India Studies in Business and Economics

Neelam Rani
Surendra Singh Yadav
Pramod Kumar Jain

Mergers
and
Acquisitions
A Study of Financial Performance,
Motives and Corporate Governance
India Studies in Business and Economics
The Indian economy is considered to be one of the fastest growing economies of the
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Neelam Rani Surendra Singh Yadav
•

Pramod Kumar Jain

Mergers and Acquisitions

A Study of Financial Performance, Motives
and Corporate Governance

123
Neelam Rani Pramod Kumar Jain
Indian Institute of Management Shillong Department of Management Studies
Shillong, Megalaya Indian Institute of Technology Delhi
India New Delhi
India
Surendra Singh Yadav
Department of Management Studies
Indian Institute of Technology Delhi
New Delhi
India

ISSN 2198-0012 ISSN 2198-0020 (electronic)

India Studies in Business and Economics
ISBN 978-981-10-2202-9 ISBN 978-981-10-2203-6 (eBook)
DOI 10.1007/978-981-10-2203-6

Library of Congress Control Number: 2016947377

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Foreword

Mergers and Acquisitions (M&A), as mentioned by Rani, Yadav and Jain, are ways
‘to gain access to new resources and new markets’. In a merger, two companies are
combined and in an acquisition a company takes over another company. Both the
processes assume that ‘two separate companies together create more value com-
pared to being on an individual stand’. In India, in post liberalization era, many
companies have adopted M&A as a strategy to grow with the expectation of
improving their competitiveness in the global market. In their current volume on
Mergers and Acquisitions, Rani, Yadav and Jain, through rigorous research
methodology, examine the experiences that the Indian companies have gone
through in adopting M&A as a strategy for expansion and improving competi-
tiveness. In particular, the study examines:
• Abnormal returns to the shareholders of acquiring firms, if any, on the
announcement of M&A decisions of firms;
• Long-term financial performances of the firms adopting M&A strategy;
• Management views why Indian firms adopt M&A as a part of their corporate
strategy; and
• Corporate Governance of firms and its short term and long term impacts on firms
adopting M&A strategy.
The authors of the volume consider M&A to be very significant in corporate
finance. In responding to the usual question whether or not M&A result in positive
returns, the study shows evidence that the share holders get positive abnormal
returns on the day the firms announce their M&A decisions. The share holders also
get abnormally high returns over multiday period. The study suggests that M&A
create wealth for the shareholders.
The empirical evidences show that the profitability of Indian firms in the post
M&A period has been higher than that over the pre M&A period. The authors
suggest that it has been the impact of M&A. Thus M&A is an appropriate way for
expansions of firms in India. The authors could have examined the behavior of

v
vi Foreword

value addition per employee to assess to what extent firms’ competitiveness has
improved after M&A.
In assessing the management views on why Indian firms adopt M&A as a
strategic tool for firms, the authors did a survey among the Finance Directors of
firms which have gone for M&A. To achieve synergy is why primarily firms go for
M&A. The next two reasons are to consolidate and to adopt a strategy for inorganic
growth.
Corporate governance is a key to building trust of investors in the economy. The
authors’ view that corporate governance has an impact on M&A in firms. To assess
corporate governance in a firm, they propose a corporate governance index. They
have shown how this index would be used in assessing the impact of the corporate
governance in firms on performance of M&A. The computation of corporate
governance as suggested by the authors involves certain scoring methods. It is not
clear how the picture would get affected if the scoring mechanism is changed.
An empirical study on measuring impact of mergers and acquisitions on
financial performance, motives and impact of corporate governance on performance
of acquiring firms is really desirable academic exercise. The authors have done a
comprehensive study, probably a pioneering study, on the experience of firms who
have gone for M&A as a strategic tool for growth and expansion. The authors have
adopted a very rigorous approach for the study. The conclusions are based on
precise statistical tools. The insights the authors bring out from the study are
significant and would be of immense use to the policy makers and to the firms who
would consider mergers and acquisitions as strategic tools. I am sure the study
would inspire more research on M&A experience in India and bring more insight so
that M&A becomes an effective strategic tool for Indian firms.
Dr. Neelam Rani, Prof. Surendra Singh Yadav and Prof. Pramod Kumar Jain
deserve complements of all the researchers in corporate finance for leading this
research effort. All those associated with the publication of this book also deserve
appreciation.

Prof. Jahar Saha

Former Director
Indian Institute of Management Ahmedabad
India
Preface

Globalization and liberalization have led firms from emerging markets like India to
gain access to new resources and new markets. Two of the strategies of this access
are mergers and acquisitions as they increase revenues, reduce costs and make the
firms globally competitive. Of late, mergers and acquisitions (M&A) have grown at
a rapid pace, which calls for an in-depth research as to what drives firms towards
these phenomena and how it affects them financially.
The present monograph presents a research work relating to the impact of
mergers and acquisitions on the returns in short and long terms. For the purpose,
well-established research techniques, namely, event study methodology and two
experimental designs, viz., ‘before-and-after design’ and ‘after-only design’ have
been used. Besides these techniques, two surveys have also been conducted for
top-level Indian corporate managers of the organizations that adopted the strategy
of M&A. The surveys aim to gauge the managerial views about the corporate
governance practices and the motives of mergers and acquisitions respectively. The
findings of the survey are corroborated with the secondary data analysis.
The notable finding of the research is that market starts reacting prior to the
announcement. The moment the information is made public; investors start reacting
and the stock price jumps high, providing positive abnormal returns to the inves-
tors. Cross-border as well as domestic acquisitions have created value for share-
holders of the acquirer company on the announcement. The results indicate that
value creation is higher for cross-border acquisitions vis-a-vis domestic acquisi-
tions. The acquisitions financed with cash experience higher returns than the
acquisitions financed with stock. The acquirers of unlisted target firms experience
higher returns than the acquirers of listed target firms. The acquirers earn when
target remains as a wholly owned subsidiary. In contrast, the shareholders of
acquirer lose when the target firm is absorbed with the operations of the acquiring
firm. The acquisitions of targets from non-US developed market outperform the
return from the acquisition of US targets.

vii
viii Preface

Survey findings reveal that the primary motive of mergers in India during
2003–2015 has been to take advantage of synergies. Operating economies,
increased market share and financial economies (lower risk leading to lower cost of
capital) have been indicated in order of importance as the desired synergies to be
gained through corporate mergers and acquisitions in India.
M&As appear to have been financially beneficial for the acquiring companies.
Practice of corporate governance has progressed in a big way in Indian companies
as revealed by their mean score; mean corporate governance score has also
improved over time. There are several companies which proactively took initiatives
and introduced good governance norms and standards even before these became
mandatory. Companies in service sector have better corporate governance score
than others. There is a positive association between corporate governance score and
shareholders’ wealth due to announcements of mergers and acquisitions.
Companies with better corporate governance create higher shareholders wealth in
short term. Companies having higher corporate governance score show better
financial performance on the basis of all measures of rate of return. Companies with
higher corporate governance score show better valuations.
Based on the findings of the research study, the following recommendations
have been made for the investors: (i) Earlier he sells, more he gains in case he
wants to earn abnormal short-term returns. (ii) An investor can also earn sub-
stantial returns if the shares of the acquiring company are purchased two days prior
to the announcement day and sold two days after the announcement day. (iii) The
announcement of cross-border acquisitions provides much higher returns than that
for domestic acquisitions. In addition, the cumulative abnormal returns in the case
of cross-border acquisitions are relatively more lasting while they are temporary in
the case of domestic acquisitions. (iv) The announcement of complete acquisitions
of target firm as a wholly owned subsidiary provides much higher returns than that
for partial/ majority control acquisitions. Besides, the cumulative abnormal returns
in the case of complete acquisitions are relatively more lasting while they are
temporary in the case of partial/majority control acquisitions. (v) The announce-
ment of acquisitions financed with cash payment provides substantial returns.
(vi) As far as agency costs are concerned, investments in companies with better
corporate governance score are more profitable.
Based on the findings of the research study, the following recommendations
have been made for the corporate managers and policy makers: (i) The study
suggests that the Indian managers adopt mergers and acquisitions as effective
strategy for corporate growth. It brings attention of the managers to consider
cross-border as well as domestic acquisitions as an option to strengthen their
competitiveness as the effects of these announcements appear to be a good indicator
of longer term success. (ii) Managers should think of cash as a mode of payment to
finance mergers. (iii) The management may acquire the target firm as a subsidiary
and may absorb it with its own operations later on. (iv) The management should be
aware of the need for efficient corporate governance structure and mechanism to
Preface ix

control information asymmetry. (v) The findings that firm performance is signifi-
cantly influenced by effective corporate governance could serve to justify regulatory
measures towards enforcing healthy corporate governance regime and initiatives to
encourage companies to adopt and adhere to these measures.

Shillong, India Neelam Rani

New Delhi, India Surendra Singh Yadav
New Delhi, India Pramod Kumar Jain
Acknowledgements

At the outset, we would like to thank the Almighty for His blessings to inspire us to
undertake this academic endeavor. The work has been possible with the coopera-
tion, help, encouragement, guidance and wishes of many people and we express our
sincere thanks to all of them.
We are grateful to Prof. R.K. Shevgaonkar, Ex-Director, Indian Institute of
Technology (IIT) Delhi, Prof. V. Ramgopal Rao, Director, IIT Delhi and
Prof. Amitabha De, Director, Indian Institute of Management (IIM) Shillong for
their kind support and cooperation. We express our sincere thanks to
Prof. Kanika T. Bhal, Head, Department of Management Studies, IIT Delhi for her
motivation to pursue this task. We are also thankful to all the colleagues in the
Department of Management Studies, IIT Delhi, and in IIM Shillong for their
encouragement and good wishes for this endeavor.
In addition, we are genuinely obliged to all the respondents of the survey, who
took out time from their busy schedules to provide data for this work. Special
thanks are due to Ms. Dhanya Jothimani, (Research Scholar, DMS) for her support
from time to time.
We have a word of appreciation for the excellent support from Sagarika Ghosh
and Nupoor Singh and their team members of Springer for the speedy and excellent
publication of the book.
Professor Pramod Kumar Jain acknowledges his wife Uma for her patience,
understanding, cooperation, and encouragement.
Dr. Neelam Rani takes this opportunity to express her deepest gratitude to most
revered gurus and co-authors, Profs. Surendra Singh Yadav and Pramod Kumar Jain,
for their valuable guidance, inspiration, motivation and untiring efforts in completion
for the work.

xi
xii Acknowledgements

Dr. Neelam Rani expresses her sincere gratitude to Dr. Paul Calluzzo, Assistant
Parofessor, Smith School of Business, Ontario, Canada for his “Happy to help”
approach. It was not possible to complete work without his help.
Last but not least, we are grateful to our family members for their continuous
encouragement.

Neelam Rani
Surendra Singh Yadav
Pramod Kumar Jain
Contents

1 Mergers and Acquisitions: An Introduction . . . . . . . . . . . . . . . . . . . . 1

1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Description of the Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Objectives and Significance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3.1 Objectives of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3.2 Significance of the Study . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Scope of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.5 Methodology of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.6 Organization of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.7 Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2 Research Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Research Objectives and Hypotheses . . . . . . . . . . . . . . . . . . . . . . 12
2.2.1 Research Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2.2 Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Research Methodology and Scope . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3.1 Research Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3.2 Scope of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 Event Study Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4.1 Mechanics of Event Study . . . . . . . . . . . . . . . . . . . . . . . . 16
2.4.2 Statistical Significance of Abnormal Returns . . . . . . . . . . 20
2.5 Data Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.6 Sample Selection Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.7 Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3 Short-Term Performance of Mergers and Acquisitions . . . . . . . . . . . 37
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.2 Description of Sample Selection and Sample Characteristics . . . . 39
3.3 Analysis of Short-Term Performance of Entire Sample . . . . . . . . 40

xiii
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3.3.1 Impact of Announcement of M&A on Stock

Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.3.2 Frequency Distribution of Abnormal Returns . . . . . . . . . 46
3.4 Analysis of Cross-Border Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.4.1 Analysis of Short-Term Performance of Cross-Border
M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
3.4.2 Analysis of Short-Term Performance of Domestic
M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
3.4.3 Cross-Border Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
3.5 Analysis of Control Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
3.5.1 Analysis of Short-Term Performance of Acquisitions
of Partial/Majority Control . . . . . . . . . . . . . . . . . . . . . . . 61
3.5.2 Analysis of Short-Term Performance of Acquisitions
of Complete Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
3.5.3 Analysis of Short-Term Performance of Acquisitions
of Target Firm to Be Observed with Acquirer’s
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
3.5.4 Control Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
3.6 Analysis of Listing Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
3.6.1 Analysis of Short-Term Performance of M&A
of Unlisted Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
3.6.2 Analysis of Short-Term Performance of M&A
of Listed Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
3.6.3 Listing Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
3.7 Analysis of Payment Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
3.7.1 Analysis of Short-Term Performance of M&A
Financed with Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
3.7.2 Analysis of Short-Term Performance of M&A
Financed with Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
3.7.3 Analysis of Short-Term Performance of M&A
Financed with Mixed Payment/Earn-Outs . . . . . . . . . . . . 85
3.7.4 Payment Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
3.8 Analysis of Geography Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
3.8.1 Analysis of Short-Term Performance of Acquisitions
of Target Firms from Developed Markets . . . . . . . . . . . . 91
3.8.2 Analysis of Short-Term Performance
of Cross-Border Acquisitions of Target Firms
from Emerging Markets. . . . . . . . . . . . . . . . . . . . . . . . . . 99
3.9 Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
4 Financial Performance Analysis of Mergers and Acquisitions . . . . . . 109
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
4.2 Paired Samples t-Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Contents xv

4.3 Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

4.3.1 Profitability Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
4.3.2 Expense Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
4.3.3 Efficiency Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
4.3.4 Liquidity Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.3.5 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.4 Empirical Results of Paired Samples t-Test . . . . . . . . . . . . . . . . . 117
4.4.1 Analysis of Pre-M&A and Post-M&A
Profitability Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . .... 118
4.4.2 Analysis of Pre-M&A and Post-M&A Efficiency
Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 123
4.4.3 Analysis of Pre-M&A and Post-M&A
Liquidity Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 124
4.4.4 Analysis of Pre-M&A and Post-M&A
Leverage Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
4.5 Analysis of Sources of Performance . . . . . . . . . . . . . . . . . . . . . . . 125
4.5.1 Du Pont Analysis Based on OPM . . . . . . . . . . . . . . . . . . 126
4.5.2 Du Pont Analysis Based on OCFR . . . . . . . . . . . . . . . . . 128
4.6 Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
5 Survey of Management View on Motives for Mergers
and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
5.2 Survey Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
5.2.1 Validity Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
5.2.2 Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
5.2.3 Respondents’ Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
5.3 Survey Results and Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
5.4 Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
6 Development of Corporate Governance Index . . . . . . . . . . . . . . . . . . 147
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
6.2 Research Design and Respondents’ Profile . . . . . . . . . . . . . . . . . . 148
6.2.1 Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
6.2.2 Survey Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
6.2.3 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
6.3 Development of Corporate Governance Index . . . . . . . . . . . . . . . 152
6.3.1 Management Discipline (MDIS) . . . . . . . . . . . . . . . . . . . 152
6.3.2 Transparency (TRA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
6.3.3 Independence (IND) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
6.3.4 Accountability (ACC) . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
6.3.5 Responsibility (RES) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
xvi Contents

6.3.6 Fairness (FAI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 153

6.3.7 Corporate Governance Initiatives, Recognition,
and Corporate Social Responsibility (CGR) . . . . . . . . . . 153
6.4 Corporate Governance Score of Respondent Companies . . . . . . . 160
6.5 Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
7 Impact of Corporate Governance Score on Abnormal
Returns and Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . 169
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
7.2 Analysis of Corporate Governance Score . . . . . . . . . . . . . . . . . . . 170
7.2.1 Distribution of Corporate Governance Score . . . . . . . . . . 171
7.2.2 Group-Wise Independent Samples t-Test . . . . . . . . . . . . . 172
7.3 Impact of Corporate Governance Score on Short-Term
Abnormal Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 173
7.4 Impact of Corporate Governance Score on Post-M&A
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 175
7.4.1 Impact of Corporate Governance Score
on Post-M&A Financial Performance . . . . . . . . . . . .... 175
7.4.2 Impact of Corporate Governance Score
on Post-M&A Valuation . . . . . . . . . . . . . . . . . . . . . .... 180
7.5 Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 182
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 182
8 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
8.2 Major Findings of the Research . . . . . . . . . . . . . . . . . . . . . . . . . . 184
8.2.1 Findings Related to Short-term Abnormal
Returns of M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
8.2.2 Findings Related to Management Views
on Motives for M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
8.2.3 Findings Related to Financial Performance of M&A . . . . 185
8.2.4 Findings Related to Corporate Governance Score . . . . . . 186
8.2.5 Findings Related to Impact of Corporate
Governance Score . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
8.3 Recommendations from the Study . . . . . . . . . . . . . . . . . . . . . . . . 187
8.3.1 Recommendations for Investors . . . . . . . . . . . . . . . . . . . . 187
8.3.2 Recommendations for Corporate Managers . . . . . . . . . . . 188
8.3.3 Recommendations for Policy Makers . . . . . . . . . . . . . . . 188
8.4 Contribution of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
8.5 Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Contents xvii

Appendix A: Respondent Companies in Survey . . . . . . . . . . . . . . . . . . . . 191

Appendix B: Sample Companies in Event Study

(Cross-Border Complete Acquisitions) . . . . . . . . . . . . . . . . . 197

Appendix C: Sample Companies in Event Study

(Cross-Border Partial/Majority Control
Acquisitions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

Appendix D: Sample Companies in Event Study (Domestic

Complete Acquisitions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

Appendix E: Sample Companies in Event Study (Domestic

Partial/ Majority Control Acquisitions) . . . . . . . . . . . . . . . . 231

Appendix F: Sample Companies in Event Study (Target Firms

Totally Absorbed With the Acquirers’ Operations) . . . . . . 241

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
About the Authors

Neelam Rani is Assistant Professor at Indian Institute of Management Shillong,

India. She obtained her Ph.D. from Indian Institute of Technology Delhi. She has
been a Fulbright Visiting Scholar at Rutgers Business School, the State University
of New Jersey, Newark. She is a recipient of various awards such as NSE prize for
Best Thesis in Financial Economics, outstanding paper awards by Amity
International Business School, Noida in 2013 and Indian Institute of Capital
Markets, Mumbai in 2014. She has been awarded the 3E Innovative Young
Researcher Award. She has 20 years of teaching and research experience in subjects
related to management accounting, financial management, costing and engineering
economics and industrial economics. She has contributed/presented more than
75 papers in journals and conferences.
Surendra Singh Yadav is Professor of Finance at the Department of Management
Studies, Indian Institute of Technology (IIT Delhi), India. He was the Head of the
Department of Management Studies for six years. He teaches corporate finance,
international finance, international business, and security analysis and portfolio
management. He has been Visiting Professor at the University of Paris, Paris
School of Management, INSEEC Paris, and the University of Tampa, USA. He has
published 12 books and contributed more than 230 papers to research journals and
conferences. He has also contributed more than 30 papers to financial/economic
newspapers. He is the editor-in-chief of the Journal of Advances in Management
Research (JAMR) published by Emerald Publishing, UK.
Pramod Kumar Jain is Professor of Finance and the Modi Chair Professor at the
Department of Management Studies, Indian Institute of Technology (IIT Delhi),
India. He has been the Dalmia Chair Professor as well. Recently, he has been
awarded with ‘Best Faculty Award’ at IIT Delhi. He has more than 40 years of
teaching experience in subjects related to management accounting, financial man-
agement, financial analysis, cost analysis, and cost control. He has been a visiting
faculty at the AIT Bangkok; University of Paris; Howe School of Technology

xix
xx About the Authors

Management at Stevens Institute of Technology, New Jersey; and ICPE, Ljubljana.

