Antecedents of Inbound and Outbound M&A: Industry-Level Analysis from India

Cross-border mergers and acquisitions (M&As) allow economic integration across countries and impact industries’ productivity and structure, which has implications for managers, customers, suppliers, and policy-makers. Therefore, it is crucial to examine what drives inbound and outbound M&As more in certain industries compared to other industries. Prior research examined firm-level and country-level factors as antecedents of cross-border M&As, with the firm as the main unit of analysis and subsumed industry effects within country effects. However, not all industry effects—an industry’s capital intensity, for example—can be subsumed under country effects; consequently, the extant empirical findings do not present a holistic view. This study addresses this research gap by segregating industry effects from country effects and examining the impact of an industry’s domestic growth rate, imports growth rate, and capital intensity on the industry’s inbound and outbound M&A activity. Using a dataset of 87 industries from India that spans over a period of 11 years, we find that low capital-intensive industries have higher outbound and inbound M&As in the service sector but low inbound M&As and high outbound M&As in the manufacturing sector. Capital-intensive industries attract inbound M&A only when domestic industry growth and/or imports growth rate is low. These results indicate that foreign multinational-companies prefer to enter India via exports rather than via M&As in capital-intensive industries. This trend conforms to the traditional theories of international business, which do not seem to be completely applicable to outbound M&As from India. Further, an industry’s level of outbound M&A is positively related to the industry’s profitability; however, inbound M&A has no impact on the profitability.