Abnormal Returns in Cross-Border and Domestic Acquisitions by Indian Firms: Impact of Method of Payment and Type of Target Firms

The objective of the present paper is to investigate the influence of method of payment employed (cash, stock) in financing the acquisition, and to analyze the impact of the type of target firm (listed, unlisted) acquired on acquirers’ return in cross-border acquisitions and domestic acquisitions separately. A disaggregate analysis has been conducted to examine the impact on acquirers’ return in cross-border acquisitions and domestic acquisitions during the period 2003-08. The results indicate that the acquisitions, financed with cash, generate positive abnormal returns for cross-border acquisitions as well as domestic acquisitions. This could be a signal in favor of ‘asymmetric information hypothesis and free cash flow hypothesis’. The returns are higher in the case of cross-border acquisitions, however, the difference is statistically significant during event window of two days (–1,0) only. The acquirers of the firms listed cross-border experience average abnormal returns of more than three percent (statistically significant) for event window of 11 days (–5,+5) whereas acquirers of domestic listed firms observe losses of more than 1% during the same period. Moreover, the difference in mean CAR is statistically significant. However, the acquirers experience (statistically significant) negative abnormal returns for the post-event window of 19 days (+2, +20) in all acquisitions.