He has authored three well-known text books published by TMH and more than ten
research monographs. He has contributed more than 150 research papers in journals
of national and international repute.
Abbreviations

AAR Average Abnormal Returns

BSE Bombay Stock Exchange
CAAR Cumulative Average Abnormal Returns
CAPM Capital Asset Pricing Model
CATR Current Assets Turnover Ratio
CSLA Credit Securities Lyonnais Agency
EDIFAR Electronic Data Information Filing and Retrieval system
FATR Fixed Assets Turnover Ratio
M&A Mergers and Acquisitions
NCR National Capital Region
NPM Net Profit Margin
NSE National Stock Exchange
OCFR Operating Cash Flow Ratio
OPM Operating Profit Margin
ROCE Return On Capital Employed
ROE Return On Equity funds
SEBI Securities and Exchange Board of India
SENSEX Sensitivity Index
SOX (2002) Sarbanes Oxley Legislation (2002)
TATR Total Assets Turnover Ratio
UK United Kingdom
USA/US United States of America

xxi
List of Figures

Figure 2.1 Outline of research methodology . . . . . . . . . . . . . . . . . . . . . .. 14

Figure 2.2 Return analysis time line for event study research design . . .. 17
Figure 3.1 Average abnormal returns during the event window . . . . . . .. 43
Figure 3.2 Cumulative average abnormal returns during the event
window . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 43
Figure 3.3 Frequency distribution of average abnormal returns
on the announcement day . . . . . . . . . . . . . . . . . . . . . . . . . . .. 46
Figure 3.4 Frequency distribution of CAAR on pre-event
windowsEvent window [(−20, +2), (−15, −2),
and (−10, −2)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 47
Figure 3.5 Frequency distribution of CAAR on pre-event windows
[(−5, +2), (−5, 0), and (−1, 0)] . . . . . . . . . . . . . . . . . . . . . . .. 48
Figure 3.6 Frequency distribution of CAAR on event windows
[(−1, +1), (−2, +2), and (−5, +5)] . . . . . . . . . . . . . . . . . . . . .. 49
Figure 3.7 Frequency distribution of CAAR on event windows
[(−10, +10) and (−20, +20)] . . . . . . . . . . . . . . . . . . . . . . . . .. 50
Figure 3.8 Frequency distribution of CAAR on post-event windows
[(0, +1), (0, +5), and (+2, +5)] . . . . . . . . . . . . . . . . . . . . . . .. 51
Figure 3.9 Frequency distribution of CAAR on post-event windows
[(+2, +10), (+2, +15), and (+2, +20)] . . . . . . . . . . . . . . . . . .. 52
Figure 3.10 AAR of cross-border M&A over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 55
Figure 3.11 CAAR of cross-border M&A over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 55
Figure 3.12 AAR of domestic M&A over event window (−20, +20) . . . .. 57
Figure 3.13 CAAR of domestic M&A over event window (−20, +20) . .. 57
Figure 3.14 AAR of cross-border and domestic M&A
over event window (−20, +20) . . . . . . . . . . . . . . . . . . . . . . .. 59
Figure 3.15 CAAR of cross-border and domestic M&A
over event window (−20, +20) . . . . . . . . . . . . . . . . . . . . . . .. 60

xxiii
xxiv List of Figures

Figure 3.16 AAR of partial/majority control acquisitions

over event window (−20, +20) . . . . . . . . . . . . . . . . . . . . . . .. 63
Figure 3.17 CAAR of partial/majority control acquisitions
over event window (−20, +20) . . . . . . . . . . . . . . . . . . . . . . .. 63
Figure 3.18 AAR of acquisitions of complete control over event
window (−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 66
Figure 3.19 CAAR of acquisitions of complete control over event
window (−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 66
Figure 3.20 AAR of acquisitions of target firm to be observed
with acquirer’s operation over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 68
Figure 3.21 CAAR of acquisitions of target firm to be observed
with acquirer’s operation over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 68
Figure 3.22 AAR of acquisitions of (partial/majority control,
complete control, and target firm to be observed
with acquirer’s operation) over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 71
Figure 3.23 CAAR of acquisitions of (partial/majority control,
complete control, and target firm to be observed
with acquirer’s operation) over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 71
Figure 3.24 AAR of M&A of unlisted firms over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 74
Figure 3.25 CAAR of M&A of unlisted firms over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 74
Figure 3.26 AAR of M&A of listed firms over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 75
Figure 3.27 CAAR of M&A of listed firms over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 75
Figure 3.28 AAR over event window (−20, +20) based on the type
of target firm (unlisted, listed) acquired . . . . . . . . . . . . . . . . .. 78
Figure 3.29 CAAR over event window (−20, +20) based on the type
of target firm (unlisted, listed) acquired . . . . . . . . . . . . . . . . .. 78
Figure 3.30 AAR over event window (−20, +20) of M&A financed
with cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 82
Figure 3.31 CAAR over event window (−20, +20) of M&A financed
with cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 82
Figure 3.32 AAR over event window (−20, +20) of M&A financed
with stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 84
Figure 3.33 CAAR over event window (−20, +20) of M&A financed
with stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 84
Figure 3.34 AAR of M&A financed with a combination of cash
and stock/earn-outs over event window (−20, +20) . . . . . . . .. 87
List of Figures xxv

Figure 3.35 CAAR of M&A financed with a combination

of cash and stock/earn-outs over event window
(−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 87
Figure 3.36 AAR over event window (−20, +20) of M&A
based on mode of payment (cash, stock,
mixed/earn-outs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 91
Figure 3.37 CAAR over event window (−20, +20) of M&A
based on method of payment (cash, stock) . . . . . . . . . . . . . .. 92
Figure 3.38 AAR over event window (−20, +20) of cross-border
acquisitions from developed markets . . . . . . . . . . . . . . . . . . .. 94
Figure 3.39 CAAR over event window (−20, +20) of cross-border
acquisitions from developed markets . . . . . . . . . . . . . . . . . . .. 94
Figure 3.40 AAR over event window (−20, +20) of cross-border
acquisitions of US firms . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 96
Figure 3.41 CAAR over event window (−20, +20) of cross-border
acquisitions of US firms . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 96
Figure 3.42 AAR over event window (−20, +20) of cross-border
acquisitions of target firms from non-US developed
markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 98
Figure 3.43 CAAR over event window (−20, +20) of cross-border
acquisitions of target firms from non-US developed
markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 98
Figure 3.44 CAAR over event window (−20, +20) of cross-border
acquisitions from emerging markets . . . . . . . . . . . . . . . . . . . . 101
Figure 3.45 CAAR over event window (−20, +20) of cross-border
acquisitions from emerging markets . . . . . . . . . . . . . . . . . . . . 101
Figure 3.46 AAR over event window (−20, +20) of cross-border
acquisitions (developed markets, emerging markets) . . . . . . . . 102
Figure 3.47 CAAR over event window (−20, +20) of cross-border
acquisitions (developed markets, emerging markets) . . . . . . . . 103
Figure 3.48 AAR over event window (−20, +20) of cross-border
acquisitions (US, non-US developed markets) . . . . . . . . . . . . . 104
Figure 3.49 CAAR over event window (−20, +20) of cross-border
acquisitions (US, non-US developed markets) . . . . . . . . . . . . . 104
Figure 4.1 Sector-wise distribution of sample . . . . . . . . . . . . . . . . . . . . . . 111
Figure 5.1 Sector-wise distribution of the respondent companies . . . . . . . 137
Figure 6.1 Sector-wise frequency distribution of respondent
companies, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Figure 6.2 The frequency distribution of CEO/MD’s equity . . . . . . . . . . . 150
Figure 6.3 Distribution of board size of the respondent companies . . . . . 160
xxvi List of Figures

Figure 7.1 Average abnormal returns to the respondent

companies over event window (−20, +20) . . . . . . . . . . . . . . . 174
Figure 7.2 Cumulative average abnormal returns
to the shareholders of respondent companies
over event window (−20, +20) . . . . . . . . . . . . . . . . . . . . . . . . 174
List of Tables

Table 1.1 Theories on motives of M&A . . . . . . . . . . . . . . . . . . . . . . . . .. 3

Table 2.1 Year-wise distribution of mergers and acquisitions
announcements, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .. 30
Table 2.2 Stake-wise distribution of mergers and acquisitions
announcements, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .. 32
Table 3.1 Sample selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 39
Table 3.2 Yearwise sample distribution of cross-border
and domestic M&A, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . .. 40
Table 3.3 Sample distribution of cross-border and domestic M&A
according to features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 40
Table 3.4 Abnormal returns and test statistics on and around M&A
announcements (N = 800) . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 41
Table 3.5 Cumulative average abnormal returns (CAARs) for M&A
announcements across various event windows (N = 800) . . . .. 45
Table 3.6 Abnormal returns to the shareholders of acquiring firms
(cross-border M&A, N = 346) on the announcement
day and during multidays event windows, 2003–2015. . . . . . .. 54
Table 3.7 Abnormal returns to the shareholders of acquiring
firms (domestic M&A, N = 454) on the announcement
day and during multidays event windows, 2003–2015. . . . . . .. 56
Table 3.8 Independent samples t-test for difference of mean CAR
(cross-border M&A, domestic M&A) . . . . . . . . . . . . . . . . . . .. 59
Table 3.9 Abnormal returns to the shareholders of acquiring firms
(partial/majority control acquisitions N = 209) on the
announcement day and during multidays event windows,
2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 62
Table 3.10 Abnormal returns to the shareholders of acquiring firms
(complete acquisitions, N = 451) on the announcement
day and during multidays event windows, 2003–2015. . . . . . .. 65

xxvii
xxviii List of Tables

Table 3.11 Abnormal returns to the shareholders of acquiring

firms (target firm to be totally absorbed with
the acquirer’s operations, N = 140)
on the announcement day and during multidays
event windows, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .. 67
Table 3.12 Independent samples t-test for difference of mean
CAR (complete acquisitions, partial/majority control
acquisitions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 69
Table 3.13 Independent samples t-test for difference of mean CAR
(complete acquisitions, acquisitions of target firm
to be totally absorbed with the acquirer’s operations) . . . . . . .. 70
Table 3.14 Abnormal returns to the shareholders of acquiring
firms of M&A of (unlisted firms, N = 713) on the
announcement day and during multidays event
windows, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 73
Table 3.15 Abnormal returns to the shareholders of acquiring
firms of M&A of (listed firms, N = 83) on the
announcement day and during multidays event
windows, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 76
Table 3.16 Independent samples t-test for difference of mean CAR
(unlisted firms, listed firms) . . . . . . . . . . . . . . . . . . . . . . . . . . .. 77
Table 3.17 Abnormal returns to the shareholders of acquiring
firms of M&A (financed with cash, N = 645)
on the announcement day and during multidays event
windows, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 81
Table 3.18 Abnormal returns to the shareholders of acquiring
firms of M&A (financed with stock, N = 137) on the
announcement day and during multidays event windows,
2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 83
Table 3.19 Abnormal returns to the shareholders of acquiring
firms of M&A (financed with earn-outs, combinations,
N = 18) on the announcement day and during multidays
event windows, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .. 86
Table 3.20 Independent samples t-test for difference of mean CAR
(cash payment, stock payment) . . . . . . . . . . . . . . . . . . . . . . . .. 88
Table 3.21 Independent samples t-test for difference of mean CAR
(cash payment, mixed payment/earn-outs) . . . . . . . . . . . . . . . .. 89
Table 3.22 Independent samples t-test for difference of mean CAR
(stock payment, mixed payment/earn-outs) . . . . . . . . . . . . . . .. 90
Table 3.23 Abnormal returns to the shareholders of acquiring
firms of cross-border acquisitions (developed markets
N = 291) on the announcement day and during
multidays event windows, 2003–2015 . . . . . . . . . . . . . . . . . . .. 93
List of Tables xxix

Table 3.24 Abnormal returns to the shareholders of acquiring

firms of cross-border acquisitions from US (N = 130)
on the announcement day and during multidays event
windows, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 95
Table 3.25 Abnormal returns to the shareholders of acquiring
firms of cross-border acquisitions (non-US developed
markets, N = 161) on the announcement day and during
multidays event windows, 2003–2015 . . . . . . . . . . . . . . . . . . .. 97
Table 3.26 Abnormal returns to the shareholders of acquiring
firms of cross-border acquisitions (emerging markets N = 52)
on the announcement day and during multidays event
windows, 2003–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Table 3.27 Independent samples t-test for difference of mean
CAR of cross-border acquisitions (developed markets,
emerging markets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Table 3.28 Independent samples t-test for difference of mean
CAR of cross-border acquisitions (US, non-US
developed markets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Table 4.1 Distribution of sample across years, 2003–2015 . . . . . . . . . . . . 111
Table 4.2 Paired samples t-test of profitability ratios (related to
investment) pre-M&A and post-M&A . . . . . . . . . . . . . . . . . . . . 118
Table 4.3 Paired samples t-test of pre-M&A and post-M&A
profitability ratios (related to sales) . . . . . . . . . . . . . . . . . . . . . . 119
Table 4.4 Paired samples t-test of pre-M&A and post-M&A
profitability ratios (related to sales) . . . . . . . . . . . . . . . . . . . . . . 120
Table 4.5 Paired samples t-test of pre-M&A and post-M&A
expense ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Table 4.6 Paired samples t-test of pre-M&A and post-M&A
efficiency ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Table 4.7 Paired samples t-test of pre-M&A and post-M&A
liquidity ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Table 4.8 Paired samples t-test of pre-M&A and post-M&A
leverage ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Table 4.9 Paired samples t-test of pre-M&A and post-M&A
constituent ratios in terms of Du Pont . . . . . . . . . . . . . . . . . . . . 127
Table 4.10 Paired samples t-test of pre-M&A and post-M&A
constituent ratios in terms of Du Pont . . . . . . . . . . . . . . . . . . . . 129
Chapter 1
Mergers and Acquisitions: An Introduction

Abstract This chapter is aimed at providing brief outline of the research presented
in this monograph. It has described the reasons underlying mergers and acquisitions
(M&A), the theoretical perspectives, and motivations for adopting the strategy of
mergers and acquisitions. Additionally, the chapter also describes the objectives,
scope, need, significance of the study, research methodology (in brief), and the
chapter plan of the research.

Keywords Hubris Synergy Behavioral hypothesis Neo classical hypothesis





Managerialism hypothesis Agency theory Diversification Corporate governance

1.1 Introduction

Mergers and acquisitions (M&A) are used as instruments of momentous growth and
are increasingly getting accepted by Indian firms as critical option of business
strategy to increase competitiveness. They are widely used in emerging industries
such as information technology, pharmaceuticals, telecommunications, business
process outsourcing as well as in traditional industries to gain strength, expand the
customer base, reduce competition or enter into a new market or product segment.
M&A may be undertaken as a flexible strategy to access the market through an
established brand, inter alia, to get a market share, to eliminate competition, to
reduce tax liabilities or to acquire competence or to set off accumulated losses of
one entity against the profits of another entity.
The motives for acquirers (engaging in mergers and acquisitions) are well
documented in the literature with the synergy motive associated with positive
wealth effects for acquirers while zero or negative wealth effects are said to be
driven by hubris as well as managerialism (Berkovitch and Narayanan 1993).
Synergy results when the value of the combined firm is greater than the sum of the
acquirer firm and target firm as individual firms and this can be achieved by
combining firms in the same industry sector (operational synergy) , when firms
have different financial resources (financial synergy) or different managerial

© Springer Science+Business Media Singapore 2016 1

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6_1
2 1 Mergers and Acquisitions: An Introduction

resources (managerial synergy). Whether shareholders of acquiring company

experience any effect on their wealth from mergers and acquisitions or not has been
a matter of ongoing debate among academic researchers. Jensen (1986) stated that
availability of free cash flow results in value-reducing mergers. Shleifer and
Vishney (1989) contend that managers might make investments that increase
managerial value to shareholders but do not improve shareholders’ returns.
Agency problems exist when managers serve their own interests at the expense
of their shareholders (Williamson 1984). Agency problems create need for effective
corporate governance to align the interest of mangers and shareholders (Baysinger
and Hoskisson 1990). Ever since Manne (1965) and Marris (1964) framed the
phrase “the market for corporate control”, the phenomenon of mergers and
acquisitions has been closely associated with corporate governance. A great deal of
theory and evidence support that takeovers address the governance problems.
Mergers and acquisitions are well-suited events to conduct an empirical study of
their impact on corporate governance and, in turn on valuation. In this context, the
present study proposes to investigate the short-term as well long-term performance
of mergers and acquisitions. The study also examines impact of corporate gover-
nance practices of the acquiring firms on their performance.
Acquisitions as growth strategy have received attention from developed as well
as emerging economies. They have been extensively used by managers as an ex-
pansion strategy. Globalization and liberalization have led firms from emerging
markets like India to become more aggressive and opt for mergers and acquisitions
to fight the competitive battle. Recently, mergers and acquisitions have grown at a
rapid pace, which calls for research to analyze what drives firms for this phe-
nomenon and how it affects firms and markets (Andrade et al. 2001; Holmstrom and
Kaplan 2001).
Researchers have put forward many hypotheses to explain the motives and
reasons underlying M&A. Extant literature classifies M&A into two categories:
Neoclassical and Behavioral theories (Mueller and Yurtoglu 2007).
Neoclassical economic theory assumes that corporate management acts to
maximize wealth of shareholders; consequently, M&As are expected to increase
shareholders’ wealth. Neoclassical theories include synergy hypothesis and market
for corporate control hypothesis. Behavioral hypothesis states that
growth-maximizing managers use acquisitions for their own motives of empire
building and prefer to undertake wealth-destroying acquisitions; in this case,
shareholders of acquiring firm experience negative return due to agency problems.
Behavioral hypotheses include managerial discretion hypothesis (Seth et al. 2000),
hubris hypothesis (Roll 1986) and overvaluation hypothesis (Shleifer and Vishney
2003). These major hypotheses are summarized as follows:
Synergy hypothesis states that if mergers and acquisitions generate synergies, the
acquiring firms experience positive returns on the announcement. The synergy
hypothesis proposes that acquisitions take place when the value of the combined
firm is greater than the sum of the values of the individual firms (Bradley et al.
1988; Seth 1990).
1.1 Introduction 3

Market for corporate control hypothesis describes the mergers and acquisition as
a way to replace managers who are not able to maximize the value of their firms due
to incompetence or agency problems (Mueller and Yurtoglu 2007). According to
this hypothesis, mergers, and acquisitions generate non-negative returns to the
acquiring firm’s shareholders.
The managerialism hypothesis suggests that managers embark on acquisitions to
maximize their own utility at the expense of the shareholders of the firm.
Managerialism arises when managers use acquisitions for their own motives of
empire building and destroy their own shareholders’ wealth in the process.
The hubris hypothesis suggests that the managers of the acquiring firm make
mistakes in evaluating target firms, but undertake acquisitions presuming that their
valuations are correct.
Overvaluation hypothesis states that hubris occurs when management in the
acquiring firm makes a mistake in estimating the value of the target leading to
overpayment and as a result a wealth transfer from acquiring to target shareholders.
Table 1.1 lists some of the most prominent theories about the motives and
determinants of mergers and acquisitions.
Cross-border mergers and acquisitions have gained in popularity over the last
few years.
Factors, such as technological development, globalization, increased economic
integration and international trade, favorable regulation and policy changes, firm
restructuring, target firm undervaluation, and the strong global financial market to
finance mergers and acquisitions have possibly led to an unprecedented wave of
cross-border mergers and acquisitions worldwide during the last few years (Kiymaz
2004). Gaughan (2014, p. 69) mentions that fifth merger wave has led to the
emergence of a new breed of acquirer in 2000s called emerging market acquirers.
Emerging market multinationals, embarking upon acquiring cross-border

Table 1.1 Theories on motives of M&A

Theory Motivation
Synergy Improves operating efficiency through economies of scale or
scope
Lowers cost of capital by smoothing cash flow
Diversification Positions the firm in higher growth markets
Market power Increases market share
Hubris (managerial pride) Acquirers believe that their valuations of targets are more
accurate than that done by markets
Agency problems and Replace managers who are not acting in the best interests of the
mismanagement owners
Managerialism Increases the size of a company to increase the power and pay of
managers
Tax considerations Obtain unused net operating losses and tax credits, asset a
write-ups
Source DePamphilis (2001, p. 18)
4 1 Mergers and Acquisitions: An Introduction

companies to take advantage of regional and global business opportunities is a

phenomenon which is intensified during early nineties.
Cross-border M&As have been adopted as a strategic initiative by a large
number of firms in multiple regions across the globe. While cross-border M&As
have a number of factors in common with domestic M&As, they also have unique
characteristics and important differences. The motivations of cross-border M&As
are largely similar to those of domestic M&As. However, due to their international
nature, there are some specific factors which govern cross-border transactions such
as favorable changes in economic and regulatory environment in foreign countries,
low foreign tax rates, exchange rates and client base abroad. In addition, some other
factors potentially affect cross-border mergers but are not present to the same extent
in domestic mergers, such as cultural differences, geographic differences, and
country-level governance differences. Cultural or geographic differences can
increase the costs of combining two firms. Governance-related differences across
countries can motivate mergers if the combined firm has better protection for target
firm shareholders because of higher governance standards in the country of the
acquiring one. Taxes are potentially important in motivating cross-border mergers,
if the acquirer has a lower rate or if the companies’ countries have a tax treaty,
combining the firms can potentially lower the firms’ total tax liability.
Cross–border acquisitions are an important corporate strategy that enables firms
to extend their current businesses to new markets, leverage their current capabili-
ties, and diversify into related markets. Zhu et al. (2011) suggest that two major
motivations, namely, strategic market entry hypothesis and the market for corporate
control hypothesis compete for cross-border acquisitions. They suggest that
domestic partial acquisitions dominate and serve the market for corporate control
hypothesis extensively, while the strategic market entry hypothesis motivates and is
more relevant rationale for cross-border acquisitions.
Strategic market entry hypothesis proposes that an acquisition is a rapid way of
entering new markets in new countries. Acquirer enters the market cross border by
acquiring an already established company. This way, the acquirer can take
advantage of distribution channels, a qualified labor force, management experience,
local knowledge and an established brand name (reputation). In addition to being
fast in acquiring a stake in a particular market, it is a way to gain entry without
adding additional capacity.
In the asset seeking perspective, cross-border acquisitions are viewed as a means
to acquire strategic assets available with the target firms. Acquires intend to seek
technology based resources and skills in target firm that are superior or not available
with the domestic firms in a particular product market. Asset-seeking hypothesis is
related to acquirers’ strategy to improve competitiveness as they grow. That is how
firms improve their capability. By acquiring an existing foreign company, the ac-
quirer gains access to resources and technologies, such as patent-protected tech-
nologies and, superior management and marketing skills.
In sum, domestic partial acquisitions and cross-border partial acquisitions are
motivated by different hypotheses. Cross-border acquisitions, thus, give acquiring
firms access to key strategic resources that may not be available in their domestic
1.1 Introduction 5

market, and thereby, enhance their capabilities to be competitive. Cross-border

acquisitions are, thus, likely to add more value in comparison to domestic acqui-
sitions, suggesting there are real benefits from international investments.

