Testing Hubris Hypothesis of Mergers and Acquisitions: Evidence from India

Abstract

This paper addresses the relevance of Hubris theory of mergers and acquisitions in the Indian context. We apply event study methodology to examine the short-term market response to merger announcements in the Indian banking and information technology industry.The overall findings report interesting although not surprising results. Hubris hypothesis which states that that the shareholders of the bidding firms would incur loss on merger announcements does not hold well in the Indian perspective. Our findings demonstrate the contrary effect. The bidding firms at least do not fall in deficit from the merger deals and hence mergers and acquisitions could not be seen as a risky investment for their shareholders.

Keywords: merger, acquisition, Hubris, India

JEL Classification: G11, G34, G39