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Acquisitions, markups, efficiency, and product quality: Evidence from India

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  • Stiebale, Joel
  • Vencappa, Dev

Abstract

This paper uses a rich panel data set of Indian manufacturing firms to analyze the effects of domestic and international acquisitions on various outcomes at target firm and product level. We apply recent methodological advances in the estimation of production functions together with information on prices and quantities to estimate physical productivity, markups, marginal costs and proxies for product quality. Using a propensity score reweighting estimator, we find that acquisitions are associated with increases in quantities and markups and lower marginal costs on average. These changes are most pronounced if acquirers are located in technologically advanced countries. We also provide evidence that the quality of products increases while quality-adjusted prices fall upon acquisitions. Our results indicate that knowledge transfer from foreign acquirers to domestic firms, predicted by theories of multinational firms, can materialize in both cost- and quality-based gains and benefit both firms and consumers.

Suggested Citation

  • Stiebale, Joel & Vencappa, Dev, 2018. "Acquisitions, markups, efficiency, and product quality: Evidence from India," Journal of International Economics, Elsevier, vol. 112(C), pages 70-87.
  • Handle: RePEc:eee:inecon:v:112:y:2018:i:c:p:70-87
    DOI: 10.1016/j.jinteco.2018.02.005
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    Cited by:

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    5. Bonnet, Céline & Schain, Jan Philip, 2017. "An empirical analysis of mergers: Efficiency gains and impact on consumer prices," DICE Discussion Papers 244, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. De Loecker, Jan, 2021. "Comment on (Un)pleasant ... by Bond et al (2020)," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 15-18.
    7. Fons-Rosen, Christian & Kalemli-Ozcan, Sebnem & Sørensen, Bent E. & Villegas-Sanchez, Carolina & Volosovych, Vadym, 2021. "Quantifying productivity gains from foreign investment," Journal of International Economics, Elsevier, vol. 131(C).
    8. Nick Jacob & Giordano Mion, 2020. "The UK's Great Demand and Supply Recession," CESifo Working Paper Series 8755, CESifo.
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    11. Saito, Hisamitsu, 2021. "Foreign direct investment and quality upgrading in Indonesian manufacturing," MPRA Paper 106770, University Library of Munich, Germany.
    12. Frey, Rainer & Goldbach, Stefan, 2021. "Benefits of internationalisation for acquirers and targets - But unevenly distributed," Discussion Papers 33/2021, Deutsche Bundesbank.
    13. Faff, Robert & Prasadh, Shyaam & Shams, Syed, 2019. "Merger and acquisition research in the Asia-Pacific region: A review of the evidence and future directions," Research in International Business and Finance, Elsevier, vol. 50(C), pages 267-278.
    14. Ganglmair, Bernhard & Hahn, Nadine & Hellwig, Michael & Kann, Alexander & Peters, Bettina & Tsanko, Ilona, 2020. "Price markups, innovation, and productivity: Evidence from Germany," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, volume 8, number 222995.
    15. Chunhuan Xiao & Ziyin Zhuang & Amei Feng, 2021. "OFDI Entry Modes and Firms’ Innovation: Evidence from Chinese A-Share Listed Firms," Sustainability, MDPI, vol. 13(14), pages 1-17, July.
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    More about this item

    Keywords

    Foreign ownership; Mergers and acquisitions; Multi-product firms; Productivity; Markups; Product quality;
    All these keywords.

    JEL classification:

    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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