1.2 Description of the Problem

Although the existing literature on M&A is perhaps one of the largest bodies of
work in finance research, there seems to be no consensus on returns for acquiring
firms. A number of different theories exist to explain the value impact of M&As.
Some studies suggest that M&As create synergies by reducing costs through
economies of scale, adopting more efficient technology and combining R&D
facilities.
When an acquisition is announced, a considerable amount of information is
revealed about the potential transaction, this information can be used to assess the
stock market reaction to an M&A announcement.
In view of the above, the present study attempts to examine the market reaction
related to M&A announcements and financial performance post-M&A. Precisely, it
aims to evaluate the impact of mergers and acquisitions on short-term abnormal
returns as well as on long-term financial performance. It also aims to assess the
managements’ views about the motives for undertaking mergers and acquisitions.
Besides, the study also intends to understand the corporate governance practices of
the acquiring firms and their impact both on the short-term and long-term
performance.

1.3 Objectives and Significance

1.3.1 Objectives of the Study

The security returns around the announcement represent investors’ expectation of

M&A benefits whereas post-M&A financial performance represents actual eco-
nomic benefits generated by M&A. The objective of the proposed research study is
to gain an insight into both the short-term and the long-term performance of
acquiring firms in the Indian context. The study consists of four parts. The objective
of the first part is to evaluate the market reaction on announcement of M&A. The
objective of the second part is to know the managerial views about motives for
undertaking M&A. The objective of the third part is to understand long-term
financial performance of M&A. The objective of the forth part is to develop cor-
porate governance index of acquiring firms and the impact of corporate governance
score on short-term and long-term performance of M&A.
6 1 Mergers and Acquisitions: An Introduction

To know the managerial views and motives, two surveys have been conducted.
The first survey attempts to get an insight into the corporate governance practices of
the acquiring firms by developing a corporate governance index. The second survey
covers three major dimensions, namely, management view on motives for M&A,
management views on sources of synergy from M&A and motives of merger of
wholly owned subsidiary.
The market reaction is assessed in terms of the change in stock returns. Using
event study methodology and pretest posttest research design, the stock prices and
financial performance, before and after M&A, have been evaluated.

1.3.2 Significance of the Study

Despite plethora of literature on the implications of mergers and acquisitions, the

empirical evidence on returns to the shareholders of the acquirer firm is not con-
clusive. In other words, the results of existing studies in finance and business
strategy indicate that wealth effects of shareholders of the acquiring firms are
mixed. The empirical findings on the subject are varied. While some studies report
negative cumulative average abnormal returns, others document zero or positive
cumulative average abnormal returns. In a review paper on performance of the
acquiring firm, Bruner (2002) suggests that these mixed results make the conclu-
sions regarding the acquirer firms’ performance more complex.
The empirical work indicates that value is created by M&A activities. Moreover,
the management also believes that the decisions to initiate strategies of M&A are
based on certain motives. This observation, by and large, holds true in respect of
markets across countries.
In India, few comprehensive studies have been undertaken in the past on the
subject of managerial views, motives, impact on the share prices and financial
performance of M&A (Rani et al. 2013, 2014). Further, much of the recent aca-
demic attention on corporate governance has been focused on corporate accounting
scandals and their prevention. Corporate governance and merger strategy, however,
has not been the focus.
The number of studies on share price performance exclusively due to an-
nouncement of mergers and acquisitions is limited and is industry specific in Indian
context. To the best of our knowledge, an in-depth research related to the impact of
mergers and acquisitions on the shareholders wealth in short-term in India has not
been observed. Investigations using event study methodology have exclusively
focused on developed security markets viz., United States, Canada, Japan and
European nations. Existing studies of mergers in India are very few. Moreover, the
studies based on Indian security markets have focused either on specific industries
(Rani et al. 2012 (Pharmaceutical Industry); Chakraborty 2010 (Financial Industry);
Anand and Singh 2008 (Banking Sector)) or have analyzed a very small sample size
(Mann and Kohli 2009). Recently, Kohli and Mann (2011); Gubbi et al. (2010);
Barai and Mohanty (2010) have analyzed abnormal returns to the announcements
1.3 Objectives and Significance 7

of mergers and acquisitions by conducting event study on large sample but have not
tested the robustness of returns by any nonparametric test. Moreover, these em-
pirical investigations have focused on comparing premerger and postmerger per-
formance on case to case basis.
Further, extant literature has investigated the impact of control acquired in
context of international acquisitions only. The present study is a modest attempt to
fill this conspicuous gap.
Another significant feature of this study is that it attempts to evaluate the impact
of the non-contaminated (mergers and acquisitions) sample by manually verifying
rigorous sample selection criterion. This makes the study significant as the findings
show, in a way, the exclusive impact of announcements of M&A.
In addition, on a methodological level, the present study has demonstrated the
use of seven major significance tests to check the robustness of average abnormal
returns and cumulative average abnormal returns. The use of seven main test
statistics for assessing significance levels of average abnormal return and cumu-
lative average abnormal return has proved to be useful, since these test statistics
take into account effects due to event-induced variance and offer, therefore, an
alternative evaluation of significance.

1.4 Scope of the Study

1. The study is confined to the analysis of acquiring companies that undertook the
move of mergers and acquisitions and are listed on Bombay Stock Exchange
(BSE).
2. It covers a period starting from January 1, 2003 to December 31, 2015.
3. The management survey is carried out for acquiring companies that were
engaged in M&A activities during the specified time period; these companies
are geographically spread throughout the country (India).

1.5 Methodology of the Study

The present study uses event study methodology1 to examine the impact of mergers
and acquisitions announcements on stock returns (Brown and Warner 1980;
Bowman 1983; Doukas and Travlos 1988; Peterson 1989; Henderson Jr 1990;
Morck and Yeung 1992; Markides and Ittner 1994; MacKinlay 1997; McWilliams
and Siegel 1997; Serra 2004; Wells 2004; Kothari and Warner 2007; Konchitchki

1
Event study methodology is one of the most popular statistical research designs in the area of
finance. It is used to examine the market’s response to a well-defined event by examining the
security prices around such event.
8 1 Mergers and Acquisitions: An Introduction

and O’Leary 2011). The stock returns behavior around these announcements is
likely to enable the researcher to ascertain the short-term wealth creation by mergers
and acquisitions.
This study is a hypothesis testing research study. Two experimental designs have
been followed, viz. ‘before- and-after design’ and ‘after-only design’. To ascertain
the magnitude of the change in the financial performance of mergers and acquisi-
tions, pretest posttest research design2 has been used. It attempts to gain new
insights into the acquirers’ performance. The study endeavors to test the perfor-
mance of the acquiring firms in short-term and long-term by evaluating the financial
performance during two periods of time; one before merger and acquisition and the
other after the merger and acquisition. As a result, the study would also provide an
insight into the validity of the synergy hypothesis for Indian corporates.
The present study uses questionnaire-based survey research method to get an
insight into the managerial views and motives related to employing mergers and
acquisitions and corporate governance practices of the acquirers. Two national
surveys for Indian companies have been conducted to achieve this objective.
Corporate governance index of the acquiring companies has been developed to get
insights into the corporate governance practices of the acquirers. The impact of
corporate governance practices of acquirers on performance of M&A has been
examined using one-group ‘after-only’ experimental research design. In this case
also, the short-term as well as long-term impacts are evaluated by examining
variability of returns at one point in time; ‘after-only’ the announcement of M&A.
The whole data set has been analyzed primarily through statistical software SAS
system for windows 9.1 and Eventus version 8 for event study. In addition, the
present study has made extensive use of statistical software Statistical Package for
Social Sciences 16.0 (SPSS) for analysis of primary as well as secondary data.

1.6 Organization of the Study

The study has been organized into eight chapters. Chapter 1 relates to the back-
ground. Chapter 2 presents the research methodology used to carry out the study.
The core of the study is available in Chaps. 3, 4, and 5. Chapter 3 discusses the
short-term impact of mergers and acquisitions. Chapter 4 presents the impact of
mergers and acquisitions on long-term financial performance of acquirers.
Chapter 5 describes the survey of management view on motives for mergers and
acquisitions. Chapter 6 is devoted to the development of corporate governance
index. Chapter 7 contains the impact of corporate governance score on abnormal
returns and financial performance. Chapter 8 presents the concluding observations.

2
Pretest posttest (also called before and after research design) is an experimental research design in
which test units are subjected to an intervention. To observe change in a variable, both pretest and
posttest values of the variable are measured and further statistically tested to draw inferences about
the population.
1.7 Concluding Observations 9

1.7 Concluding Observations

This chapter provides a brief outline of the study. It briefly explains the motives of
acquirers for undertaking mergers and acquisitions; it outlines the major hypotheses
for adopting the strategy of mergers and acquisitions as proposed by earlier
researchers. Further, it outlines how corporate governance affects mergers and
acquisitions. Moreover, the main objectives, significance of the study, and
methodology adopted to achieve these objectives have been summarized.

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Chapter 2
Research Methodology

Abstract This chapter presents the research methodology followed in the study to
assess the impact of mergers and acquisitions on financial performance. It also
enumerates the research objectives, hypotheses, sources of primary data (based on
questionnaire survey, personal interviews, emails and telephonic calls) and sec-
ondary data (drawn from Bombay Stock exchange, SEBI, Prowess database Centre
for Monitoring Indian Economy, Thomson Security Data Corporation (SDC)
Platinum M&A database), data analysis (primarily in terms of abnormal returns,
major financial ratios), event study methodology, statistical techniques used in the
study and research model.

Keywords Event methodology
Financial performance
Financial ratios

Abnormal return Parametric test
Nonparametric test
Acquisitions
Mergers

Cross-border acquisitions

2.1 Introduction

This chapter contains the research objectives and hypotheses to be tested in the
study. It explains the detailed research methodology that has been proposed in order
to address these research objectives. It presents the data used to test these
hypotheses. There are virtually no comprehensive studies that examine the
short-term as well as long-term performance of M&A with a focus on corporate
governance, management opinion and motives of M&A. Therefore, this study aims
to capture the managerial views on motives of M&A; impact of mergers and
acquisitions on stock returns as well as financial performance of acquirers with a
focus on corporate governance in Indian context. The present research study uses
both primary data (representing the managerial views on motives of M&A and
corporate governance survey) and secondary data (related to stock market com-
prising of stock prices data and financial performance).
This chapter is organized into six sections. Section 2.2 (divided into Sects. 2.2.1
and 2.2.2) presents research objectives and hypotheses to be tested. Section 2.3 is

© Springer Science+Business Media Singapore 2016 11

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6_2
12 2 Research Methodology

divided into three subsections. Section 2.3.1 provides a brief on the proposed re-
search methodology used to address the objectives of the study. Section 2.3.2
delineates the scope of the study. Section 2.4 describes the event study method-
ology in detail. The data used, for empirically examining the objectives for the
present study, is summarized in Sect. 2.5. An equally important aspect of this
research study is sample selection criteria; it is provided in Sect. 2.6. The con-
cluding observations are listed in the last Sect. 2.7.

2.2 Research Objectives and Hypotheses

2.2.1 Research Objectives

The present study has specifically identified the following objectives:

Objective 1: To measure the effect of the announcement of mergers and
acquisitions on stock returns of acquiring firms by
1:1 Ascertaining the magnitude and the direction of the abnormal returns for entire
sample.
1:2 Conducting analysis of the abnormal returns for subsamples on the basis of
(i) Domestic and cross-border M&A.
(ii) Method of payment (cash, stock).
(iii) Form of target firm acquired (listed, unlisted).
(iv) Status of target firm (remains wholly owned subsidiary, absorbed with
the operations of the acquirer).
(v) Stake of acquisitions (partial/majority control, complete control).
(vi) Origin of target firm (developed market, emerging market).
Objective 2: To gain insight into managerial views about motives and sources of
synergies of M&A.
Objective 3: To measure the magnitude and the direction of change in the
financial performance of the acquiring firms post-M&A.
Objective 4: To gain insight into corporate governance practices of acquirers by
developing a corporate governance index.
Objective 5: To ascertain the impact of corporate governance on stock returns
due to the announcement of mergers and acquisitions and financial performance.

2.2.2 Hypotheses

To achieve the above-stated objectives, the following hypotheses have been for-
mulated in this study:
2.2 Research Objectives and Hypotheses 13

2.2.2.1 Hypotheses Related to the Short-Term Performance of M&A

Hypothesis I: There is significant average abnormal return (AAR) during the event
window due to announcement of mergers and acquisitions.
Hypothesis II: There is significant cumulative average abnormal return (CAAR)
during the event window due to announcement of mergers and acquisitions.

2.2.2.2 Hypotheses Related to Financial Performance of M&A

Hypothesis III: The mean level of profitability ratio (based on investments, sales,
expenses) for the post-merger and acquisition period is significantly different from
mean level of profitability ratio (based on investments, sales, and expenses) from
pre-merger and acquisition period.
Hypothesis IV: The mean level of efficiency ratio for the post-merger and acqui-
sition period is significantly different from mean level of efficiency ratio from
pre-merger and acquisition period.
Hypothesis V: The mean level of liquidity ratio for the post-merger and acquisition
period is significantly different from mean level of liquidity ratio from pre-merger
and acquisition period.
Hypothesis VI: The mean level of leverage ratio for the post-merger and acqui-
sition period is significantly different from mean level of leverage ratio from
pre-merger and acquisition period.

2.2.2.3 Hypotheses Related to Corporate Governance Index

Hypothesis VII: Acquiring firms with better corporate governance (as reflected in
high corporate governance index) have better abnormal returns in short term.
Hypothesis VIII: Acquiring firms with better corporate governance (as reflected in
high corporate governance index) have better firm performance.
Hypothesis IX: Acquiring firms with better corporate governance (as reflected in
high corporate governance index) have higher firm value post-M&A.

2.3 Research Methodology and Scope

2.3.1 Research Methodology

The objectives of the study have been addressed using a comprehensive approach;
it has been demonstrated in Fig. 2.1. From the figure, it may be deciphered that the
objectives 1, 3, and 5 have been addressed using secondary data and objectives 2
and 4 have been responded to using primary data.
14 2 Research Methodology

Assessing the impact of mergers and

acquisitions on short-term abnormal returns
and long-term financial performance

Objectives 1, 3 & 5
Objective 2 & 4
Short-term abnormal returns Managerial views and motives
Long-term financial performance Development of Corporate
Corporate governance and financial Governance Index
performance [Primary data]
[Secondary data]

Objective 1 Objective 5
Objective 3

Short-term abnormal Long-term financial Impact of corporate

returns performance governance
[Event study research [One-group pre-test [After-only
design] post-test research research design]
design]

Fig. 2.1 Outline of research methodology

Objective 1 evaluates the impact of mergers and acquisitions on short-term

abnormal returns. The objective has been achieved using event study methodology.
Event study methodology is one of the most popular statistical research designs in
the area of finance (Brown and Warner 1980; Bowman 1983; Brown and Warner
1985; Henderson 1990; Peterson 1989; McWilliams and Siegel 1997; MacKinlay
1997; McWilliams and McWilliams 2000; Serra 2004; Wells 2004; Weston et al.
2004; Kothari and Warner 2007; Tabak 2010; Konchitchki and O’Leary 2011). It is
used to examine the market’s response to a well-defined event by examining the
security prices around such event. The secondary data (stock prices of the com-
panies that announced mergers and acquisitions) has been examined using event
study methodology. This enables a researcher to assess if there are any abnormal
returns earned by the investors due to these events. The abnormal return is the
differences between the observed return and the expected return on a particular day,
calculated by a return model (chosen by the researcher).
For objectives 2 and 4, survey research methodology has been used to collect
primary data. Survey research, as a mode of enquiry, enables the researcher to know
2.3 Research Methodology and Scope 15

the views and opinions of the respondents of the questionnaire. The present work
conducted two questionnaire-based surveys to gauge the managerial perception
about these decisions.
Objective 3 has been dealt with using one-group pre test, post test research
design and ratio analysis. In one-group pre test, post test research design, the
changes in financial performance (due to mergers and acquisitions decisions) have
been measured 5 years prior to and after the M&A.
Objective 5 evaluates the impact of corporate governance on short-term ab-
normal returns due to mergers and acquisitions and financial performance.
‘After-only research design’ has been used to address the objective.

2.3.2 Scope of the Study

1. The study is confined to the analysis of companies (listed on BSE) that have
undertaken mergers and acquisitions. The scope of the study is limited to
analyze the performance of acquiring firms.
2. It covers a time span of more than 13 years starting from January 1, 2003 to
December 31, 2015. January 1, 2003 has been chosen as it precedes the effective
dates of relevant provisions of SEBI Clause 49 enacted by Stock Exchanges in
India. The reference period for the study includes the 5 years before and 5 years
after the M&A.
3. The management survey has been carried out for companies that completed
mergers and acquisitions during the specified time period; these companies are
located all over India.

2.4 Event Study Methodology

Event study methodology in the finance literature has become a standard

methodology in evaluating the stock price reaction to a specific event (McWilliams
and Siegel 1997). The event study methodology is used to investigate the market’s
response to a well-defined event by examining the security prices around such
event. The methodology assesses whether specific events create abnormal stock
returns as stock returns move in response to market-specific factors or several firm
specific factors such as announcements of earnings, mergers and acquisitions, etc.
The information about the event is released through the financial press, corporate
releases or directly providing it to the stock exchanges where the security is listed.
The investigation enables a researcher to assess if there are any abnormal returns
earned by the security holders due to these events.
The methodology is based on the fundamental idea that stock prices represent
the discounted value of firms’ future stream of profits. Hence, the change in the
16 2 Research Methodology

equity value of firm observed due to stock market’s response to the announcement
of mergers and acquisitions may be considered as a measure of the (discounted)
additional profits that they are expected to accrue as a consequence of mergers and
acquisitions (Duso et al. 2010). The event study methodology uses average
abnormal stock market reaction as a gauge of value creation or value destruction.
Based on the announcement-period stock market response, it may be concluded
whether mergers and acquisitions create value for shareholders of acquiring firms
or not.

2.4.1 Mechanics of Event Study

The following steps comprise the mechanics of event study:

2.4.1.1 Event Definition and Date of Announcement

The event is the action that the researcher would like to study. The event is expected
to convey some information that potentially influences the stock prices. The events
defined for this research study are the announcements of mergers and acquisitions.
The first step in the event study methodology is to define the event as the date on
which the acquisition is first announced to the public. Day 0 is defined as the day
the announcement first appears in any newspaper. For this purpose of the study, the
announcement day has been defined as the day when the Stock Exchange is
informed about the board approval of the merger and acquisition deal. These dates
are verified (manually) from the archives of corporate announcements of stock
exchange.
In majority of cases, the stock exchanges are informed the same day on which
the acquisition is first announced to the public. Intent date and the actual date have
also been verified (manually). In a few cases, the intent of acquisition is announced
before the approval date (almost 10 trading days), to capture the effect of this
leakage event window of 20 days before the announcement has been observed. The
day 0 has been defined as the board approval date as it facilitates the verification of
a clean window from the archives of Bombay Stock Exchange. The most critical
assumption of event study methodology is that there is no confounding event during
the event window.

2.4.1.2 Estimation Period

An estimation window is the period used for estimating the expected returns. The
estimation period is defined as the period prior to the occurrence of the event and
the event window. The expected returns (also called normal returns) are calculated
using a time period other than the event window. For the present study, the
2.4 Event Study Methodology 17

Event date

–280 –26 –20 0 +20

Estimation window Event window

Fig. 2.2 Return analysis time line for event study research design

estimation window is from the day -280 to the day -26 (from 25 to 280 days prior to
the event window), thus comprising of 255 trading days. This ensures that estimates
of the normal return model are not influenced by the event-related returns.
Figure 2.2 depicts the event window and estimation window. It is imperative for
the estimation window and event window not to overlap.

2.4.1.3 Event Window Period

An event window is the period in which an event occurs; during this period, the
security prices of the relevant firms are examined. The event window for this study
is chosen as –20, through 0, to +20. Here, 0 depicts the announcement date, –20 is
the 20 days time period prior to announcement date and +20 is the 20 days time
period after the announcement date. To conduct an in-depth analysis, the event
window has been further broken into smaller windows. The event period surrounds
the date of the announcement of acquisition during which the stock market’s
response to the announcement is investigated. In order to account for early share
price reactions (induced by the anticipation of stock market of an upcoming
announcement before and potentially slow information processing after the event),
the cumulative abnormal returns over alternate windows are considered. Fama et al.
(1969) suggest that event date may be uncertain. Therefore, it is desired to consider
abnormal return which might appear before and after the defined date. This interval
is known as event window.
The abnormal returns over varying windows, namely, (−20, −2), (−15, −2),
(−10, −2), (−5, −2) (−5, 0) (−1, 0), (−1, +1), (−2, +2), (−5, +5) (−10, +10), (−20,
+20), (+2, +5), (+2, +10), (+2, +15) and (+2, +20) have been observed to capture
the leakage effect. The dates are verified (manually) from the archives of corporate
announcements of Bombay Stock Exchange (BSE) to ascertain the clean period
data. It has been checked (manually) that there is no contamination of information
and confounding event during the event window.
Long-term event windows have not been examined in the study due to two
reasons: first, using a long-event window severely reduces the power of the test
statistic and leads to false inferences (Brown and Warner 1980, 1985; McWilliams
18 2 Research Methodology

and Siegel 1997). Second problem is the difficulty of controlling for confounding
events. Also, long-event windows increase the likelihood of contemporaneous and
inter-temporal correlations of residuals resulting in significant underestimates of
standard errors (Salinger 1992).

