusrev.2011.11.006
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    References listed on IDEAS

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    1. Carrère, Céline & Fugazza, Marco & Olarreaga, Marcelo & Robert-Nicoud, Frédéric, 2016. "On the heterogeneous effect of trade on unemployment," CEPR Discussion Papers 11540, C.E.P.R. Discussion Papers.
    2. Gamal Atallah & Yang Zhou, 2017. "Performance of Cross-Border Acquisitions: Evidence from Canadian Firms Acquired by Emerging Market Firms," Working Papers 1710E, University of Ottawa, Department of Economics.
    3. Reddy, Kotapati Srinivasa, 2016. "Institutional Voids and Tax litigation in Emerging Economies: The verdict of Vodafone cross-border acquisition of Hutchison," MPRA Paper 74264, University Library of Munich, Germany, revised 2016.
    4. repec:eee:ememar:v:32:y:2017:i:c:p:190-199 is not listed on IDEAS
    5. Aybar, Bülent & Thanakijsombat, Thanarerk, 2015. "Financing decisions and gains from cross-border acquisitions by emerging-market acquirers," Emerging Markets Review, Elsevier, vol. 24(C), pages 69-80.
    6. Banerjee, Pradip & Banerjee, Prithviraj & De, Soumen & Jindra, Jan & Mukhopadhyay, Jayanta, 2014. "Acquisition pricing in India during 1995–2011: Have Indian acquirers really beaten the odds?," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 14-30.
    7. Rao-Nicholson, Rekha & Ayton, Julie (Salaber), 2016. "Euphoria in financial markets: How Indian companies generate value in their cross-border acquisitions," Research in International Business and Finance, Elsevier, vol. 38(C), pages 494-508.
    8. Reddy, K. Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2012. "Corporate mergers and financial performance: A new assessment of Indian cases," MPRA Paper 60425, University Library of Munich, Germany, revised 2013.
    9. Ning, Lutao & Kuo, Jing-Ming & Strange, Roger & Wang, Boya, 2014. "International investors’ reactions to cross-border acquisitions by emerging market multinationals," International Business Review, Elsevier, vol. 23(4), pages 811-823.
    10. Bamiatzi, Vassiliki & Efthyvoulou, Georgios & Jabbour, Liza, 2017. "Foreign vs domestic ownership on debt reduction: An investigation of acquisition targets in Italy and Spain," International Business Review, Elsevier, vol. 26(5), pages 801-815.
    11. Svetlana Grigorieva & Tatiana Petrunina, 2015. "The performance of mergers and acquisitions in emerging capital markets: new angle," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(4), pages 377-403, October.
    12. Rao-Nicholson, Rekha & Khan, Zaheer & Stokes, Peter, 2016. "Making great minds think alike: Emerging market multinational firms’ leadership effects on targets’ employee psychological safety after cross-border mergers and acquisitions," International Business Review, Elsevier, vol. 25(1), pages 103-113.

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