Market Reactions to Foreign Investments in Mergers and Acquisitions: An Empirical Study of Indian Corporates

Posted: 9 Dec 2018

See all articles by Geeta Duppati

Geeta Duppati

Waikato Management School; Waikato Management School

Stuart Locke

University of Waikato - Management School

Stewart

University of Waikato

Date Written: 2012

Abstract

This paper investigates the short-term stock market reaction to the announcement of outward foreign direct investment related Mergers and Acquisitions (M&As) by Indian companies. A new trend in India evident since 2005 is the increasing number of Indian corporates becoming global players, acquiring companies through M&As in countries such as the USA, the UK, France, Germany and other parts of Europe. Prior research covering Indian cross M&As is limited to the service sector whereas the present study includes companies from seven sectors. The principal aim is to investigate the market reaction on the bidders' stock price and compare this to studies in mature markets relating to a similar time period. The second aim is to determine whether there are industry and locational effects relating to the target companies. An event study approach using both abnormal returns and price-pressure effect analyses is adopted and statistically significant results are obtained. The value and volume patterns surrounding the announcement of proposed M&As are examined conjointly and both affirm of an information effect with price and pressure effects. In general, it is found that the market reacted favourably to the announcements, in contrast to other studies using similar time periods, suggesting there may be some interesting behavioural contrasts between emerging market and mature market responses to such announcements.

Suggested Citation

Duppati, Geeta and Locke, Stuart and Lawrence, Stewart, Market Reactions to Foreign Investments in Mergers and Acquisitions: An Empirical Study of Indian Corporates (2012). Available at SSRN: https://ssrn.com/abstract=3284915

Geeta Duppati

Waikato Management School ( email )

Private Bag 3105
Hamilton, 3105
New Zealand
+64 7 838 4477 (Phone)

Waikato Management School ( email )

Hamilton, Waikato
New Zealand
+64 7 838 4477 (Phone)

Stuart Locke (Contact Author)

University of Waikato - Management School ( email )

Hamilton
New Zealand

Stewart Lawrence

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, Waikato 3240
New Zealand

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