2.4.1.4 Estimation Model and Definition of Abnormal Return

The estimation model is the model used to estimate the expected returns. The
traditional single factor market model has been considered to estimate the expected
returns. It involves the regression of a stock’s returns against a market index. For
the present study, the value weighted market index—BSE SENSEX1 has been used
for regression.
The key issue in event studies is what portion of the price movement is actually
caused by the event of interest. In other words, it is required to extract the impact of
the one particular event on stock returns. This leads to the concept of abnormal
returns. The abnormal return is the differences between the actual return and the
expected return on a particular day.
The abnormal return of the jth stock (ARjt) is obtained by subtracting the normal
or expected returns in absence of the event E(Rjt), from the actual return in the event
period, (Rjt) as per following Eq. (2.4.1):


ARjt ¼ Rjt  E Rjt ð2:4:1Þ

The market model approach relates the return of a security to the return of the
market portfolio as per the market model Eq. (2.4.2):

Rjt ¼ aj þ bmt þ ejt ð2:4:2Þ

where t = −280, …, −26, αj is a constant term for the jth stock, βj is the beta of the
jth stock, Rmt is the market returns, and εjt is an error term.
The parameters of the model are estimated by using the time-series data from the
estimation period that precedes each individual announcement. The parameters
estimated from the market model are then used in the calculation of abnormal
returns for each day in the event window. The estimated parameters are then
matched with the actual returns in the event period. The daily excess return, i.e.,
abnormal return of firm j for the day t (ARjt) is estimated from actual returns during
the event period and the estimated coefficients from the estimation period as per
Eq. (2.4.3)

1
BSE SENSEX (Bombay Stock Exchange Sensitivity Index) is a ‘Market Capitalisation—
Weighted’ Index of 30 component stocks representing a sample of large well established and
financially sound companies. It is reckoned as a benchmark index of the Indian capital market.
2.4 Event Study Methodology 19

 
^ mt
ARjt ¼ Rjt  a^ þ bR ð2:4:3Þ

where t = −20, …, +20.

The average abnormal return (AARt) for each day in the event window is
calculated as per Eq. (2.4.4):

1X N
AARt ¼ ARjt ð2:4:4Þ
N j¼1

where N is the number of firms.

2.4.1.5 Definition of Cumulative Abnormal Return (CAR)

The cumulative abnormal return for a given security is simply the sum of daily
abnormal returns over the event window. Over an interval of two or more trading
days beginning with day T1 and ending with day T2, the cumulative average
abnormal return (CAAR) is calculated as per Eq. (2.4.5)

1X N X T2
CAART1 T2 ¼ ARjt ð2:4:5Þ
N j¼1 t¼T1

2.4.1.6 Definition of Precision-Weighted Cumulative Abnormal

Return

The study also reports precision-weighted cumulative average abnormal return

(PWCAAR). The precision-weighted average is constructed using the relative
weights of each stock (Cowan 2007). The precision-weighted return weight each
stock in inverse proportion to its standard deviation. The precision-weighted CAAR
(as a weighted average of the original CARs) preserves the sample interpretation of
CAAR (Cowan 2007). The precision-weighted cumulative average abnormal return
(PWCAAR) is a better measure than CAAR and average standardized cumulative
abnormal return. The precision-weighted cumulative average is calculated as
specified in Eq. (2.4.6)

N X
X T2
PWCAART1 T2 ¼ xj ARjT ð2:4:6Þ
J¼1 t¼T2
20 2 Research Methodology

where,
P 12
T2
t¼T1 d2ARjt
xj ¼
PN PT2 12
i¼1 t¼T1 d2ARit

where,
PT D e
2 2 3
ARjk 1 ð R  
R Þ
2
d2ARjt ¼
k¼T Db
41 þ þ PT D
mt m 5
Dj  2 Dj e
ð R mk  R m Þ2
k¼T Db

Dj is the number of non-missing estimation period returns for firm j. Rmt is the
return on the market index on day t in the event window, Rmk is the return on the
market index on day k in the estimation window. Rm is the mean market return over
estimation period. k represents the trading day in estimation period.

2.4.1.7 Hypotheses for Announcement Effects

The null hypotheses being tested are

H01: The average abnormal return to the shareholders of acquiring company on
the announcement of acquisition is zero.
H02: The cumulative average abnormal return to the shareholders of acquiring
company for the event window period around the announcements of acquisition is
zero.

2.4.2 Statistical Significance of Abnormal Returns

There are numerous tests for evaluating the statistical significance of abnormal
returns. Several studies have developed tests to control for specific problems that
occur with event studies. Each of them tests the null hypothesis that abnormal
returns are zero, but they differ in the necessary assumptions about the statistical
properties of (abnormal) returns. The parametric tests implicitly assume that the
residuals follow normal distribution. When the assumption of normality of abnor-
mal returns is violated, parametric tests are not well specified. In addition to
parametric statistics, event studies typically use a nonparametric test.
A nonparametric test is normally used in conjunction with parametric test (in event
study) to verify that the results are not driven by outliers. Nonparametric statistics
do not require as stringent assumptions about return distributions as parametric
tests. Kang and Stulz (1996) documented specific robustness issues in event studies
using Asia-Pacific financial market data. In order to obtain robust results, a wide
2.4 Event Study Methodology 21

variety of statistical tests have been applied. These tests are well specified and more
powerful in random samples of Asia-Pacific financial market data (Corrado and
Truong 2008; Corrado and Zivney 1992; Campbell et al. 2010). We use the fol-
lowing four widely used parametric and three nonparametric test statistics com-
monly used in event studies to test for the significance of average abnormal returns
and cumulative abnormal returns over the event period:

2.4.2.1 Parametric Tests

Four parametric test statistics, namely, Crude dependence adjustment test (Brown
and Warner 1980), Cross-sectional standard deviation test (Brown and Warner,
1985), Patell’s test (1976) corrected by Mikkelson and Partch (1988) and
Standardized cross-sectional test (Boehmer et al. 1991) have been conducted to test
for the significance of average abnormal returns and cumulative abnormal returns
over the event period.

The Crude Dependence Adjustment Test (CDA)

The test incorporates the sample time-series standard deviation. Brown and Warner
describe the test as featuring a ‘crude dependence adjustment.’ That is, the test
compensates for potential dependence of returns across security events by esti-
mating the standard deviation using the time series of sample mean returns from the
estimation period. Crude dependence adjustment test uses a single variance estimate
for the entire sample. Therefore, the time-series standard test does not take account
of the unequal return variances across securities. This test avoids the potential
problem of cross-sectional correlation of security return. To account for the
dependence across firms’ average residuals, in event time, Brown and Warner
(1985) suggest that the standard deviation of average residuals should be estimated
from the time series of the average abnormal returns over the estimation period. The
estimated variance of AARt is given as per Eq. (2.4.2.1):
P26
2
AARt  AAR
^2AAR
r ¼ t¼280
ð2:4:2:1Þ
254

where the market model parameters are estimated over the estimation period of
255 days and
P26
AARt
AAR ¼ t¼280
255
22 2 Research Methodology

The test statistics for day t in event time is given as per Eq. (2.4.2.2)

AARt
t¼ ð2:4:2:2Þ
^AAR
r

The test statistics for CAART 1 ;T 2 is given as per Eq. (2.4.2.3):

CAARt
t¼ 1 ð2:4:2:3Þ
^AAR
ð T 2  T 1 þ 1Þ 2 r

Cross-Sectional Standard Deviation Test (CSS)

This test uses a daily cross-sectional standard deviation instead of sample

time-series standard deviation. The test statistics for the day t in event time is given
as per Eq. (2.4.2.4)

AARt
t¼ pffiffiffiffi ð2:4:2:4Þ
^AARt = N
r

where,
!2
1 X N
1X N
^2AARt
r ¼ ARit  ARjt
N  1 i¼1 N j¼1

The test statistics for CAART 1 ;T 2 is given as per Eq. (2.4.2.5):

CAART1 T2
tCAAR ¼ pffiffiffiffi ð2:4:2:5Þ
^CAART 1 ;T 2 = N
r

where the estimated variance of CAART 1 ;T 2 is

!2
1 X N
1X N
^2CAART T
r ¼ CARi;T1 ; T2  CARj ;T1 ; T2
1; 2 N  1 i¼1 N j¼1

Patell’s Test

Patell (1976) proposes a test statistic where the event period abnormal returns are
standardized by the standard deviation of the estimation period abnormal returns.
The Patell Z test is an example of a standardized abnormal return approach, which
estimates a separate standard error for each security event and assumes
cross-sectional independence. This standardization reduces the effect of stocks with
2.4 Event Study Methodology 23

large returns standard deviation on the test. Patell test statistics assumes
cross-sectional independence in abnormal returns; it also assumes that there is no
event-induced change in the variance of event period abnormal returns. The stan-
dardized abnormal return (SAR) for each security is calculated as per Eq. (2.4.2.6):

ARjt
SARjt ¼ ð2:4:2:6Þ
dARjt

where,
PT D e
2 2 3
ARjk 1 ð R   m Þ2
R
d2ARjt ¼
k¼T Db
41 þ þ PT D
mt 5
Dj  2 Dj e
ð R mk  R m Þ2
k¼T Db

Under the null hypothesis, each SARjt follows a Student’s t distribution with
Dj − 2 degrees of freedom. Total standardized abnormal return (TSAR) across the
sample is given as per Eq. (2.4.2.7):

X
N
TSARjt ¼ SARjt ð2:4:2:7Þ
j¼1

The expected value of TSARt is zero. The variance of TSARt is given as per
Eq. (2.4.2.8):

X
N
Dj  2
Qt ¼ ð2:4:2:8Þ
j¼1
Dj  4

The test statistic for the null hypothesis that CAART1 ;T2 ¼ 0 is given as per
Eq. (2.4.2.9):

1 X N
Z T 1 T 2 ¼ pffiffiffiffi ZTj T ð2:4:2:9Þ
N j¼1 1 2

where,

1 XT 2
Z Tj 1 T 2 ¼ qffiffiffiffiffiffiffiffiffiffiffi t¼T 1
SARjt
QTj 1 T 2

and

Dj  2
QTj 1 T 2 ¼ ðT 2  T 1 þ 1Þ
Dj  4
24 2 Research Methodology

under cross-sectional independence of the Z Tj 1 ;T 2 and other assumptions, Z T 1 ;T 2

follows the standard normal distribution under the null hypothesis.
The Patell test statistics for cumulative abnormal return for event window is not
adjusted for serial dependence. Mikkelson and Partch (1988) corrected the Patell
test for the possible serial correlation of abnormal returns of each security within the
window. The serial correlation occurs as all the abnormal returns are functions of
the same market model intercept and slope estimators.
The corrected test statistic for the null hypothesis that CAAR = 0 is given as per
Eq. (2.4.2.10)

X
N
CART 1j; T 2
Z CAAR ¼ N 2
1
ð2:4:2:10Þ
j¼1
dCART 1j ;T 2

where
8 2 P 2 39
PT D e 2 >  >
AR < T2
R  L R =
k¼T Db jk 6 L t¼T 1 mt m 7
d2CART ;T ¼ L6 1 þ þ P   7
: 6
Dj  2 > 2 7>
7;
1 2 Dj Dj *
6 k¼1 Rmk  Rm

where L is the length of the event period in trading days, L = T2 − T1 + 1. Dj is the

number of non-missing trading day returns in the D-day interval T Db through T De
used to estimate the parameter of the firm j.

Standardized Cross-Sectional Test (SCS)

Standardized cross-sectional test developed by Boehmer et al. (1991) incorporates

the information from both estimation and the event period. The event period
abnormal returns are first standardized by estimation period standard deviation. The
cross-sectional technique is then applied to the standardized abnormal returns. The
test is same as Patell test except that there is a final adjustment in the place of
analytical variance of the total standardized abnormal return.
For day t in the event period, the test statistics is given in Eq. (2.4.2.11)

TSARt
Zt ¼ 1 ð2:4:2:11Þ
N 2 ðdSARt Þ

where
!2
1 X N
1X N
d2SARt ¼ SARit  SARjt
N  1 i¼1 N j¼1
2.4 Event Study Methodology 25

Define the standardized cumulative abnormal return for stock j as in

Eq. (2.4.2.12)
!
CART 1j; T 2j
SCART 1j; T 2j ¼ ð2:4:2:12Þ
dCART 1j ;T 2j

Then the standardized cross-sectional test for the null hypothesis that CAAR = 0
is given in Eq. (2.4.2.13)
PN
SCART 1j; T 2j
Zt ¼ i¼1  ð2:4:2:13Þ
1
N dSCAR
2
ðT 1j; T 2j Þ

where
!2
1 X N
1X N
d2dSCAR ¼ SCART1j ;T2j  SCART1j ;T2j
ðT1j ; T2j Þ N  1 i¼1 N j¼1

2.4.2.2 Nonparametric Tests

Three nonparametric test statistics, namely, generalized sign test (Cowan 1992),
rank test (Corrado 1989) and jackknife test (Giaccotto and Sfiridis 1996) have been
conducted to test for the significance of average abnormal returns and cumulative
abnormal returns over the event period.

Generalized Sign Test (Gsign Z)

The generalized sign test is a refined version of the sign test by allowing the null
hypothesis having positive abnormal residuals to be different from 0.5 (Cowan,
1992). The sign test is a simple binomial test to ascertain whether the frequency of
positive abnormal residuals equals 50 % or not. The generalized sign test adjusts for
the fraction of positive abnormal returns in the estimation period instead of
assuming 0.5. The generalized sign test compares the proportion of positive ab-
normal returns around an event to the proportion from a period unaffected by the
event.
In this way, the generalized sign test takes account of a possible asymmetric
return distribution under the null hypothesis. The generalized sign test does not
require symmetry of the cross-sectional abnormal return distribution and becomes
relatively more powerful as the length of the event window increases. The gener-
alized sign test is correctly specified when the variance of the stock return increases
during the event window.
26 2 Research Methodology

The generalized sign test examines whether the number of stocks with positive
cumulative abnormal returns in the event window exceeds the number expected in
the absence of abnormal performance or not. The number expected is based on the
proportion of positive abnormal returns in the 255 day estimation period as cal-
culated in Eq. (2.4.2.14)

1X n
1 X255
^p ¼ Sjt ð2:4:2:14Þ
n j¼1 255 t¼1

where

1 if ARjt [ 0
Sjt ¼
0 otherwise

The following statistic has an approximate unit normal distribution with

parameter ^
p:

w  n^p
Z G ¼ pffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi ð2:4:2:15Þ
n^pð1  ^pÞ

where w is the number of stocks in the event window for which the cumulative
abnormal return is positive.
The null and alternative hypotheses of interest are:
The null hypothesis for generalized sign test is that there is no difference
between the proportion of positive returns in the event window and its proportion of
positive returns in the estimation period.
The alternative hypothesis, for any level of abnormal performance, is that the
proportion of positive returns in the event window is different from proportion of
positive returns in the estimation period.

Rank Test

The rank test (Corrado 1989) procedure considers the combined estimation period
and event period as a single set of returns, and assigns a rank based on return to
each daily for each firm. The rank statistic has been denoted as TR. For day zero, the
test statistics is specified in Eq. (2.4.2.16)
" ! #
1X N
Z rank ¼ kj0  ~k =Sk ð2:4:2:16Þ
N j¼1

where kj0 is the rank of security event j’s day zero abnormal return in security event
j’s combined 255 day estimation period and 19-day event period (in the case of
2.4 Event Study Methodology 27

(+2, +20)) time series, k is the expected rank defined below, and sk is the time series
standard deviation of the sample mean abnormal return ranks.
Each security event’s non-missing returns have been ranked with the lowest rank
being one. Ej represents the number of non-missing returns of security j in the event
period; if there is no missing return, Ej = E = post – pre + 1 and D = length of
estimation window. The mean rank across the combined estimation and event
period is

~k ¼ D þ E þ 1
2

The rank test statistic for the null hypothesis relating to the event window (T1,
T2) is given in Eq. (2.4.2.17)
8 9
>
> >
>
>
< >
=
1 e
KT1 T2  K
Zrank ¼ ðT2  T1 þ 1Þ2  12 > ð2:4:2:17Þ
>
> PD þ E   >
>
: K t  K =D þ E >
e
2
;
t¼1

where,
P 2 1 Pn
K T 1 T 2 ¼ T 2 T11 þ 1 Tt¼T j¼1 K jt is the average rank across the n securities and
1 n
P
T 2  T 1 þ 1 days of the event window and K  t ¼ ð1=nÞ n K jt is the average rank
j¼1
across n securities on day t of the D + E day combined estimation and event period.

Jackknife Test

The jackknife test by Giaccotto and Sfiridis (1996) computes the standardized
abnormal return for each stock j, computed using the event period sample standard
deviation. The standardized abnormal return for day t is given in Eq. (2.4.2.18)

^h ¼ ARjt ð2:4:2:18Þ
r~ARjt

where
8  912
<XTe ARjt  AAR2j =
~ARjt ¼
r
:t¼T Ej ;
b

and AARj is the average abnormal return of stock j during the event period of
~ARjt is a
E ¼ T e  T b þ 1 days. If there is an event-induced variance on day t, then r
28 2 Research Methodology

biased estimator of rARjt and ^h is a biased statistic. Giaccotto and Sfiridis (1996)
propose reducing the bias by jackknifing the h^ values.
The first step of the jackknife is to sequentially delete one abnormal return ARjts
from r~ARjt and recompute r ~ARjt , using the new value in turn to recompute ^h using
Eq. (2.4.2.18). This latter value is named as ^hðdÞ and pseudo-values are formed
using ^
hðdÞ in the next step as per Eq. (2.4.2.19)



hðdÞ ¼ Ej ^h  Ej  1 ^hðdÞ ð2:4:2:19Þ

The jackknife estimator for stock j on day t is the mean of the pseudo-values as
per Eq. (2.4.2.20):

1X Te
hjt ¼ hðsÞ ð2:4:2:20Þ
Ej t¼Tb

To gain efficiency, the estimates are averaged across the sample of stocks as in
Eq. (2.4.2.21).

XN
ht ¼ 1 hjt ð2:4:2:21Þ
N j¼1

Finally, the jackknife test statistic for the sample of stock on day t is given in
Eq. (2.4.2.22)

ht
tjacknife ¼ pffiffiffiffi ð2:4:2:22Þ
Sjacknife = N

where,
" #12
1 X N
2
Sjacknife ¼ hjt  ht
N  1 i¼1

To test the significance of the cumulative average abnormal returns over the
window from day T1 through day T2 define as given in Eq. (2.4.2.23)
PT 2
ARjt
^hT T ¼ t¼T 1
ð2:4:2:23Þ
1 2 1
~ARjt
ð T 2  T 1 þ 1Þ 2 r

Sequentially delete one abnormal return ARjts from equation r~ARjt and recom-
^
~AR , using the new value in turn to recompute h using Eq. (2.4.2.23). Name
pute r jt

this latter value as in Eq. (2.4.2.24)

2.4 Event Study Methodology 29



hðdÞ;T1 T2 ¼ Ej ^hT 1 T 2  Ej  1 ^hðdÞ;T 1 T 2 ð2:4:2:24Þ

The jackknife estimator for stock j in window (T1, T2) is the mean of the
pseudo-values given in Eq. (2.4.2.25)

1X Ee
hj;T1 T2 ¼ hðdÞ ð2:4:2:25Þ
Ej t¼Eb

The estimates are averaged across the sample of stocks as per Eq. (2.4.2.26):

1X N
h T1 T2 ¼ hT T ð2:4:2:26Þ
N j¼1 1 2

The jackknife test statistic for CAAR for the sample of stocks in window (T1, T2)
is given in Eq. (2.4.2.27)

h T1 T2
tjacknife ¼ pffiffiffiffi ð2:4:2:27Þ
Sjacknife;T 1 T 2 = N

where
" #12
1 X N
2
Sjacknife;T 1 T 2 ¼ hj;T 1 T 2  hT 1 T 2
N  1 i¼1

The distribution of tjackknife under the null hypothesis is approximately normal

with mean zero and unit variance.

