Short Term Performance of Indian Acquirers – Effects of Mode of Payment, Industry Relatedness and Status of Target

Abstract

We study the short term announcement period abnormal returns of acquiring firms in India, using a sample of 1177 transactions, taking place between April 1996 to March 2008. We focus on three determinants of acquirer performance – cash or stock as mode of payment, industry relatedness between target and acquirer, and whether the target is a domestic listed, or domestic unlisted, or a foreign firm. We find that cash financed acquisitions outperform stock paid ones, presumably because of beneficiary role of debt. We document that industry relatedness is a robust determinant of significantly positive abnormal returns, indicating higher value placed on synergistic combinations in India. We show that within domestic targets, acquisition of listed targets are more valuable than that of unlisted targets, a fallout of lack of takeover competition in the former case and fears of misappropriation amidst information unavailability in the latter. We find that cross-border acquisitions generate larger gains than domestic firms, implying that Indian acquirers take the acquisition route to attain parity with their international counterparts

Keywords: mergers, acquisitions, performance, choice of payment, relatedness, cross-border

JEL Classification: G34