South Asian Journal of Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

The Effect of Cross-Border Mergers and Acquisitions on Shareholder Wealth:Evidence from Indian High-technology Industry


Affiliations
1 Department of Business Administration, Mangalore University, Mangalagangothri 574199, Karnataka, India
     

   Subscribe/Renew Journal


This paper examines the shareholder wealth effects of acquirers as well as targets involved in the Cross-Border Mergers &Acquisitions (CB M&As) by employing event study methodology. A sample of 53 outbound CB M&As and 37 inbound CB M&As occurred in the Indian high-technology industry during the period January 1, 2000 to March 31, 2016 has been used. We find that CB M&As do create wealth for the shareholders of acquirers and the target companies in the short-run. It is also observed that the target company shareholders’ wealth effect is significantly higher than the wealth effect of acquirer company shareholders.

Keywords

CB M&As, Event Study Methodology, High-Technology Industry, India, Wealth Effects.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Aw, M. S., & Chatterjee, R. A. (2004). The performance of UK firms acquiring large cross-border and domestic takeover targets. Applied Financial Economics, 14(5), 337-349. doi:10.1080/0960310042000211605

  • Beena, S. (2010). Cross-border mergers and acquisitions in India: Extent, nature and structure. CDS Working Paper No. 434. Retrieved from www.cds.edu/wpcontent/uploads/2012/09/wp434.pdf

  • Bhagat, S., Malhotra, S., & Zhu, P. (2011). Emerging country cross-border acquisitions: Characteristics, acquirer returns and cross-sectional determinants. Emerging Markets Review, 12(3), 250-271. doi:10.1016/j.ememar.2011.04.001

  • Black, E. L., Carnes, T. A., Jandik, T., & Henderson, B. C. (2007). The Relevance of Target Accounting Quality to the Long-Term Success of Cross-Border Mergers. Journal of Business Finance & Accounting, 34(1-2), 139-168. doi:10.1111/j.14685957.2006.01269.x

  • Black, E. L., Doukas, A. J., Xing, X., & Guo, J. M. (2013). Gains to Chinese Bidder Firms: Domestic vs. Foreign Acquisitions. European Financial Management, 21(5), 905-935. doi:10.1111/j.1468-036x.2013.12031.x

  • Boateng, A., Qian, W., & Tianle, Y. (2008). Cross-border M&As by Chinese firms: An analysis of strategic motives and performance. Thunderbird International Business Review, 50(4), 259-270. https://doi.org/10.1002/tie.20203

  • Brown, S. J., & Warner, J. B. (1980). Measuring security price performance. Journal of Financial Economics, 8(3), 205-258. doi:10.1016/0304-405x(80)90002-1

  • Brown, S. J., & Warner, J. B. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14(1), 3-31. doi:10.1016/0304405x(85)90042-x

  • Buckley, P. J., Munjal, S., Enderwick, P., & Forsans, N. (2016). Cross-border acquisitions by Indian multinationals: Asset exploitation or asset augmentation? International Business Review, 25(4), 986-996. doi:10.1016/j.ibusrev.2015.10.006

  • Caiazza, R., & Volpe, T. (2015). M&A process: a literature review and research agenda. Business Process Management Journal, 21(1), 205-220. https://doi.org/ 10.1108/BPMJ-11-2013-0145

  • Campa, J. M., & Hernando, I. (2004). Shareholder Value Creation in European M&As. European Financial Management, 10(1), 47-81. doi:10.1111/j.1468036x.2004.00240.x

  • Corrado, C. J. (2011). Event studies: A methodology review. Accounting & Finance, 51(1), 207-234. doi:10.1111/j.1467-629x.2010.00375.x

  • Correa, R. (2009). Cross-Border Bank Acquisitions: Is There a Performance Effect? Journal of Financial Service Research, 36, 169-197. doi:10.1007/s10693-008-0043-6

  • Cowan, A. R. (1992). Nonparametric event study tests. Review of Quantitative Finance and Accounting, 2(4), 343-358. https://doi.org/10.1007/BF00939016

  • Danbolt, J. (2004). Target Company Cross-border Effects in Acquisitions into the UK. European Financial Management, 10(1), 83-108. doi:10.1111/j.1468036x.2004.00241.x

  • Danbolt, J., & Maciver, G. (2012). Cross-Border versus Domestic Acquisitions and the Impact on Shareholder Wealth. Journal of Business Finance & Accounting, 39(7-8), 1028-1067. doi:10.1111/j.1468-5957.2012.02294.x

  • Datta, D. K., & Puia, G. (1995). Cross-border acquisitions: An examination of the influence of relatedness and cultural fit on shareholder value creation in US acquiring firms. Management International Review, 35(4), 337-359.