2.5 Data Description

The present study covers a period of 13 years from January 1, 2003 to December
31, 2015. There were 11,683 mergers and acquisitions announcements during this
period.
Table 2.1 provides the year-wise sample distribution of mergers and acquisi-
tions. It has been observed that the maximum announcements happened in the year
2006 (9.9 %) followed by 2010 (9.73 %) and 2007 (9.72 %). However, the max-
imum number of completed mergers and acquisitions happened in the year 2007
(10.5 %) followed by 2008 (10.2 %) and 2006 (9.1 %). The relevant data in the
Table also reveal that a substantial number (37.4 %) of acquisitions announcements
are either still pending or withdrawn subsequently.
 30

Table 2.1 Year-wise distribution of mergers and acquisitions announcements, 2003–2015

S. Year Grand Percentage
No. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 total
1 Total announcements of 507 570 1003 1157 1136 1131 1058 1137 790 810 705 800 902 11,683 100
M&A
2 Rumors, news of 198 228 411 501 395 392 398 488 273 303 276 272 321 4365 37.4
acquisitions withdrawn
subsequently and
pending
3 M&A completed 310 349 602 668 770 748 660 649 517 507 429 528 581 7318 62.6
Total announcements of 507 570 1003 1157 1136 1131 1058 1137 790 810 705 800 902
M&A
Percentage of total 4.34 4.88 8.59 9.90 9.72 9.68 9.06 9.73 6.76 6.93 6.03 6.85 7.72
announcements
Percentage of total M&A 4.2 4.8 8.2 9.1 10.5 10.2 9.0 8.9 7.1 6.9 5.9 7.2 7.9
completed
Source Thomson SDC Platinum Database
2 Research Methodology
2.5 Data Description 31

Table 2.2 summarizes the stake-wise sample distribution of mergers and

acquisitions; it is evident from the Table that almost half (49.2 %) of acquisitions
are acquisitions of minor stake as where nearly two-fifth (39.1 %) are acquisitions
of complete stake and more than one-tenth (11.7 %) acquisitions are of
partial/majority control.
The study has attempted to analyze the primary as well as secondary data related
to mergers and acquisitions. The primary data has been collected using a ques-
tionnaire sent to Director (Finance) of companies that were engaged in merger and
acquisition activities during a specified time period. The companies are located all
over India. The questionnaire captures the opinion on the three major aspects,
namely, management view on motives for M&A, management views on sources of
synergy from M&A and motives of merger of wholly owned subsidiary.
The secondary data has been collected from various sources; these include the
Thomson SDC database on mergers and acquisitions, Prowess databases of Centre
for Monitoring Indian Economy (CMIE), websites of Bombay Stock Exchange,
National Stock Exchange, Securities and Exchange Board of India (SEBI),
Electronic Data Information Filing and Retrieval System (EDIFAR) website of
SEBI, Economic Times, Business Standard and Moneycontrol. Besides, relevant
data were also extracted from the annual reports and websites of the companies. As
per the research methodology, these two types of data have been further used for
analysis.

2.6 Sample Selection Criteria

To ascertain that the present research study captures the impact of merger and
acquisition announcements and provides valid estimates of the measures, certain
sample selection criteria (McWilliams and Siegel 1997) have been considered. As
per the criteria, certain announcements other than M&A should not have taken
place during the chosen event window of 41 days (20 days prior to announcement,
1 day for the announcement and 20 days after the announcement). This ensures that
event window is not contaminated with any other type of announcement, thereby
capturing the exclusive effect of the M&A announcements. The firm is included in
the sample only when criteria as stated below are fulfilled.
The shares are ordinary common shares.
(i) There are no announcements or ex-dates of cash dividend within the event
window.
(ii) There are no announcements or ex-dates of stock splits and stock
dividends/bonus issues during the event window.
(iii) There is no announcement of capital investment in a new project, credit
rating and financial results during the event window.
(iv) As a part of normal course of business, a company receives orders from
various customers. It has been observed that if the order is of a substantial
 32

Table 2.2 Stake-wise distribution of mergers and acquisitions announcements, 2003–2015

S. Year Grand Percentage
No. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 total
1 Acquisitions of minor 186 195 290 314 397 341 352 294 251 228 216 262 275 3601 49.2
stake
2 Acquisitions of 21 37 69 69 83 91 72 94 84 69 51 66 47 853 11.7
major/partial control
stake
3 Acquisitions of complete 103 117 243 285 290 316 236 261 182 210 162 200 259 2864 39.1
stake
Total 310 349 602 668 770 748 660 649 517 507 429 528 581 7318 100
Percentage 3.6 4.1 8.5 10.0 10.1 11.0 8.2 9.1 6.4 7.3 5.7 7.0 9.0
Source Thomson SDC Platinum Database
2 Research Methodology
2.6 Sample Selection Criteria 33

value and from prestigious customers, some companies provide this infor-
mation to Bombay Stock Exchange expecting a positive change in the stock
prices of the company. To make our sample free from this issue, the com-
panies that made such announcement during the event window are
eliminated.
(v) There are no announcement of issuance of new shares by way of domestic or
international offering in the form of Public Offer, Preferential Issue, Foreign
Currency Convertible Bonds (FCCB), American Depository Receipts
(ADR) and Global Depository Receipts (GDR).
(vi) The firms must have daily price information available from the Prowess
database, Bombay Stock Exchange or the Capitaline database. The firms
having non-synchronous trading have been eliminated from the sample.
(vii) The firms must have financial information available in ‘Prowess’ database.
Therefore, in this study while the universe for the M&A announcements is
11,683, the sample for short-term abnormal returns (event study) is 800. The unit of
analysis for this study is acquiring firms in India.
The long-term performance of only those firms have been analyzed whose data
is available before and after M&A. Extreme values have been excluded from the
data to deal with the influence of outliers. After analyzing data for outliers, the
values beyond three standard deviations have been dropped from the analysis. Due
to unavailability of some data and inconsistency in some data collected, the number
of firms utilized for long-term analysis of financial performance (ratio analysis)
varied: 402 firms for 1 year before and after M&A, 401 firms for 1 year before and
2 year mean after M&A (−1, 2), 391 firms for 1 year before and 3 year mean after
M&A (−1, 3), 361 firms for 1 year before and 4 year mean after M&A (−1, 4), 351
firms for 1 year before and 5 year mean after M&A (−1, 5), the mean of 2 years
before and after M&A (−2, 2) of 401 firms, the mean of 3 years before and after
M&A (−3, 3) of 398 firms, the mean of 4 years before and after M&A (−4, 4) of
387 firms, the mean of 5 years before and after M&A(−5, 5) of 360 firms have been
analyzed.

2.7 Concluding Observations

This chapter discusses the objectives of the study, hypotheses to be tested and
provides a description of the research methodology being used for the present work.
The chapter also delineates the basis of the sample selection criteria. The proposed
sample selection criterion differentiates this research work from the earlier works as
it attempts to provide the non-contaminated (mergers and acquisitions) sample by
manually verifying rigorous sample selection criterion. This enables the researchers
34 2 Research Methodology

to determine the true impact of these decisions without contamination of data

(McWilliams and Siegel 1997). The mechanics of the event study methodology,
hypotheses and various tests used to check the robustness of the results have been
explained in the chapter.

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Chapter 3
Short-Term Performance of Mergers
and Acquisitions

Abstract Mergers and acquisitions (M&A) are one of the mechanisms by which
firms gain access to new resources; via resource redeployment, they increase rev-
enues and reduce cost. Stock market reactions to mergers and acquisitions
announcements could help to predict mergers and acquisitions profitability. The
present chapter attempts to examine the market response associated with mergers
and acquisitions announcements using event study methodology. The effects of
these announcements appear to be a good indicator of future success. The empirical
research presents evidence that the market, usually, reacts positively to the M&A
announcements that are not contaminated by any other contemporaneous
firm-specific announcements. The study finds evidence that shareholders of
acquiring Indian companies engaging in mergers and acquisitions experience a
statistically significant positive abnormal return on announcement day as well as
statistically cumulative abnormal returns over multiday event windows. The
empirical findings suggest that mergers and acquisitions result in wealth creation for
shareholders of the Indian acquirers.

Keywords Event study

Earn-outs

Cross-border acquisitions

Abnormal





returns Shareholders Short-run performance India Event study Cumulative




abnormal return Shareholders wealth effect Domestic acquisitions Emerging

market multinational

3.1 Introduction

Short-term effects are of interests for immediate trading opportunities they create;
moreover, stock market reactions to mergers and acquisitions announcements could
help to predict mergers and acquisitions profitability. The effects of these
announcements appear to be a good indicator of future success. The most statisti-
cally reliable evidence on whether mergers and acquisitions create wealth for
shareholders is documented by conducting event studies. Various studies use the
event methodology to analyze the short-term effects of mergers and acquisitions

© Springer Science+Business Media Singapore 2016 37

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6_3
38 3 Short-Term Performance of Mergers and Acquisitions

(Asquith 1983; Dodd 1980; Dennis and McConnell 1986; Pettway and Yamada
1986; Sicherman and Pettway 1987; Schipper and Smith 1983; Schipper and
Thompson 1983; Mitchell et al. 2004; Davidson et al. 1989). Based on the
announcement-period stock market response, the empirical studies attempt to
ascertain whether mergers and acquisitions create value for shareholders of
acquiring firms or not. Assuming informational efficiency of the stock market, the
acquirer’s stock price reaction to an acquisition announcement provides an unbi-
ased estimate of the acquisition’s profitability from the perspective of acquiring
firm’s shareholders.
In view of this, the present chapter attempts to examine the market response
associated with mergers and acquisitions announcements using event study
methodology. The chapter has been organized into nine sections. Section 3.2 pro-
vides a detailed description of sample selection to examine short-term performance
of M&A. Section 3.3 is divided into two subsections, namely, Sects. 3.3.1 and 3.3.2.
These two subsections present the analysis of short-term performance and frequency
distribution of abnormal returns of entire sample. The returns of subsamples based
on cross-border M&A and domestic M&A have been discussed in Sect. 3.4. This
section is further divided into Sects. 3.4.1 and 3.4.2 depicting the impact of
announcement of cross-border M&A and domestic M&A on short-term returns; the
cross-border effect has been examined in Sect. 3.4.3. Section 3.5 presents the
analysis of short-term performance of subsamples segregated on the basis of control
(per cent of stake of target firm) acquired. The section is divided into four subsec-
tions. Two subsections, namely, Sects. 3.5.1 and 3.5.2 describe the analysis of
short-term performance of subsample segregated on the basis of control.
Section 3.5.3 examines the performance of acquisition complete control of target
firm to be totally absorbed with the acquirer’s operations and Sect. 3.5.4 analyzes
the control effect on returns. Section 3.6 looks into the listing effect on returns. The
section is further divided into three subsections. Sections 3.6.1 and 3.6.2 describe
the impact of acquisitions of unlisted firms and listed firms, respectively.
Section 3.6.3 analyzes the listing effect. Section 3.7 describes the payment effect on
returns. The section is further divided into three subsections, namely, Sects. 3.7.1,
3.7.2, 3.7.3, and 3.7.4. Sections 3.7.1, 3.7.2, and 3.7.3 present the impact of
acquisitions financed with cash payments, stock payments, and combination of cash
and stock/earn-outs, respectively. Section 3.7.4 examines the payment effect on
returns. Geography effect of cross-border acquisitions on acquirers’ return is dis-
cussed in Sect. 3.8. The section is divided into three subsections. The two subsec-
tions, namely, Sects. 3.8.1 and 3.8.2 discuss the impact of cross-border acquisitions
of target firms from developed and emerging markets, respectively. Section 3.8.1 is
further divided into two subsections, namely, Sects. 3.8.1.1 and 3.8.1.2; these
subsections examine the impact of cross-border acquisitions of target firms from US
and non-US developed markets. Section 3.8.3 analyzes the geography effect. The
concluding observations are summarized in Sect. 3.9.
3.2 Description of Sample Selection and Sample Characteristics 39

3.2 Description of Sample Selection and Sample

Characteristics

Table 3.1 contains the details of selection of final sample of mergers and acquisi-
tions for the study. Various filters (presented in Sect. 2.6) have been used to obtain
the sample with a clean-period event window. These filters reduce the dataset to
800 announcements comprising 346 cross-border and 454 domestic acquisitions.
Yearly distribution of the sample acquisitions as well as distribution according to
different features of the transaction has been detailed in Tables 3.2 and 3.3,
respectively.
Yearwise distribution of acquisitions presented in Table 3.2 shows that the trend
of both type of M&A has shown increasing trend from year 2003 to 2008 with
highest number of M&A reported in year 2007 for both. Declining trend is wit-
nessed for M&A activities over the period 2009 onward.
Distribution of acquisitions according to features of transaction in Table 3.3
depicts that cash is the most frequently used form of financing in both the sets of
acquisitions.
Contrary to the domestic acquisitions, stock payments are rarely used for
cross-border acquisitions. Acquisitions of unlisted target firms are higher in com-
parison to the acquisitions of listed target firms.

Table 3.1 Sample selection

Total number of announcements 11,683
Less acquisitions excluded
Rumors, news of acquisitions withdrawn/denial subsequently, and pending 4365
acquisitions
Minor acquisitions 3601
Acquisitions of stake by promoters, inter-se transfer among associate companies, and 231
preferential allotments
Increase in stake and reannouncements for open offers 127
Acquisition by financial companies 165
Acquisitions by unlisted companies and investor groups 213
Acquisitions of business, assets, divisions, and brands 245
Trading data not available 265
Confounding events 594
More than one type of acquisition in one announcements 145
Multiple acquisitions in one announcement 333
Formation of subsidiary, restructuring, and reorganization 162
Date could not be verified 437
Selected in sample (11,683–10,883) 800
Source Thomson Security Data Corporation (SDC) Platinum M&A database, year 2003–2015
40 3 Short-Term Performance of Mergers and Acquisitions

Table 3.2 Yearwise sample distribution of cross-border and domestic M&A, 2003–2015
Year Cross-border M&A Domestic M&A Total
2003 17 22 39
2004 20 27 47
2005 44 48 92
2006 63 86 149
2007 87 91 178
2008 66 86 152
2009 7 18 25
2010 12 21 33
2011 6 15 21
2012 8 13 21
2013 7 8 15
2014 3 10 13
2015 6 9 15
Total 346 454 800

Table 3.3 Sample distribution of cross-border and domestic M&A according to features
Feature Cross-border Domestic Total
M&A M&A M&A
Cash-financed M&A 326 319 645
Stock-financed M&A 7 130 137
M&A with mixed financing 13 5 18
M&A of unlisted firms 313 410 713
M&A of listed firms 30 53 83
M&A of Govt/State firms 2 2 4
Acquisitions of partial/majority controlling 87 122 209
stake
Acquisitions of complete stake 253 198 451
Target firms to be absorbed with the 5 135 140
operations of acquirer

3.3 Analysis of Short-Term Performance of Entire Sample

3.3.1 Impact of Announcement of M&A on Stock Returns

Table 3.4 reports the results of the event study conducted to examine the impact of
announcements of merger and acquisition on stock returns. It depicts the average
abnormal returns (AAR), corresponding to t-statistic values, median abnormal
Table 3.4 Abnormal returns and test statistics on and around M&A announcements (N = 800)
Day Abnormal return Positive: Parametric tests Nonparametric tests
Average (%) Cumulative average (%) Median (%) negative CDA t CSS t Patell Z SCS Z GSign Z Rank Z Jackknife Z
−20 −0.08 −0.08 −0.30 356:434 −0.632 −0.746 −0.214 −0.214 −0.389 −0.166 −0.852
−19 −0.04 −0.12 −0.20 373:427 −0.282 −0.348 0.208 0.205 0.501 0.057 −0.675
−18 −0.14 −0.26 −0.22 367:425 −1.028 −1.251 −1.056 −0.978 0.527 −0.529 −1.392
−17 −0.03 −0.29 −0.23 363:433 −0.248 −0.314 −0.581 −0.594 0.112 −0.09 −1.311
−16 −0.02 −0.31 −0.23 361:437 −0.127 −0.159 −0.097 −0.096 −0.095 0 −0.11
−15 0.21 −0.09 −0.11 381:415 1.62 1.774 1.989a 1.837 1.393 1.582 1.415
−14 0.13 0.04 −0.16 370:426 0.997 1.104 1.322 1.218 0.61 0.691 1.019
−13 0.01 0.05 −0.03 389:404 0.073 0.083 0.478 0.46 2.064a 0.882 0.38
−12 −0.22 −0.17 −0.28 363:431 −1.65 −1.897 −1.419 −1.314 0.177 −0.708 −1.83
−11 0.00 −0.16 −0.25 367:426 0.035 0.039 0.389 0.384 0.495 −0.133 −0.129
−10 0.03 −0.13 −0.30 352:440 0.256 0.286 0.291 0.274 −0.543 −0.156 −0.356
−9 0.11 −0.02 −0.17 372:424 0.861 0.996 1.634 1.525 0.753 1.065 0.696
−8 −0.06 −0.07 −0.20 361:432 −0.426 −0.504 −0.223 −0.221 0.067 0.017 −0.799
−7 0.26 0.19 −0.14 373:422 1.975a 2.206a 1.781 1.661 0.857 1.453 1.433
3.3 Analysis of Short-Term Performance of Entire Sample

−6 0.28 0.47 −0.05 389:405 2.130a 2.397a 2.110a 1.924 2.030a 1.607 2.321a
−5 0.16 0.63 −0.04 386:405 1.216 1.409 0.801 0.807 1.917 1.098 0.943
−4 0.16 0.79 −0.18 373:415 1.219 1.404 1.31 1.314 1.088 1.018 0.944
−3 0.31 1.10 0.00 397:396 2.349a 2.624b 2.658b 2.593b 2.634b 2.412a 2.243a
−2 0.40 1.50 −0.05 394:402 2.999b 3.563b 2.973b 3.107b 2.319a 2.587a 3.311b
−1 0.43 1.93 −0.01 394:400 3.247b 3.608b 2.779b 2.606b 2.387a 2.293a 2.610b
0 1.30 3.23 0.72 486:316 9.822b 9.061b 11.884b 8.770b 8.408b 8.123b 9.488b
1 0.10 3.33 −0.12 380:415 0.732 0.76 0.744 0.652 1.355 0.481 0.057
2 −0.04 3.29 −0.31 350:444 −0.271 −0.296 −0.322 −0.297 −0.75 −0.617 −0.639
3 −0.11 3.18 −0.35 346:448 −0.828 −0.93 −0.419 −0.392 −1.035 −0.846 −0.982
(continued)
41
Table 3.4 (continued)
42

Day Abnormal return Positive: Parametric tests Nonparametric tests

Average (%) Cumulative average (%) Median (%) negative CDA t CSS t Patell Z SCS Z GSign Z Rank Z Jackknife Z
4 −0.13 3.05 −0.37 345:448 −0.984 −1.194 −1.665 −1.745 −1.074 −1.272 −2.183a
5 −0.16 2.89 −0.46 333:460 −1.224 −1.373 −1.403 −1.313 −1.93 −1.606 −2.305a
6 −0.24 2.65 −0.41 348:448 −1.838 −2.087a −1.819 −1.728 −0.956 −1.302 −2.116a
7 −0.10 2.55 −0.33 348:447 −0.762 −0.967 −0.553 −0.566 −0.924 −0.447 −0.804
8 −0.06 2.49 −0.24 367:427 −0.43 −0.504 −0.836 −0.82 0.462 −0.657 −1.048
9 −0.05 2.44 −0.35 346:447 −0.351 −0.39 −0.592 −0.541 −1.003 −0.704 −1.083
10 −0.23 2.21 −0.35 337:453 −1.753 −2.142a −1.675 −1.719 −1.551 −1.17 −2.313a
11 −0.16 2.06 −0.28 357:435 −1.171 −1.434 −0.795 −0.817 −0.186 −0.359 −1.309
12 −0.14 1.91 −0.23 355:436 −1.086 −1.269 −1.392 −1.415 −0.297 −0.622 −1.89
13 0.18 2.10 −0.28 361:428 1.395 1.602 1.624 1.563 0.197 0.851 0.988
14 −0.03 2.07 −0.30 346:446 −0.244 −0.277 −0.395 −0.38 −0.971 −0.21 −0.857
15 0.09 2.16 −0.14 375:421 0.681 0.761 0.475 0.445 0.966 0.564 −0.051
16 −0.23 1.93 −0.43 329:465 −1.717 −2.002a −2.312a −2.298a −2.247a −1.79 −2.906b
17 −0.14 1.79 −0.29 347:446 −1.054 −1.317 −1.556 −1.647 −0.932 −0.842 −1.811
18 −0.06 1.73 −0.25 358:435 −0.454 −0.525 0.011 0.011 −0.147 −0.103 −0.77
19 −0.05 1.68 −0.22 365:427 −0.343 −0.424 −0.531 −0.557 0.385 0.15 −0.49
20 −0.03 1.66 −0.16 373:420 −0.197 −0.191 −0.807 −0.802 0.923 −0.033 −1.495
a, b
Denote significance at 5 and 1 %, respectively
3 Short-Term Performance of Mergers and Acquisitions
3.3 Analysis of Short-Term Performance of Entire Sample 43

returns (MAR), the number of the positive and negative abnormal returns, cumu-
lative average abnormal returns (CAAR) for each day in the event window.
In addition, Figs. 3.1 and 3.2 graphically depict the value of AAR and CAAR
corresponding to each day of the event window.
Table 3.4 depicts that during the 20-day preannouncement window, starting
from day t(−7) to day t(−1), there is a pattern of positive average abnormal returns.
The returns are positive for 13 days while they are negative for only 7 days. Out of
these fourteen positive AAR values, two values are statistically significant at 5 %
level of significance. The negative returns are not significant on either of the 7 days.
The AAR on announcement day (0) is 1.30 %; this is the maximum and highly
significant (at 1 % level). In fact, it has been noted that on that day 479 out of the
total of 800 companies observed positive AARs. During the post-announcement
window from day (0, 1) to day (0, 20), the pattern of positive AARs changes to
negative pattern of returns. It has been observed that the AARs are negative for
17 days and positive for only 3 days.

