Does Mode of Payment Matter in Mergers and Acquisitions in Determining Announcement Returns and Operating Performance?: A Study of Indian Companies Acquiring Foreign Targets

Journal of Global Economics, Management and Business Research, Vol 2 No. 1 pp 35-48, Jan 2015. International Knowledge Press.

1 Pages Posted: 21 May 2015

See all articles by Vanita Tripathi

Vanita Tripathi

University of Delhi India - Delhi School of Economics - Department of Commerce

Ashu Lamba

Vivekananda Institute of Professional Studies

Date Written: January 1, 2015

Abstract

The present study examines the impact of mode of payment used in cross border mergers and acquisitions by Indian companies on the abnormal returns generated on account of announcement and the post merger operating and financial performance. The study considers the cross border M & A undertaken by Indian companies during the period of 1998-2009. We used event study methodology and post & pre merger performance comparison of financial ratios. One sample t-test, Paired samples t-test and Independent Samples t-test are employed for establishing the statistical significance. Our results convey that the cash paid deals provided significantly higher abnormal returns to the shareholders on the day of announcement than the deals in which other than cash was resorted. Acquiring firms using cash received significantly higher growth in the sales along with a significant increase in debt to equity ratios subsequent to the acquisitions. The reason could be acquiring firms’ continuous dependency on debt for financing the cross border M & A. There has also been a spurt in capital raising by Indian corporate both from domestic as well as foreign capital market during the study’s period. The acquiring firms using cash have also experienced a significant decline in Returns on capital employed.

Keywords: Cross border mergers & acquisitions, event study, operating performance, mode of payment

JEL Classification: G34, M41

Suggested Citation

Tripathi, Vanita and Lamba, Ashu, Does Mode of Payment Matter in Mergers and Acquisitions in Determining Announcement Returns and Operating Performance?: A Study of Indian Companies Acquiring Foreign Targets (January 1, 2015). Journal of Global Economics, Management and Business Research, Vol 2 No. 1 pp 35-48, Jan 2015. International Knowledge Press., Available at SSRN: https://ssrn.com/abstract=2608381

Vanita Tripathi (Contact Author)

University of Delhi India - Delhi School of Economics - Department of Commerce ( email )

Department of Commerce
Delhi University
Delhi, 110007
India

HOME PAGE: http://people@du.ac.in~vtripathi/

Ashu Lamba

Vivekananda Institute of Professional Studies ( email )

25, Shivaji Marg (Business Park)
Delhi, 110015
India

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