  • Deng, P. (2010). Absorptive capacity and a failed crossborder M&A. Management Research Review, 33(7), 673–682. https://doi.org/10.1108/01409171011055771

  • Dos santos, M. B., Errunza, V. R., & Miller, D. P. (2008). Does corporate international diversification destroy value? Evidence from cross-border mergers and acquisitions. Journal of Banking and Finance, 32, 2716-2724. Retrieved from http://doi.org/10.1016/j.jbankfin.2008.07.010

  • Drymbetas, E., & Kyriazopoulos, G. (2014). Short-term stock price behaviour around European cross-border bank M&As. Journal of Applied Finance and Banking, 4(3), 47-70. Retrieved from http://www.scienpress.com/Upload/JAFB/Vol%204_3_3.pdf

  • Duppati, G. R., & Rao, N. V. (2015). Cross-border mergers and acquisitions: Mature markets vs. emerging markets-with special reference to the USA and India. Cogent Business & Management, 2(1), 1–11. https://doi.org/10.1080/ 23311975.2015.1088817

  • Duppati, G., Locke, S., & Lawrence, S. (2013). Assessing the effects of cross border mergers and acquisitions on stock market performance of Indian acquiring firms. Journal of Economic Policy and Research, 8(2), 20-40.

  • Eckbo, B. E., & Thorburn, K. S. (2000). Gains to Bidder Firms Revisited: Domestic and Foreign Acquisitions in Canada. The Journal of Financial and Quantitative Analysis, 35(1), 1-25. doi:10.2307/2676236

  • Faisal Ahammad, M., & Glaister, K. W. (2008). Recent trends in UK crossborder mergers and acquisitions. Management Research News, 31(2), 86-98. doi:10.1108/01409170810846812

  • Gregory, A., & O’Donohoe, S. (2014). Do cross border and domestic acquisitions differ? Evidence from the acquisition of UK targets. International Review of Financial Analysis, 31, 61-69. doi:10.1016/j.irfa.2013.09.001

  • Gubbi, S. R., Aulakh, P. S., Ray, S., Sarkar, M. B., & Chittoor, R. (2010). Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies, 41(3), 397-418. doi:10.1057/jibs.2009.47

  • Hudgins, S. C., & Seifert, B. (1996). Stockholder returns and international acquisitions of financial firms: An emphasis on banking. Journal of Financial Services Research, 10(2), 163-180. doi:10.1007/bf00115674

  • Kalghatgi, J., & Badi, V. R. (2013). Cross border mergers and acquisitions and its effect on shareholders wealth in India. International Journal of Research in Commerce and Management, 4(6), 5-9.

  • Kashiramka, S., & Rao, N. M. (2014). Shareholders Wealth Effects of Mergers and Acquisitions on Acquiring Firms in the Indian IT and ITES Sector. South Asian Journal of Management, 21(3), 140–166.

  • Kiymaz, H., & Baker, H. K. (2008). Short-term performance, industry effects, and motives: Evidence from large M&As. Quarterly Journal of Finance and Accounting, 47(2), 17-44.

  • Kohers, N., & Kohers, T. (2001). Takeovers of Technology Firms: Expectations vs. Reality. Financial Management, 30(3), 35-54. doi:10.2307/3666375

  • Kohli, R., & Mann, B. J. (2012). Analyzing determinants of value creation in domestic and cross border acquisitions in India. International Business Review, 21(6), 998-1016. doi:10.1016/j.ibusrev.2011.11.006

  • Lan, S., Yang, F., & Zhu, H. (2015). The long-term performance of cross-border mergers and acquisitions. Chinese Management Studies, 9(3), 385-400. doi:10.1108/cms-10-2013-0193

  • Li, J., Li, P., & Wang, B. (2016). Do cross-border acquisitions create value? Evidence from overseas acquisitions by Chinese firms. International Business Review, 25(2), 471-483. doi:10.1016/j.ibusrev.2015.08.003

  • Lowinski, F., Schiereck, D., & Thomas, T. W. (2004). The Effect of Cross-Border Acquisitions on Shareholder Wealth—Evidence from Switzerland. Review of Quantitative Finance and Accounting, 22(4), 315-330. doi:10.1023/b:requ.0000032601.84464.52

  • MacKinlay, A. C. (1997). Event Studies in Economics and Finance. Journal of Economic Literature, 35(1), 13-39. Retrieved from http://www.jstor.org/stable/2729691

  • Mallikarjunappa, T., & Nayak, P. (2013). A study of wealth effects of takeover announcements in India on target company shareholders. Vikalpa, 38(3), 23-47.