Average abnormal return of entire sample

1.50%

1.00%
Returns

0.50%

0.00%
- 20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50% Event Window (days)

Fig. 3.1 Average abnormal returns during the event window

Cumulative average abnormal return of entire sample

4.00%

3.00%
Returns

2.00%

1.00%

0.00%
- 20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-1.00%
Event Window (days)

Fig. 3.2 Cumulative average abnormal returns during the event window
44 3 Short-Term Performance of Mergers and Acquisitions

The observed results indicate that the investors perceive the announcement of
M&A to be beneficial for them. Although the change of positive reaction prior to
and on the announcement day to negative reaction after the announcement day
indicates that the investors overreacted initially to these announcements but later a
correction (to this overreaction by the investors) takes place quickly. Such findings
lead to conclusion that the null hypothesis of zero average abnormal returns during
the event window is rejected.
Besides, the returns are cumulated over the event window to assess the net
magnitude of the overall returns. Table 3.4 also presents the cumulative average
abnormal return (CAAR) for each day during the 41-day event window. The results
indicate that CAAR starts becoming positive from day t(−7); observe positive
pattern till day t(+21). The CAAR value of day t(−7) starts from 0.19 % reaches to
a peak of almost 3.33 % on day (0, 1) and settles at 1.66 % on day (0, 20). This
decline of 1.67 % value in CAAR value is due to the fact that AAR values are
mostly positive till day (0, 1) and are, by and large, negative during the post-
announcement window.
Further, cumulative average abnormal return (CAAR) and precision-weighted
average abnormal return (PWCAAR) values over various size event windows are
calculated; this is to determine the important periods for investment perspective.
Table 3.5 reports the average abnormal return, CAAR, PWCAAR, and median
abnormal return. Additionally, it presents proportion of positive and negative
average abnormal return. Moreover, it provides the results of parametric and
nonparametric tests conducted to measure statistical significance for average
abnormal returns and cumulative average abnormal returns.
For various preannouncement event windows (−20, −2), (−15, −2), (−10, −2),
(−5, −2), and (−5, 0), the CAAR values are 1.49, 1.80, 1.66, 1.02, and 2.75 %,
respectively; these values are quite impressive. The CAAR is maximum (2.75 %)
and highly significant for window (−5, −0) making it the most important event
window. Moreover, the announcement effect of M&A can be measured by evalu-
ating the (−1, 0), (0, +1), and (−5, 0) event windows. The AAR values of 0.43 %
on day t(−1), 1.30 % on day (0, 0), and 0.10 % on day (0, +1) indicate that an
investor can gain a substantial CAAR of 1.82 % if the shares of the issuing
company are purchased 1 day prior to the announcement day and sold 1 day after
the announcement day. Furthermore, the negative AARs from day (1, 20), results in
negative CAAR values of −0.44, −1.11, −1.17, and −1.66 % for (+2, +5), (+2,
+10), (+2, +15), and (+2, +20) event windows, respectively. Finally, the CAAR
values of 1.82, 2.18, 2.41, 2.36, and 1.65 % for the event windows (−1, +1), (−2,
+2), (−5, +5), (−10, +10), and (−20, +20), respectively, signify that the short-term
impact of M&A announcements is remarkable for the investors. The results across
windows (−1, +1), (−2, +2), (−5, +5), and (−10, +10) are statistically significant at
1 % indicating that the null hypothesis of zero cumulative abnormal returns during
these event windows is rejected.
Table 3.5 Cumulative average abnormal returns (CAARs) for M&A announcements across various event windows (N = 800)
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Z Rank Z Jackknife Z
(%) (%) (%)
(−20, −2) 1.49 1.37 0.44 413:387 2.587b 2.685b 3.271b 2.838b 3.497b 2.910b 1.262
(−15, −2) 1.80 1.56 0.69 418:382 3.627b 3.902b 4.279b 3.945b 3.852b 3.585b 2.619b
(−10, −2) 1.66 1.31 0.40 414:386 4.165b 4.603b 4.434b 4.199b 3.568b 3.7b 3.088b
(−5, −2) 1.02 0.75 0.22 410:390 3.862b 4.334b 3.831b 3.732b 3.284b 3.557b 3.203b
b
(−5, 0) 2.75 2.18 1.52 474:326 8.460b 8.811b 9.056b 8.193b 7.831a, 7.156b 7.537b
b
(−1, 0) 1.73 1.45 0.90 494:306 9.215b 8.785b 10.316b 8.176b 9.186a, 7.365b 8.618b
(0, 0) 1.30 1.18 0.72 484:316 9.822b 9.061b 11.838b 8.756b 8.408b 8.123b 9.437b
b
(0, +1) 1.39 1.24 0.67 459:341 7.444b 6.770b 8.865b 6.713b 6.696a, 6.084b 6.636b
(0, +5) 0.96 0.84 0.05 403:397 2.947b 2.953b 3.524b 2.967b 2.786b 1.741 1.754
(+2, +5) −0.44 −0.39 −0.91 347:453 −1.648 −1.747 −1.923a −1.816 −1.312 −2.170a −2.913b
b
(+2, +10) −1.11 −0.92 −1.81 313:487 −2.798b −2.870b −3.080b −2.761b −3.650a, −2.873b −3.530b
b
(+2, +15) −1.17 −0.98 −2.40 316:482 −2.356a −2.335a −2.599b −2.278a −3.294a, −2.244a −3.255b
(+2, +20) 322:478
3.3 Analysis of Short-Term Performance of Entire Sample

−1.66 −1.28 −2.55 −2.877b −2.815b −3.360b −2.283a −2.969b −2.527a −4.039b
b
(−1, +1) 1.82 1.51 1.04 462:338 7.936b 7.398b 8.838b 6.998b 6.944a, 6.291b 6.960b
b
(−2, +2) 2.18 1.76 1.38 468:332 7.355b 7.232b 8.004b 6.766b 7.405a, 5.754b 6.380b
b
(−5, +5) 2.41 1.86 1.09 440:360 5.478b 5.792b 5.754b 5.242b 5.415a, 4.122b 3.914b
b
(−10, +10) 2.36 1.89 0.59 420:380 3.893b 3.960b 4.227b 3.665b 3.994a, 2.919b 2.288a
b
(−20, +20) 1.65 1.73 0.65 414:386 1.944 1.922 2.397b 2.094a 3.604a, 1.963 −0.087
a, b
Denote significance at 5 and 1 %, respectively
45
46 3 Short-Term Performance of Mergers and Acquisitions

The above results lead to the conclusion that although the announcement of
M&A induces positive reaction, this reaction is temporary in nature and gets diluted
soon. Though the results of the announcement day are statistically significant, the
reaction is not very strong; it gets nullified within a short time period. This clearly
indicates that the initial overreaction is followed by a strong correction. The results
vary for different event windows; in some cases, the null hypothesis is rejected
while in others it is not.
The positive returns observed on announcement and during pre-event window
are in sync with the expectation of the Indian managers to realize synergies and
synergy hypothesis. Perhaps, this may be due to the reason that companies acquire
another company for strategic reason so as to exploit economies of scale and scope,
and leverage available resources and capabilities, thus creating more scope for
value creation. Mergers and acquisitions provide an opportunity to the acquiring
company to combine and judiciously utilize intangible resources of both the
companies on a broader scale.
These findings are consistent with the conclusions drawn by Rani et al. (2015);
Kohli and Mann (2011), Barai and Mohanty (2010), Gubbi et al. (2010), Karels
et al. (2011), Zhu and Malhotra (2008), Anand and Singh (2008). However, these
findings, in Indian context, are in contrast with the findings of hubris hypothesis
(Roll 1986).
The negative abnormal returns in the post-event window are probably supported
by the behavioral hypothesis which states that acquiring companies experience
negative abnormal returns over post-event windows (Mueller and Yurtoglu 2007;
Shleifer and Vishney 2003).

3.3.2 Frequency Distribution of Abnormal Returns

To reveal frequency distribution of average abnormal returns on the announcement

day, AAR ranges from −11 to +25 % along with standard deviation of 4.05 (Fig. 3.3).

Announcement day, standard deviation (4.05)

50.0
No. of stocks (%)

37.5 % 39%
40.0
30.0
20.0 16.9 %

10.0 3.6 %
1.5 % 1.1 % 0.6 %
0.0
10to15

15to20

20to25
5to10
-5to0

0to5
-11to-5

Returns (%)

Fig. 3.3 Frequency distribution of average abnormal returns on the announcement day
3.3 Analysis of Short-Term Performance of Entire Sample 47

Event window (-20,-2), standard deviation (15.1)

20.0 17.4%
No. of stocks (%)
15.5%
15.0 11.6%
11%
9.8%
10.0 7.3%
5.4% 5.4%
5.0 3.3%2.4%
1.3%1.6%2.5% 2%
0.9%0.6%0.4%0.3%0.5%0.1%0.1%
0.3%0.4%0.3%
0.0

-10 to-5
-50 to-45
-45 to-40
-40 to-35
-35 to-30
-30 to-25
-25 to-20
-20 to-15
-15 to-10

-5 to 0
0 to 5
5 to 10
10 to 15
15 to 20
20 to 25
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
50 to 55
55 to 60
60 to 65
65 to 70
Returns (%)
Event window (-15, -2), standard deviation (13.02)
18.0 15.5 %
15.0% 15 %
No. of stocks (%)

16.0
14.0 12.9 %
12.0
10.0 8.6%
7.5%
8.0 6.1%
6.0 4.9%
4.0 2.1% 2.5% 2.8% 2.4%
0.4% 0.9% 1.1% 0.8% 0.4% 0.4% 0.5% 0.3%
2.0 0.1 %
0.0
10 to 15
15 to 20
20 to 25
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
50 to 55
55 to 60
5 to 10
0 to 5
-5 to 0
- 45 to - 40
- 40 to - 35
-35 to - 30
-30 to - 25
-25 to - 20
-20 to - 15
-15 to - 10
-10 to -5

Returns (%)
Event window (-10, -2), standard deviation (10.2)
33.1%
35.0
No. of stocks (%)

30.0
25.0
18.0%
20.0
15.0 11.5% 12.5%
8.3%
10.0 3.9% 4.1%
0.9% 1.4% 2.6% 1.5% 0.8% 0.8%
5.0 0.5% 0.1%
0.0
10 to 15

15 to 20

20 to 25

25 to 30

30 to 35

35 to 40

40 to 45
5 to 10
-5 to 0

0 to 5
-30 to -25

-25 to -20

-20 to -15

-15 to -10

-10 to -5

Returns (%)

Fig. 3.4 Frequency distribution of CAAR on pre-event windowsEvent window [(−20, +2), (−15,
−2), and (−10, −2)]

Shareholders of more than 60.6 % stocks experience positive abnormal return on the
announcement day.
Figure 3.4 reveals the frequency distribution of CAAR over pre-event windows
(−20, −2), (−15, −2), and (−10, −2). The range of CAAR vary from −50 to 70 %,
−45 to 60 %, and −30 to 45 % over pre-event windows (−20, −2), (−15, −2), and
(−10, −2), respectively. The standard deviation of CAAR is 15.1, 13.02, and 10.2
48 3 Short-Term Performance of Mergers and Acquisitions

Event window (-5, -2), standard deviation (6.6)

33.0%
35.0 30.8%
No. of Stocks (%)

30.0
25.0
20.0
12.8%
15.0 9.9%
10.0 4.4% 5.1%
2.3%
5.0 0.3 % 0.5% 0.6% 0.5%
0.0

-10 to -5
- 25 to -20

- 20 to -15

- 15 to -10

-5 to 0

0 to 5

5 to 10

10 to 15

15 to 20

20 to 25

25 to 30
Returns (%)

Event window (-5, 0), standard deviation (8.7)

42.6%
45.0
40.0
No. of stock (%)

35.0
30.0 27.0%
25.0
20.0
15.0 9.5% 8.3%
10.0 3.1% 3.9%
5.0 0.4% 0.8% 2.3% 1.1% 0.5% 0.4% 0.1% 0.1%
0.0
10 to 15

15 to 20

20 to 25

25 to 30

35 to 40

40 to 45

45 to 50
5 to 10
0 to 5
-5 to 0
-25 to -20

-20 to -15

-15 to -10

-10 to -5

Returns (%)

Event window (-1, 0), standard deviation (5.5)

50.0 46.8%
45.0
No. of stocks (%)

40.0
35.0
30.0 25.5%
25.0
20.0
15.0 10.9% 10.1%
10.0
1.9 % 3.1%
5.0 1.1% 0.3% 0.3% 0.1%
0.0
10 to 15

15 to 20

20 to 25

25 to 30

35 to 40
5 to 10
-5 to 0

0 to 5
-15 to -10

-10 to -5

Returns (%)

Fig. 3.5 Frequency distribution of CAAR on pre-event windows [(−5, +2), (−5, 0), and (−1, 0)]
3.3 Analysis of Short-Term Performance of Entire Sample 49

Event window (-1, 1), standard deviation (6.9)

No. of stocks (%) 40.0 36.1%
35.0 30%
30.0
25.0
20.0
15.0 10% 11.3%
10.0 6.1%
2.% 3.1%
5.0 0.3% 0.4% 0.4% 0.1% 0.1% 0.1%
0.0

10 to 15

15 to 20

20 to 25

25 to 30

30 to 35

35 to 40

40 to 45
5 to 10
0 to 5
-5 to 0
- 20 to -15

- 15 to -10

-10 to -5

Returns (%)
Event window (-2, 2), standard deviation (8.5)
No. of stocks (%)

40.0
30.8%
30.0 26.4%

20.0 14.3%
11.1%
10.0 5.9% 3.9%
0.9% 3.1% 2.5% 0.4% 0.4% 0.4% 0.1%
0.0
-20 to -15

-15 to -10

-10 to -5

-5 to 0

0 to 5

10 to 15

15 to 20

20 to 25

25 to 30

30 to 35

35 to 40

40 to 45
5 to 10

Returns(%)

Event window (-5, 5), standard deviation (11.7)

30.0
No. of stocks (%)

25.1%
25.0
20.0 17.6%
13.4%
15.0
9.8% 9.9%
10.0 6.6% 6.1%
5.0 2.0% 2.8% 1.8% 1.4%
0.1% 0.4% 0.9% 0.6% 0.1% 0.9% 0.4%
0.0
10 to 15

15 to 20

20 to 25

25 to 30

30 to 35

35 to 40

40 to 45

45 to 50

50 to 55
5 to 10
-5 to 0

0 to 5
-35 to -30

-30 to -25

-25 to -20

-20 to -15

-15 to -10

-10 to -5

Returns (%)

Fig. 3.6 Frequency distribution of CAAR on event windows [(−1, +1), (−2, +2), and (−5, +5)]

over pre-event windows (−20, −2), (−15, −2), and (−10, −2), respectively. The
findings also indicate the problem of high variance in abnormal returns for event
windows as well as pre-event window and post-event window. The high variation
in cumulative abnormal returns for various event windows is also evident from the
range and standard deviation of CAAR for various event windows as depicted in
Figs. 3.4, 3.5, 3.6, 3.7, 3.8, and 3.9.
50 3 Short-Term Performance of Mergers and Acquisitions

Event window (-10, 10), standard deviation (16.8)

30.0 27.4%

25.0
No. of stocks (%)

20.0 18.3%

15.0 12.8%

10.0 7.1% 7.3%

5.4%
3.6% 4.0%
5.0 1.6% 2.0% 2.1% 1.3% 1.8%
0.3% 0.5% 1.1% 0.9% 0.9% 0.4% 0.4% 0.4% 0.1% 0.1% 0.3% 0.3%
0.0

10 to 15
15 to 20
20 to 25
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
50 to 55
55 to 60
60 to 65
65 to 70
70 to 75
75 to 80
5 to 10
-45 to - 40
-40 to - 35
-35 to - 30
-30 to - 25
-25 to - 20
-20 to - 15
-15 to - 10

0 to 5
-5 to 0
-10 to- 5

Returns (%)
Event window (-20, 20), standard deviation (24.3)
14.0
No. of stocks (%)

12.6%
12.0 10.6%
10.0 8.6% 9%
8.6%
8.0 6.9%
5.3% 5.6%
6.0 4.9%
4.1% 4.6% 3.4%
4.0
1.3%1.6% 1.6% 2% 1.1%1.1%
2.0 1.6% 0.8%0.8%0.8%0.5%0.3% 0.3
0.4%0.1%0.1%0.4%0.3%0.6% 0.1%0.1%
0.0
10 to 15
15 to 20
20 to 25
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
50 to 55
55 to 60
60 to 65
65 to 70
70 to 75
75 to 80
80 to 85
85 to 90
5 to 10
-5 to 0
0 to 5
-75 to - 70
-70 to - 65
-65 to - 60
-60 to - 55
-55 to - 50
-50 to - 45
-45 to - 40
-40 to - 35
-35 to - 30
-30 to - 25
-25 to - 20
-20 to - 15
-15 to - 10
-10 to - 5

Returns (%)

Fig. 3.7 Frequency distribution of CAAR on event windows [(−10, +10) and (−20, +20)]

The standard deviation of CAAR is 6.9, 8.5, 11.7, 16.8, and 24.3 for event
widows of 3 days (−1, 1), 5 days (−2, +2), 11 days (−5, +5), 21 days (−10, +10),
and 41 days (−20, +20), respectively. It may be noted from these results that
variance in CAAR increases with the increase in event duration (Fig. 3.7).
Frequency distribution of CAAR reveals that the problem of high variance is
observed during the longer pre-event, post-event, and event windows.
3.3 Analysis of Short-Term Performance of Entire Sample 51

Event window (0, 1), standard deviation (5.8)

50.0
No. of stocks (%)

39.4%
40.0 32.1%
30.0
20.0 12.1%
8.8%
10.0 1.4% 3.9% 1.1% 0.3% 0.3% 0.3% 0.1%
0.0
-10 to -5
-15 to -10

-5 to 0

0 to 5

5 to 10

10 to 15

15 to 20

20 to 25

30 to 35

35 to 40
25 to 30
Returns (%)

Event window (0, 5), standard deviation (9.2)

35.0
No. of stocks (%)

29.1%
30.0
25.0 21.3%
20.0 17.4%
15.0 11.3%
8.0%
10.0 4.3%
5.0 1.6% 2.8%
0.6% 0.8% 1.0% 0.9% 0.6% 0.3% 0.1%
0.0
10 to 15

15 to 20

20 to 25

25 to 30

30 to 35

35 to 40

40 to 45
5 to 10
-30 to - 25

-25 to - 20

-20 to - 15

-15 to - 10

-5 to 0

0 to 5
-10 to - 5

Returns(%)

Event window (2, 5), standard deviation (7.04)

35.0
28.9%
No. of stocks (%)

30.0 25.5%
25.0
20.0 16.2%
15.0 12.3%
9.0%
10.0
2.3% 3.1%
5.0 0.8% 1.1% 0.5% 0.4%
0.0
10 to 15

20 to 25
15 to 20

25 to 30
5 to 10
-25 to - 20

-20 to - 15

-15 to - 10

0 to 5
-5 to 0
-10 to - 5

Returns (%)

Fig. 3.8 Frequency distribution of CAAR on post-event windows [(0, +1), (0, +5), and (+2, +5)]
52 3 Short-Term Performance of Mergers and Acquisitions

Event window (2, 10), standard deviation (10.9)

30.0
No. of stocks (%)

25.1%
25.0
20 % 19.8 %
20.0
15.0
10.0 7.4% 7.6%
6.3%
4.6%
5.0 2.1% 1.5% 1.4% 1% 0.6% 0.4%
0.4% 0.4% 0.9% 0.3% 0.3% 0.1%
0.0

10 to 15

15 to 20

20 to 25

25 to 30

30 to 35

35 to 40

40 to 45

45 to 50

50 to 55
5 to 10
-5 to 0

0 to 5
-40 to -35

-35 to -30

-30 to -25

-25 to -20

-20 to -15

-15 to -10

-10 to -5 Retunrs (%)

Event window (2, 15), standard deviation (14.1)
No. of stocks (%)

25.0
20.5
20.0 18.1
16.0
15.0
9.5 9.3
10.0 5.8 4.9
5.0 3.3 3.1 2.0
1.5 1.4 0.6 0.5 0.6 0.4 0.4 0.4 0.3
0.1 0.1 0.8 0.8
0.0
10 to 15
15 to 20
20 to 25
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
50 to 55
55 to 60
60 to 65
5 to 10
-50 to - 45
-45 to - 40
-40 to - 35
-35 to - 30
-30 to - 25
-25 to - 20
-20 to - 15
-15 to - 10

0 to 5
-5 to 0
-10 to - 5

Returns (%)
Event window (2, 20), standard deviation (16.7)
20.00 17.88
No. of stocks (%)

18.00 16.00
16.00 14.75
14.00
12.00 9.50
10.00 8.88
8.00 6.38 5.62
6.00 4.50
4.00 2.38 2.75 3.00
1.38 1.25 1.13 0.63 0.88 0.50
2.00 0.13 0.25 0.75 0.63 0.13 0.13 0.13 0.13 0.13 0.13 0.13
0.00
10 to 15
15 to 20
20 to 25
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
50 to 55
55 to 60
60 to 65

75 to 80
80 to 85
65 to 70
70 to 75
5 to 10
-55 to - 50
-50 to - 45
-45 to - 40
-40 to - 35
-35 to - 30
-30 to - 25
-25 to - 20
-20 to - 15
-15 to - 10

-5 to 0
-10 to - 5

0 to 5

Returns (%)

Fig. 3.9 Frequency distribution of CAAR on post-event windows [(+2, +10), (+2, +15), and (+2,
+20)]

3.4 Analysis of Cross-Border Effect

Cross-border acquisitions are an important corporate strategy that enables firms to

extend their current businesses to new markets, leverage their current capabilities,
and diversify into related markets. In addition, cross-border acquisitions can be an
important mechanism for corporate governance convergence (Wang and Xie 2009).
3.4 Analysis of Cross-Border Effect 53

Zhu et al. (2011) suggest that two major motivations, namely, strategic market
entry hypothesis and the market for corporate control hypothesis compete for
cross-border acquisitions. Blonigen (1997) argues that cross-border acquisitions are
motivated by a desire to acquire a complementary asset to gain access to new ideas
and technology, thus, resulting into research and development synergies. Firm
specific advantages would arise from the capacity to acquire, or the efficient
coordination of, the complementary assets owned by the cross-border target firms.
Gubbi et al. (2010) also opine that Indian firms use cross-border acquisitions for
strategic assets-seeking in order to facilitate strategic and organizational transfor-
mation of the firms.
Domestic partial acquisitions and cross-border partial acquisitions are motivated
by different hypotheses. Cross-border acquisitions, thus, give acquiring firms access
to key strategic resources that may not be available in their domestic market, and
thereby, enhance their capabilities to be competitive. Cross-border acquisitions are,
thus, likely to add more value in comparison with domestic acquisitions, suggesting
there are real benefits from international investment. Empirical work documents
variation in returns for acquirers in domestic and cross-border acquisitions (Cakici
et al. 1996; Aw and Chatterjee 2004; Conn et al. 2005; Lowinski et al. 2004;
Campa and Hernando 2004; Goergen and Renneboog 2004; Moeller and
Schlingemann 2005; Francis et al. 2008; Rani et al. 2012, 2015, 2015a).