  • Mann, B. J., & Kohli, R. (2011). Target shareholders’ wealth creation in domestic and crossborder acquisitions in India. International Journal of Commerce & Management, 21(1), 63-81. doi:10.1108/10569211111111702

  • Mateev, M., & Andonov, K. (2016). Do cross-border and domestic bidding firms perform differently? New evidence from continental Europe and the UK. Research in International Business and Finance, 37, 327-349. doi:10.1016/j.ribaf.2016.01.001

  • Mentz, M., & Schiereck, D. (2008). Cross-border mergers and the cross-border effect: the case of the automotive supply industry. Review of Managerial Science, 2(3), 199-218. doi:10.1007/s11846-008-0022-1

  • Moeller, S. B., & Schlingemann, F. P. (2005). Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions. Journal of Banking & Finance, 29(3), 533-564. doi:10.1016/j.jbankfin.2004.05.018

  • Narayan, P., & Thenmozhi, M. (2014). Do cross-border acquisitions involving emerging market firms create value. Management Decision, 52(8), 1451-1473. doi:10.1108/md-04-2014-0227

  • Nnadi, M., & Tanna, S. (2013). Analysis of crossborder and domestic megaM&As of European commercial banks. Managerial Finance, 39(9), 848-862. doi:10.1108/mf-01-2010-0006

  • Oelger, M., & Schiereck, D. (2011). Cross-border M&A and international stock market integration –Evidence from Turkey. International Journal of Economic Research, 2(3), 40-55. Retrieved from http://www.ijeronline.com/documents/volumes/Vol2issue3/ijer20110203%286%29.pdf

  • Popli, M., & Sinha, A. K. (2014). Determinants of early movers in cross-border merger and acquisition wave in an emerging market: A study of Indian firms. Asia Pacific Journal of Management, 31(4), 1075-1099. doi:10.1007/s10490014-9378-8

  • Ramiah, V., Pham, H. N. A., & Moosa, I. (2017). The sectoral effects of Brexit on the British economy: early evidence from the reaction of the stock market. Applied Economics, 49(26), 2508-2514. https://doi.org/10.1080/00036846.2016.1240352

  • Rani, N., & Asija, A. (2017). Has Financial Crisis Affected the Announcement Gains of Indian Cross-border Acquisitions? IIM Kozhikode Society & Management Review, 6(1), 55-66. https://doi.org/10.1177/2277975216676126

  • Rani, N., Yadav, S. S., & Jain, P. K. (2013). Market Response to the Announcement of Mergers and Acquisitions: An Empirical Study from India. Vision: The Journal of Business Perspective, 17(1), 1-16. https://doi.org/10.1177/0972262912469558

  • Rani, N., Yadav, S. S., & Jain, P. K. (2014a). Impact of Domestic and CrossBorder Acquisitions on Acquirer Shareholders’ Wealth: Empirical Evidence from Indian Corporate. International Journal of Business and Management, 9(3), 88-110. doi:10.5539/ijbm.v9n3p88

  • Rani, N., Yadav, S. S., & Jain, P. K. (2014b). Abnormal Returns in Cross-border and Domestic Acquisitions by Indian Firms: Impact of Method of Payment and Type of Target Firms. South Asian Journal of Management, 21(1), 84-116.

  • Rani, N., Yadav, S. S., & Jain, P. (2015a). Market response to internationalization strategies: Evidence from Indian cross-border acquisitions. IIMB Management Review, 27(2), 80-91. doi:10.1016/j.iimb.2015.03.002

  • Rani, N., Yadav, S. S., & Jain, P. K. (2015b). Impact of mergers and acquisitions on shareholders’ wealth in the short-run: An event study approach. Vikalpa, 40(3), 293-311.

  • Rao-Nicholson, R., & Salaber, J. (2013). The motives and performance of crossborder acquirers from emerging economies: Comparison between Chinese and Indian firms. International Business Review, 22(6), 963-980. doi:10.1016/j.ibusrev.2013.02.003

  • Ray, S., & Gubbi, S. R. (2009). International acquisitions by Indian firms: Implications for research on emerging multinationals. Indian Journal of Industrial Relations, 45(1), 11-26. Retrieved from http://www.jstor.org/stable/27768251

  • RenzeWestendorf, M., Schiereck, D., & Zeidler, F. (2009). CrossBorder Acquisitions and Shareholder Wealth: Evidence from Spain. Management Research: Journal of the Iberoamerican Academy of Management, 7(2), 127-140. doi:10.2753/jmr1536-5433070203

  • Roll, R. (1986). The Hubris Hypothesis of Corporate Takeovers. The Journal of Business, 59(2), 197-216. doi:10.1086/296325

  • Saboo, S., & Gopi, S. (2009). Comparison of post-merger performance of acquiring firms (India) involved in domestic and cross-border acquisitions. MPRA Paper No. 19274. Retrieved from http://mpra.ub.uni-muenchen.de/19274/

  • Shimizu, K., Hitt, M. A., Vaidyanath, D., & Pisano, V. (2004). Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future. Journal of International Management, 10(3), 307-353. doi:10.1016/j.intman.2004.05.005

  • Srivastava, R., & Prakash, A. (2014). Value creation through cross-border mergers and acquisitions by the Indian pharmaceutical firms. Journal of Strategy and Management, 7(1), 49-63. doi:10.1108/jsma-03-2013-0017

  • Tao, F., Liu, X., Gao, L., & Xia, E. (2017). Do cross-border mergers and acquisitions increase short-term market performance? The case of Chinese firms. International Business Review, 26(1), 189-202. https://doi.org/10.1016/j.ibusrev.2016.06.006

  • Uddin, M., & Boateng, A. (2009). An analysis of shortrun performance of crossborder mergers and acquisitions. Review of Accounting and Finance, 8(4), 431453. doi:10.1108/14757700911006967

  • UNCTAD. (2000). World investment report 2000: Cross-border mergers and acquisitions and development: overview. New York: United Nations.

  • UNCTAD. (2017). World investment report 2017: Investment and the digital economy. New York Geneva: United Nations.

  • Wu, X., Yang, X., Yang, H., & Lei, H. (2016). Cross-Border Mergers and Acquisitions by Chinese Firms: value creation or value destruction? Journal of Contemporary China, 25(97), 130-145. https://doi.org/10.1080/10670564.2015.1060769

  • Zhu, H., Xia, J., & Makino, S. (2015). How do high-technology firms create value in international M&A? Integration, autonomy and cross-border contingencies. Journal of World Business, 50(4), 718-728. doi:10.1016/j.jwb.2015.01.001

  • Zhu, P., Jog, V., & Otchere, I. (2011). Partial acquisitions in emerging markets: A test of the strategic market entry and corporate control hypotheses. Journal of Corporate Finance, 17(2), 288-305. doi:10.1016/j.jcorpfin.2010.09.003


Abstract Views: 173

PDF Views: 0




  • The Effect of Cross-Border Mergers and Acquisitions on Shareholder Wealth:Evidence from Indian High-technology Industry

Abstract Views: 173  |  PDF Views: 0

Authors

P. K. Ranju
Department of Business Administration, Mangalore University, Mangalagangothri 574199, Karnataka, India
T. Mallikarjunappa
Department of Business Administration, Mangalore University, Mangalagangothri 574199, Karnataka, India

Abstract


This paper examines the shareholder wealth effects of acquirers as well as targets involved in the Cross-Border Mergers &Acquisitions (CB M&As) by employing event study methodology. A sample of 53 outbound CB M&As and 37 inbound CB M&As occurred in the Indian high-technology industry during the period January 1, 2000 to March 31, 2016 has been used. We find that CB M&As do create wealth for the shareholders of acquirers and the target companies in the short-run. It is also observed that the target company shareholders’ wealth effect is significantly higher than the wealth effect of acquirer company shareholders.

Keywords


CB M&As, Event Study Methodology, High-Technology Industry, India, Wealth Effects.

References