3.4.1 Analysis of Short-Term Performance

of Cross-Border M&A

Table 3.6 reports the abnormal returns to the acquirer’s shareholders on the an-
nouncement day and multiperiod event windows for cross-border M&A. It contains
average abnormal return, cumulative average abnormal return, precision-weighted
average abnormal return, and median abnormal return. Additionally, it presents
proportion of positive and negative average abnormal returns. Moreover, it provides
the results of parametric and nonparametric tests conducted to measure statistical
significance for average abnormal returns and cumulative average abnormal returns.
It is evident from the Table that acquirer’s shareholders earn average abnormal
return of 1.69 % on the announcement day for cross-border M&A; the value is
significant at 1 %. The proportion of stocks having positive return on the
announcement day is more than 67 %. The proportion of stocks having positive
return is significant at 1 %. Moreover, the value of precision-weighted average
abnormal returns and median abnormal returns are 1.50 and 1.10 %, respectively.
Relevant data contained in Table 3.6 also shows that the acquirer’s shareholders
experience CAAR of 2.99 % during event windows of 11 days (−5, +5) and
2.78 % of 5 days (−2, +2). CAAR during pre-event window of 19 days (−20, −2)
is 1.99 %. CAAR during the short-event window of 2 days (−1, 0) and 3 days (−1,
+1) is 2.07 and 2.32 %, respectively. The maximum CAAR of almost 3 % (3.06 %)
 54

Table 3.6 Abnormal returns to the shareholders of acquiring firms (cross-border M&A, N = 346) on the announcement day and during multidays event
windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Z Rank Z Jackknife Z
(%) (%) (%)
(−20, −2) 1.99 2.02 1.13 186:160 2.487a 2.583b 2.962b 3.449b 3.165b 2.685b 2.002a
(−15, −2) 1.74 1.73 0.89 185:161 2.534a 2.862b 3.285b 3.433b 3.057b 2.712b 2.349a
(−10, −2) 1.35 1.22 −0.04 171:175 2.441a 2.971b 2.967b 2.981b 1.545 2.215a 2.154a
(−5, −2) 1.00 0.78 0.41 181:165 2.709b 3.239b 2.947b 2.853b 2.625b 2.842b 2.745b
(−5, 0) 3.06 2.53 1.95 220:126 6.801b 7.502b 6.894b 7.647b 6.837b 6.342b 7.013b
(−1, 0) 2.07 1.77 1.12 234:112 7.949b 7.602b 6.736b 9.273b 8.349b 6.966b 7.472b
(0, 0) 1.69 1.50 1.10 232:114 9.210b 7.972b 7.413b 11.158b 8.133b 7.889b 8.307b
(0, +1) 1.95 1.69 1.26 221:125 7.491b 6.814b 6.189b 8.845b 6.945b 6.302b 6.609b
(0, +5) 1.62 1.39 0.69 188:158 3.591b 3.739b 3.513b 4.218b 3.381b 2.737b 3.097b
(+2, +5) −0.33 −0.29 −0.59 157:189 −0.899 −0.978 −0.976 −1.089 0.033 −1.104 −1.645
(+2, +10) −1.44 −1.15 −1.46 134:212 −2.604b −2.940b −2.572a −2.835b −2.451a −2.759b −3.468b
(+2, +15) −1.54 −1.15 −1.83 139:207 −2.237a −2.525a −2.074a −2.268a −1.911 −2.069a −2.859b
(+2, +20) −2.45 −1.93 −2.65 142:204 −3.054b −3.363b −2.985b −3.254b −1.587 −2.780b −3.789b
(−1, +1) 2.32 1.95 1.57 222:124 7.289b 7.119b 6.147b 8.356b 7.053b 6.279b 6.640b
(−2, +2) 2.78 2.29 1.73 223:123 6.773b 7.113b 6.174b 7.585b 7.161b 5.981b 6.549b
(−5, +5) 2.99 2.42 2.26 209:137 4.898b 5.560b 4.962b 5.406b 5.649b 4.327b 4.641b
(−10, +10) 2.23 1.99 1.52 193:153 2.648b 3.114b 2.966b 3.216b 3.921b 2.017a 2.024a
(−20, +20) 1.87 2.00 1.16 192:154 1.586 1.748 2.042a 2.380b 3.813b 1.633 0.754
a, b
Denote significance at 5 and 1 %, respectively
3 Short-Term Performance of Mergers and Acquisitions
3.4 Analysis of Cross-Border Effect 55

Average abnormal returns of cross-border M&A

2.00%

1.50%
Returns

1.00%

0.50%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%
Event wIndow (days)

Fig. 3.10 AAR of cross-border M&A over event window (−20, +20)

Cumulative average abnormal returns of cross-border M&A

5.00%

4.00%
Returns

3.00%

2.00%

1.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Event window (days)

Fig. 3.11 CAAR of cross-border M&A over event window (−20, +20)

is observed during pre-event window of 6 days (−5, 0). All these results are sig-
nificant at 1 %.
One notable finding is that the positive CAAR along with impressive
precision-weighted CAAR sustain for longer event windows of 21 days (−10, +10)
and 41 days (−20, +20). Moreover, these results are significant at 1 %.
But acquisitions reduce wealth significantly during post-event window of
19 days (+2, +20). The negative abnormal returns are 2.45 % (significant at 1 %)
for the post-event window (+2, +20) (Figs. 3.10 and 3.11).

3.4.2 Analysis of Short-Term Performance of Domestic

M&A

Table 3.7 presents the results of the event study conducted to assess the market
reaction to announcements of domestic M&A. This table shows the average
 56

Table 3.7 Abnormal returns to the shareholders of acquiring firms (domestic M&A, N = 454) on the announcement day and during multidays event
windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 1.11 0.77 −0.11 227:227 1.458 1.418 1.331 1.121 1.878 1.912 0.096
(−15, −2) 1.84 1.39 0.54 233:221 2.808b 2.759b 2.682b 2.386a 2.444a 2.929b 1.55
(−10, −2) 1.89 1.39 0.80 242:211 3.600b 3.558b 3.283b 2.990b 3.388b 3.579b 2.264a
(−5, −2) 1.04 0.73 0.09 228:225 2.981b 3.034b 2.594b 2.403a 2.067a 2.763b 1.961a
(−5, 0) 2.50 1.85 1.05 253:200 5.836b 5.531b 5.344b 4.841b 4.426b 4.962b 4.222b
(−1, 0) 1.47 1.15 0.66 257:194 5.918b 5.285b 5.591b 4.832b 4.900b 4.687b 4.950b
(0, 0) 1.00 0.87 0.34 247:202 5.707b 5.163b 5.957b 4.944b 4.049b 4.971b 5.239b
(0, +1) 0.97 0.82 0.26 235:216 3.920b 3.356b 4.038b 3.306b 2.820b 3.347b 3.051b
(0, +5) 0.45 0.32 −0.33 214:239 1.054 0.972 0.994 0.794 0.746 0.063 −0.176
(+2, +5) −0.52 −0.49 −1.25 186:264 −1.479 −1.448 −1.603 −1.565 −1.773 −2.290a −2.410a
(+2, +10) −0.86 −0.71 −2.12 177:275 −1.644 −1.509 −1.612 −1.439 −2.705b −1.789 −1.946
(+2, +15) −0.88 −0.81 −2.81 177:275 −1.35 −1.179 −1.469 −1.252 −2.705b −1.48 −2.031a
(+2, +20) −1.06 −0.67 −2.55 179:274 −1.391 −1.207 −1.618 −0.745 −2.556a −1.234 −2.367a
(−1, +1) 1.44 1.11 0.41 238:214 4.742b 4.052b 4.433b 3.769b 3.057b 3.690b 3.506b
(−2, +2) 1.72 1.26 0.70 244:209 4.383b 3.916b 4.001b 3.484b 3.577b 3.148b 3.038b
(−5, +5) 1.97 1.33 0.22 230:223 3.383b 3.237b 2.917b 2.610b 2.256a 2.212a 1.514
(−10, +10) 2.47 1.79 −0.15 226:227 3.071b 2.739b 2.804b 2.311a 1.878 2.567a 1.424
(−20, +20) 1.48 1.47 −0.61 222:232 1.323 1.164 1.103 1.127 1.456 1.46 −0.601
a, b
Denote significance at 5 and 1 %, respectively
3 Short-Term Performance of Mergers and Acquisitions
3.4 Analysis of Cross-Border Effect 57

abnormal returns, cumulative average abnormal returns, precision-weighted average

abnormal returns, median abnormal returns, and the number of the positive versus
negative abnormal returns. Additionally, it provides the results of parametric and
nonparametric tests conducted to measure statistical significance for average
abnormal returns and cumulative average abnormal returns. Moreover, Figs. 3.12
and 3.13 graphically depict the values of AAR and CAAR of domestic M&A
during the 41-day event window, respectively.
It is evident from the Table that acquirer shareholders earn average abnormal
return of 1 % on the announcement day for domestic M&A; the value is significant
at 1 %. The proportion of stocks having positive return on the announcement day is
more than 54 %. The proportion of stocks having positive return is significant at
1 %. Moreover, the value of precision-weighted average abnormal returns and
median abnormal returns are 0.87 and 0.34 %, respectively. CAAR of domestic

Average abnormal returns of domestic acquisitions

1.50%

1.00%
Returns

0.50%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
- 0.50%
Event Window (days)

Fig. 3.12 AAR of domestic M&A over event window (−20, +20)

Cumulative abnormal returns of domestic acquisitions

3.00%
2.50%
2.00%
1.50%
Returns

1.00%
0.50%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
- 0.50%
- 1.00%
Event window (days)

Fig. 3.13 CAAR of domestic M&A over event window (−20, +20)
58 3 Short-Term Performance of Mergers and Acquisitions

acquisitions during pre-event window of 19 days (−20, −2) is positive (1.11 %)

and remains positive till t(+5).
Relevant data contained in Table 3.7 also shows that the acquirer’s shareholders
experience CAAR of 1.72 % of 5 days (−2, +2) and 1.97 % during event windows
of 11 days (−5, +5). CAAR during the short-event window of 2 days (−1, 0) and
3 days (−1, +1) is 1.47 and 1.44 %, respectively. The maximum CAAR of almost
3 % (2.5 %) is observed during pre-event window of 6 days (−5, 0). All these
results are significant at 1 %.
In the case of domestic M&A also, the market, in general, reacts positively to
M&A announcements. Later, a mild correction in market price of the acquiring
company takes place as almost all the CAAR values during the post-event window
of 7, 13, and 19 days are negative; although not significant. From the above
findings, it is reasonable to conclude that the null hypothesis of zero abnormal
returns on the announcement day has been rejected; though during the event
window, the null hypothesis of zero abnormal returns is rejected for most of the
windows.
Lowinski et al. (2004), Campa and Hernando (2004), Conn et al. (2005), Moeller
and Schlingemann (2005) have also observed positive cumulative average abnor-
mal return for domestic acquisitions.

3.4.3 Cross-Border Effect

Independent t-test has been conducted to measure the difference between mean
CAR of cross-border acquisition and mean CAR of domestic acquisitions; the
results are tabulated in Table 3.8.
It is apparent that mean difference is positive during eleven windows. However,
the difference is significant (p-value = 0.02 < 0.05) only for the announcement day
and event window (0, +1). These results provide some support to the hypothesis
that returns to acquirer’s shareholders of the cross-border acquisitions is higher than
the domestic acquisitions. Further, Figs. 3.14 and 3.15 exhibit the trend of average
abnormal returns and cumulative average abnormal returns of cross-border and
domestic acquisitions for (−20, +20) including both pre-event window and
post-event window.
It is clear from the graph (Fig. 3.15) of CAAR that cross-border acquisitions
enhance wealth over entire 41 days (−20, +20) period, whereas domestic acquisi-
tions generate lower wealth and start reducing in comparison to cross-border
acquisitions.
The positive returns observed on announcement and during pre-event window for
cross-border acquisitions and domestic acquisitions are in sync with the expectation
of the Indian managers to realize synergies and synergy hypothesis. The plausible
reason is that companies acquire another company for strategic reason with intent to
exploit economies of scale and scope, and leverage available resources and capa-
bilities, thus creating more scope for value creation. Campa and Hernando (2004),
3.4 Analysis of Cross-Border Effect 59

Table 3.8 Independent samples t-test for difference of mean CAR (cross-border M&A, domestic
M&A)
Event Mean CAR (%) of Mean CAR (%) of Mean t- Significance
window cross-border M&A domestic M&A difference value value
(N = 346) (N = 454) (%)
(−20, −2) 1.99 1.11 0.88 0.8 0.43
(−15, −2) 1.74 1.84 −0.10 −0.11 0.91
(−10, −2) 1.35 1.89 −0.54 −0.78 0.43
(−5, −2) 1.00 1.04 −0.04 −0.11 0.92
(−5, 0) 3.06 2.50 0.56 0.91 0.36
(−1, 0) 2.07 1.47 0.60 1.54 0.12
(0, 0) 1.69 1.00 0.69 2.41a 0.02
(0, +1) 1.95 0.97 0.98 2.4a 0.02
(0, +5) 1.62 0.45 1.17 1.83 0.07
(+2, +5) −0.33 −0.52 0.19 0.38 0.70
(+2, +10) −1.44 −0.86 −0.58 −0.76 0.45
(+2, +15) −1.54 −0.88 −0.66 −0.68 0.50
(+2, +20) −2.45 −1.06 −1.39 −1.21 0.23
(−1, +1) 2.32 1.44 0.88 1.83 0.07
(−2, +2) 2.78 1.72 1.06 1.81 0.07
(−5, +5) 2.99 1.97 1.02 1.26 0.21
(−10, +10) 2.23 2.47 −0.24 −0.21 0.84
(−20, +20) 1.87 1.48 0.39 0.23 0.82
a, b
Denote significance at 5 and 1 %, respectively

Average abnormal returns of cross-border M&A

Average abnormal returns of domestic M&A
2.00%
1.50%
Returns

1.00%
0.50%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%
Event window (days)

Fig. 3.14 AAR of cross-border and domestic M&A over event window (−20, +20)

Lowinski et al. (2004), Conn et al. (2005), Markides and Ittner (1994), Markides and
Oyon (1998), Eun et al. (1996) have also observed wealth gains for shareholders of
acquiring firms of cross-border acquisitions. Cakici et al. (1996), Goergen and
Renneboog (2004) have observed significant positive performance for US acquirer
firms. Eun et al. (1996), Kang (1993) observe higher gains for Japanese acquirers
60 3 Short-Term Performance of Mergers and Acquisitions

Cumulative average abnormal returns of cross-border M&A

Cumulative average abnormal returns of domestic M&A
6.00%

4.00%
Returns

2.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-2.00%
Event window (days)

Fig. 3.15 CAAR of cross-border and domestic M&A over event window (−20, +20)

targeting acquisitions in US compared to domestic acquirers there. Kose et al.

(2010), Zhu (2011), Zhu et al. (2011) document positive returns for the acquirer of
cross-border acquisitions.
Further, Indian firms use cross-border acquisitions with intent to have strategic
assets in order to facilitate strategic and organizational transformation of the firms.
Moreover, access to developed markets for products, resources, and capabilities
enable Indian firms to leapfrog to the global league and thus create greater value
than what could be achieved by acquiring a domestic firm (Gubbi et al. 2010).
Further, over the years, Indian firms, especially, in technology intensive industries
like pharmaceutical sector and information technology had established their base as
low cost product or service providers on mass scale. The cross-border acquisitions
complement the acquiring firms with necessary technological, management
expertise and international customer base to compete in overseas markets.

3.5 Analysis of Control Effect

Empirical evidence on benefits of acquisition of controlling stake has been sug-

gested by Beamish and Banks (1987), Chari et al. (2010), Geringer and Hebert
(1989), Nenova (2003), Dyck and Zingales (2004). These studies document that the
level of control is one of the factors in determining the success of acquisition.
Chen (2008) argues that complete acquisitions are driven mostly by procure-
ments of capabilities, whereas partial/majority control acquisitions are motivated by
other strategic considerations. Acquirers can procure competitive assets from
indigenous firms, such as advanced technologies and reputed brands (Anand and
Delios 2002; Chen and Zeng 2004). Acquirers can use acquisitions to achieve other
strategic goals, such as speedy entry into rapidly growing industries, or consoli-
dation of market power in concentrated sectors (Caves and Mehra 1986; Hennart
and Park 1993). The strategic considerations for partial/majority control
3.5 Analysis of Control Effect 61

acquisitions are market power consolidation in concentrated sectors, capacity

control in mature industries, and speedy entry into rapidly growing markets.
Caves (1996) documents that only with dominant positions can companies fully
reflect their economic rationale, strategic ability, and resource commitment during
the course of entry and operations in cross-border acquisitions. Chari et al. (2010)
have examined the impact of acquiring majority control of the target firm and the
acquiring firm’s stock returns in the cross-border acquisitions in emerging markets.
The study observes that the acquisition of majority control in the emerging markets
is associated with significant increases in the stock returns of the acquiring firm as
well as of target firm. This finding confirms that acquiring majority control is
beneficial to the shareholders both of acquiring and target firms.
Acquirers obtain complete access to the resources of the target firm through
100 % acquisitions. Access to complementary resources is a major motive for
acquisitions (Harrison et al. 2001) as it provides acquirers with otherwise hard to
obtain organizationally embedded resources. If, the acquirer has full control over
the target, it can reorganize the latter according to its needs (Kiymaz 2004). If the
entire company is not acquired, other shareholders can hinder actions by the
acquirer (Butz 1994). Further, the integration of the company acquired across
border might be hindered by cultural differences. In addition, cultural differences
might also lead to communication and coordination problems. Therefore, acquirers
choose to acquire full equity of the targets deliberately to avoid the hassles of
managing co-ownership.
A partial acquisition represents a unique form of corporate restructuring because it
alters the ownership structure of target firm, and, therefore, alters the form of control
over the target’s management. The proportion of the partial target that is owned by
other shareholders is reduced by the increase in ownership by the partial acquirer.
Partial acquisitions provide access to resources held by the target firm, including
capabilities embedded in business practices. Moreover, partial acquisitions often
initiate a dynamic process leading to full control over local firms (Meyer and Tran
2006), thus giving access to a wider range of resources. Further, partial ownership
also serves other motives such as minimizing capital commitments or reducing
investment risks, acquirers can choose to acquire only a partial stake in domestic
firms and then use speedy entry. This implies that acquisitions can be made to
control capacity expansions in mature industries.

3.5.1 Analysis of Short-Term Performance of Acquisitions

of Partial/Majority Control

Table 3.9 reveals the abnormal returns for the acquisitions of partial/majority
control of target firm. Average abnormal return is 1.7 % on the announcement day.
Precision-weighted average abnormal return and median abnormal return are 1.57
and 0.79 %, respectively; the results are significant at 1 %.
 62

Table 3.9 Abnormal returns to the shareholders of acquiring firms (partial/majority control acquisitions N = 209) on the announcement day and during
multidays event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 0.36 0.27 −0.21 104:105 0.325 0.362 0.347 0.319 1.403 1.094 0.175
(−15, −2) 0.88 0.72 0.69 109:100 0.929 0.995 0.967 0.962 2.098a 1.334 0.72
(−10, −2) 1.63 1.35 0.33 108:101 2.146a 2.444a 2.215a 2.399a 1.959 2.751b 2.316a
(−5, −2) 0.72 0.60 0.09 106:103 1.421 1.781 1.424 1.693 1.681 2.082a 1.752
(−5, 0) 2.76 2.29 0.77 114:95 4.450b 4.531b 4.663b 4.287b 2.794b 4.470b 4.264b
(−1, 0) 2.04 1.73 0.91 128:81 5.698b 4.822b 6.139b 4.856b 4.740b 4.797b 4.795b
(0, 0) 1.70 1.57 0.79 131:78 6.740b 5.617b 7.877b 5.691b 5.158b 6.002b 5.495b
(0, +1) 1.73 1.55 0.92 128:81 4.834b 4.045b 5.469b 4.147b 4.740b 4.284b 3.994b
(0, +5) 1.15 0.99 0.40 107:102 1.856 1.857 2.021a 1.75 1.82 1.367 1.468
(+2, +5) −0.58 −0.56 −0.82 90:119 −1.145 −1.207 −1.392 −1.208 −0.544 −1.355 −1.223
(+2, +10) −0.80 −0.71 −1.36 86:123 −1.054 −1.1 −1.173 −1.028 −1.1 −0.547 −1.332
(+2, +15) −0.50 −0.77 −1.64 93:116 −0.526 −0.531 −1.012 −0.918 −0.127 −0.053 −1.268
(+2, +20) −1.81 −1.91 −1.69 95:114 −1.643 −1.701 −2.138a −1.916 0.152 −0.887 −2.434a
(−1, +1) 2.06 1.71 0.99 124:85 4.708b 3.930b 4.934b 3.929b 4.184b 3.949b 3.987b
(−2, +2) 1.99 1.67 1.06 121:88 3.527b 3.305b 3.717b 3.190b 3.767b 3.365b 3.231b
(−5, +5) 2.20 1.71 0.91 115:94 2.625b 2.739b 2.569b 2.388a 2.933b 2.501a 2.337a
(−10, +10) 2.89 2.26 1.08 112:97 2.494a 2.594b 2.511b 2.242a 2.516a 2.936b 2.017a
(−20, +20) 0.61 −0.04 0.45 105:104 0.377 0.382 0.097 −0.031 1.542 1.209 −0.499
a, b
Denote significance at 5 and 1 %, respectively
3 Short-Term Performance of Mergers and Acquisitions
3.5 Analysis of Control Effect 63

It is also evident from the Table that partial/majority control acquisitions gen-
erate maximum wealth 2.76 % during event window (−5, 0). CAAR during the
short-event window of 2 days (−1, 0), (0, +1), 3 days (−1, +1), and 5 days (−2, +2)
are 2.04, 1.73, 2.06, and 1.99 %, respectively; the results are also significant.
Notable finding is that partial/majority control acquisition of target firm as a
subsidiary generates positive CAAR of 2.2 % and 2.89 during the longer event
window of 11 days (−5, +5) and 21 days (−10, +10); moreover, the results are
significant.
But acquisitions reduce wealth during all the post-event window of (0, +5)
onward; however, the results are not significant. The negative abnormal returns are
1.81 % for the post-event window (+2, +20).
AAR of partial/majority control acquisition during event window (−20, +20) is
portrayed in Fig. 3.16. The trend shown in graph corroborates the above finding. It
is obvious from the graph of CAAR of partial/majority control acquisition during
event window (−20, +20) depicted in Fig. 3.17 that CAAR reaches maximum on
day (0, +5) and starts falling after that.

Average abnormal return of partial/majority control acquisitions

2.00%
1.50%
1.00%
Returns

0.50%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%
-1.00%
Event window (days)

Fig. 3.16 AAR of partial/majority control acquisitions over event window (−20, +20)

Cumulative average abnormal return of partial/majority control

acquisitions

3.00%
2.00%
Returns

1.00%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-1.00%
-2.00%
Event window (days)

Fig. 3.17 CAAR of partial/majority control acquisitions over event window (−20, +20)
64 3 Short-Term Performance of Mergers and Acquisitions

3.5.2 Analysis of Short-Term Performance of Acquisitions

of Complete Control

As illustrated in Table 3.10, notable finding is that complete acquisition of target

firm as a wholly owned subsidiary generates positive CAAR of 2.52 % along with
quiet impressive PWCAAR of 2.12 % during the pre-event window of 6 days (−5,
0); moreover, the results are significant at 1 %. The relevant data contained in the
Table 3.15 shows that the acquirer’s shareholders of complete acquisitions earn
1.20 and 1.07 % average abnormal return and precision-weighted average abnormal
return, respectively, on the announcement day. The CAAR during the event win-
dow of 3 days (−1, +1), 5 days (−2, +2), and 11 days (−5, +5) is 1.87, 2.21, and
2.47 %, respectively; moreover, the returns are significant.
The most noteworthy finding is that the acquirer’s shareholders earn 3.03, 2.47,
and 2.32 % during the longer event windows of 41 days (−20, +20), 21 days (−10,
+10), and 11 days (−5, +5), respectively; moreover, the returns are significant.
In the case of complete acquisitions, the market, in general, reacts positively to
announcements and remains positive during the entire event window. Later, a mild
correction in market price of the acquiring company takes place as the CAAR
values 5 days after the announcement period are negative. From the above findings,
it would be reasonable to conclude that the null hypothesis of zero abnormal returns
on the announcement day has been rejected in the case of complete acquisitions.
AAR plotted in Fig. 3.18 also supports the above conclusion as AAR is positive for
18 out of 23 days till day t(+2). The trend of CAAR displayed in Fig. 3.19 shows
that the complete acquisitions generate shareholders’ wealth for a longer period.

3.5.3 Analysis of Short-Term Performance of Acquisitions

of Target Firm to Be Observed with Acquirer’s
Operations

Table 3.11 presents the abnormal returns (for the acquisitions of target firm) to be
absorbed totally with the acquirer. It is obvious that acquirer’s shareholders
experience return of 1.52 % over event window of 2 days (−1, 0); the results are
significant at 1 %. It may be noted from the Table, CAAR is positive for only
5 days (−2, +2), in the case, target firm is totally absorbed with the acquirer.
However, CAAR is positive for all pre-event window and event windows of 3 days
(−1, +1), 5 days (−2, +2), 11 days (−5, +5), and 21 days (−10, +10); the results are
significant only for small event window of 5 days.
The above results lead to conclusion that although the announcement of
acquisition of target firm to be totally absorbed with the operations of acquiring firm
induces positive reaction, this reaction is temporary in nature and gets diluted soon.
Though the results of the event window of 6 days (−5, 0) day are statistically
significant at 1 %, the reaction is not very strong; it gets nullified within 1 day. This
Table 3.10 Abnormal returns to the shareholders of acquiring firms (complete acquisitions, N = 451) on the announcement day and during multidays event
windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 2.31 2.11 1.04 241:209 3.365b 3.175b 3.899b 3.352b 3.416b 2.937b 2.356a
(−15, −2) 2.22 1.96 0.67 236:214 3.766b 3.753b 4.238b 3.906b 2.943b 3.257b 3.075b
3.5 Analysis of Control Effect

(−10, −2) 1.49 1.27 0.35 231:219 3.155b 3.348b 3.412b 3.192b 2.470a 2.527a 2.397a
(−5, −2) 0.90 0.73 0.41 236:214 2.851b 3.068b 2.897b 2.821b 2.943b 2.631b 2.465a
(−5, 0) 2.54 2.12 1.55 276:174 6.592b 6.685b 6.956b 6.380b 6.729b 5.674b 6.141b
(−1, 0) 1.65 1.39 0.90 280:170 7.386b 6.620b 7.948b 5.996b 7.108b 6.107b 6.465b
(0, 0) 1.20 1.07 0.68 268:182 7.627b 6.643b 8.612b 6.259b 5.972b 6.291b 6.951b
(0, +1) 1.43 1.26 0.66 258:192 6.417b 5.778b 7.210b 5.443b 5.026b 5.346b 5.649b
(0, +5) 1.13 1.07 0.31 238:212 2.921b 2.819b 3.568b 3.004b 3.132b 1.968 2.176a
(+2, +5) −0.30 −0.18 −0.60 201:247 −0.965 −0.969 −0.726 −0.686 −0.284 −1.37 −1.861
(+2, +10) −1.05 −0.74 −1.45 180:269 −2.223a −2.225a −2.002a −1.814 −2.317a −2.629b −2.913b
(+2, +15) −1.04 −0.56 −2.07 181:268 −1.763 −1.701 −1.208 −1.061 −2.223a −1.971a −2.206a
(+2, +20) −1.14 −0.42 −2.22 183:267 −1.664 −1.546 −1.383 −0.566 −2.074a −2.106a −2.670b
(−1, +1) 1.87 1.58 1.08 262:188 6.866b 6.314b 7.408b 5.741b 5.404b 5.719b 5.885b
(−2, +2) 2.21 1.87 1.52 265:185 6.282b 6.136b 6.787b 5.779b 5.688b 5.153b 5.853b
(−5, +5) 2.47 2.12 1.83 255:195 4.726b 4.920b 5.190b 4.836b 4.742b 3.747b 3.952b
(−10, +10) 2.32 2.11 1.14 241:209 3.208b 3.314b 3.727b 3.367b 3.416b 2.095a 2.128a
(−20, +20) 3.03 3.44 1.18 246:205 3.009b 2.892b 3.768b 3.104b 3.842b 2.112a 1.457
a, b
Denote significance at 5 and 1 %, respectively
65
66 3 Short-Term Performance of Mergers and Acquisitions

Average abnormal return of acquisitions of complete stake

1.50%

1.00%
Returns

0.50%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%
Event window (days)

Fig. 3.18 AAR of acquisitions of complete control over event window (−20, +20)

Cumulative average abnormal return of acquisitions of complete stake

5.00%
4.00%
3.00%
Returns

2.00%
1.00%
0.00%
-1.00% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Event window (days)

Fig. 3.19 CAAR of acquisitions of complete control over event window (−20, +20)

clearly indicates that the initial overreaction is followed by a strong correction.

Moreover, even though the market reacts positively to announcement of acquisition
of target firm to be totally absorbed with the acquirer’s operations, the reaction is
not as strong as that for complete acquisitions. The results vary for different event
windows; in some cases, the null hypothesis is rejected while in others it is not.
AAR portrayed in Fig. 3.20 also support the above conclusion, it is evident from
the Graph that AAR is positive only for 11 days and negative for 30 days during
event window. The trend of CAAR depicted in Fig. 3.21 shows that the positive
reaction gets nullified within a short duration.

3.5.4 Control Effect

Independent t-test has been conducted to measure the difference between mean
CAR of complete acquisition of target firm as a subsidiary and mean CAR of
partial/majority control acquisitions of target firm as a wholly owned subsidiary; the
results are tabulated in Table 3.12. It is apparent that mean difference is positive for
Table 3.11 Abnormal returns to the shareholders of acquiring firms (target firm to be totally absorbed with the acquirer’s operations, N = 140) on the
announcement day and during multidays event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 0.56 0.29 −0.91 67:73 0.388 0.363 0.412 0.204 0.515 1.274 −0.947
(−15, −2) 1.82 1.36 0.64 72:68 1.455 1.449 1.431 1.17 1.363 2.330a 0.21
3.5 Analysis of Control Effect

(−10, −2) 2.23 1.38 0.69 74:66 2.224a 2.044a 1.720a 1.438 1.702 2.323a 0.623
(−5, −2) 1.88 1.14 −0.40 67:73 2.818b 2.498a 2.100a 1.753 0.515 2.567a 1.222
(−5, 0) 3.38 2.26 1.99 83:57 4.135b 3.670b 3.370b 2.893b 3.229b 4.008b 2.234a
(−1, 0) 1.52 1.18 0.74 83:55 3.224b 3.213b 2.882b 2.815b 3.409b 3.312b 3.082b
(0, 0) 1.01 0.93 0.81 80:60 3.035b 2.826b 3.161b 2.643b 3.074b 3.634b 3.294b
(0, +1) 0.78 0.62 0.12 70:68 1.647 1.32 1.660a 1.18 1.187 1.705 1.02
(0, +5) 0.12 −0.38 −1.09 57:83 0.147 0.126 −0.328 −0.483 −1.182 −0.594 −1.043
(+2, +5) −0.65 −0.95 −1.79 52:87 −0.974 −0.909 −1.518 −1.707 −1.960a −1.933 −2.033a
(+2, +10) −1.78 −2.04 −3.87 45:95 −1.773 −1.492 −2.300a −2.066a −3.218b −2.511a −1.662
(+2, +15) −2.58 −3.03 −5.18 42:98 −2.067a −1.69 −2.786b −2.327a −3.727b −2.626b −2.051a
(+2, +20) −3.11 −3.72 −4.74 43:97 −2.136a −1.739 −2.905b −2.431a −3.557b −2.117a −1.952
(−1, +1) 1.29 0.89 0.95 74:65 2.233a 1.912 1.899a 1.522 1.786 1.998a 1.309
(−2, +2) 2.35 1.43 1.41 81:59 3.145b 2.607b 2.550b 1.907 2.890b 2.306a 1.33
(−5, +5) 2.52 1.03 −0.33 69:71 2.274a 1.989a 1.328 0.988 0.854 1.426 0.179
(−10, +10) 1.73 % 0.30 −1.77 66:74 1.133 0.886 0.377 0.181 0.345 0.632 −0.177
(−20, +20) −1.26 −2.33 −2.54 63:77 −0.59 −0.481 −1.096 −1.012 −0.164 −0.033 −1.48
a, b
Denote significance at 5 and 1 %, respectively
67
68 3 Short-Term Performance of Mergers and Acquisitions

Average abnormal return of acquisitions of target firm to be absorbed with the

acquirer's operations
1.50%
1.00%
Returns

0.50%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%
-1.00%
Event window (days)

Fig. 3.20 AAR of acquisitions of target firm to be observed with acquirer’s operation over event
window (−20, +20)

Cumulative average abnormal return of acquisitions of target firm to be absorbed

with the acquirer's operations
3.00%
2.00%
Returns

1.00%
0.00%
-1.00% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-2.00%
-3.00%
Event window (days)

Fig. 3.21 CAAR of acquisitions of target firm to be observed with acquirer’s operation over event
window (−20, +20)

the longest event window of 41 days. The t-statistics shows that difference is also
significant at 5 % level (p-value = 0.036 < 0.05).
On the basis of these results, it may be concluded that complete acquisition of
target as a wholly owned subsidiary generates higher abnormal returns than the
acquisition of partial/majority control.
Independent t-test has been conducted to measure the difference between mean
CAR of complete acquisition of target firm as a wholly owned subsidiary and mean
CAR of acquisitions of target firm to be totally absorbed with the operations of
acquiring firm; the results are tabulated in Table 3.13. It is apparent that mean
difference is positive for most of the event windows. The t-statistics shows that
difference is also significant for event window of 41 days (p-value = 0.009 < 0.01)
and the post-event windows of 17 days (p-value = 0.009 < 0.01) and 19 days (p-
value = 0.011 < 0.05).
On the basis of the above findings, it is reasonable to conclude that complete
acquisition of target firm as a wholly owned subsidiary generates higher abnormal
returns than the complete acquisition of target firm to be totally absorbed with the
operations of the acquirer. It may also be concluded that complete acquisition of
target firm as a wholly owned subsidiary generates maximum abnormal returns;
3.5 Analysis of Control Effect 69

Table 3.12 Independent samples t-test for difference of mean CAR (complete acquisitions,
partial/majority control acquisitions)
Event Mean CAR (%) Mean CAR (%) Mean t- Significance
Window of acquisitions of acquisitions difference value value
complete partial/majority
control control (N = 209)
(N = 451)
(−20, −2) 2.31 0.36 1.95 1.8 0.072
(−15, −2) 2.22 0.88 1.34 1.39 0.165
(−10, −2) 1.49 1.63 −0.14 −0.09 0.930
(−5, −2) 0.90 0.72 0.18 0.18 0.857
(−5, 0) 2.54 2.76 −0.22 −0.42 0.674
(−1, 0) 1.65 2.04 −0.39 −0.75 0.455
(0, 0) 1.20 1.70 −0.50 −1.5 0.134
(0, +1) 1.43 1.73 −0.30 −0.57 0.569
(0, +5) 1.13 1.15 −0.02 −0.43 0.666
(+2, +5) −0.30 −0.58 0.28 1 0.316
(+2, +10) −1.05 −0.80 −0.25 −0.3 0.766
(+2, +15) −1.04 −0.50 −0.54 −0.78 0.434
(+2, +20) −1.14 −1.81 0.67 1.39 0.166
(−1, +1) 1.87 2.06 −0.19 −0.15 0.877
(−2, +2) 2.21 1.99 0.22 0.29 0.769
(−5, +5) 2.47 2.20 0.27 0.62 0.537
(−10, +10) 2.32 2.89 −0.57 −0.19 0.850
(−20, +20) 3.03 0.61 2.42 2.1a 0.036
a, b
Denote significance at 5 and 1 %, respectively

complete acquisition of target firm to be totally absorbed with the operations of the
acquirer earns minimum abnormal returns. Figure 3.22 also corroborates the con-
clusion. It is obvious from the graphs of CAAR portrayed in Fig. 3.23 that the
acquisitions of complete control as a wholly owned subsidiary and partial/majority
control earn positive abnormal returns for the entire event window of 41 days (−20,
+20).
The advantages of acquiring complete control of a firm arise from assets owned
and capacity to acquire complimentary assets. Lack of requisite voting power1 to

1
A special resolution is passed (to be passed with 2/3rd of majority) to change the name of a
company, alterations to the memorandum or articles of association, or a reduction of capital of the
company, etc. A special resolution requires 75 % shareholders of a company present or by
appointment of a proxy to vote in favor at a general meeting of the company to alter a company’s
constitution.
70 3 Short-Term Performance of Mergers and Acquisitions

Table 3.13 Independent samples t-test for difference of mean CAR (complete acquisitions,
acquisitions of target firm to be totally absorbed with the acquirer’s operations)
Event Mean CAR Mean CAR (%) of Mean t-value Significance
Window (%) of acquisitions of difference value
acquisitions complete control of
of complete target firm to be
control totally absorbed
(N = 451) with the acquirer’s
operations
(N = 140)
(−20, −2) 2.31 0.56 1.75 1.12 0.266
(−15, −2) 2.22 1.82 0.40 0.4 0.690
(−10, −2) 1.49 2.23 −0.74 −0.26 0.796
(−5, −2) 0.90 1.88 −0.98 −0.16 0.875
(−5, 0) 2.54 3.38 −0.84 −0.21 0.837
(−1, 0) 1.65 1.52 0.13 0.55 0.580
(0, 0) 1.20 1.01 0.19 0.16 0.874
(0, +1) 1.43 0.78 0.65 0.68 0.500
(0, +5) 1.13 0.12 1.01 1.76 0.081
(+2, +5) −0.30 −0.65 0.35 1.77 0.077
(+2, +10) −1.05 −1.78 0.73 1.77 0.079
(+2, +15) −1.04 −2.58 1.54 2.65b 0.009
(+2, +20) −1.14 −3.11 1.97 2.55a 0.011
(−1, +1) 1.87 1.29 0.58 0.9 0.368
(−2, +2) 2.21 2.35 −0.14 −0.6 0.548
(−5, +5) 2.47 2.52 −0.05 −1.42 0.157
(−10, +10) 2.32 1.73 0.59 1.59 0.113
(−20, +20) 3.03 −1.26 4.29 2.66b 0.009
a, b
Denote significance at 5 and 1 %, respectively

pass a special resolution, less autonomy, and difficulty in integration process

post-acquisitions also seems to be a factor for lower abnormal returns in the case of
partial/majority control acquisitions. Further, the problems of post-acquisitions
integration in the case of complete acquisitions of target firm to be totally absorbed
with the acquirer’s operations may be a reason for negative market reaction in the
case of absorptions. Zhu et al. (2011), Spencer et al. (2001) also observe that
long-term performance of partial acquired firms is highly dependent on corporate
control characteristics of the target and the acquiring firms. Aybar and Ficici (2009),
Rani et al. (2011) also find support for the positive impact of the stake pursued in
the acquisition of target firm.
3.6 Analysis of Listing Effect 71

Average abnormal return of partial/majority control acquisitions

Average abnormal return of acquisitions of complete stake
Average abnormal return of acquisition of target firm to be absorbed with the acquirer's operations
2.00%

1.50%

1.00%
Returns

0.50%

0.00%
-20-19-18-17-16-15-14-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
0.50%
-

1.00%
-
Event window (days)

Fig. 3.22 AAR of acquisitions of (partial/majority control, complete control, and target firm to be
observed with acquirer’s operation) over event window (−20, +20)

Cumulative average abnormal return of partial/majority control acquisitions

Cumulative average abnormal return of acquisitions of complete stake
Cumulative average abnormal return of acquisition of target firm to be absorbed with the acquirer's operations
5.00%
4.00%
3.00%
Returns

2.00%
1.00%
0.00%
-20-19-18-17-16-15-14-13-12-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
1.00%
-

2.00%
-

3.00%
-
Event window (days)

Fig. 3.23 CAAR of acquisitions of (partial/majority control, complete control, and target firm to
be observed with acquirer’s operation) over event window (−20, +20)

3.6 Analysis of Listing Effect

The form of target firms (unlisted or listed) may influence the post-M&A perfor-
mance of the acquiring firms.
Empirical literature has also emphasized the public or private status of the
target also impacts the acquirer returns. Extant literature in this context reveals that
the acquirers of unlisted firms make valuable acquisitions. The positive results are
not observed in the case of acquirers of publicly listed target firms (Firth 1980;
Jensen and Ruback 1983; Travlos 1987; Jarrell et al. 1988; Franks and Harris 1989;
Hansen and Lott 1996; Chang 1998; Andrade et al. 2001; Ang and Kohers 2001;
72 3 Short-Term Performance of Mergers and Acquisitions

Fuller et al. 2002; Conn et al. 2005; Faccio et al. 2006; Draper and Paudyal 2006;
Alexandridis et al. 2010).
Draper and Paudyal (2006) proposed three possible hypotheses for higher gains
of unlisted target acquisition. They are:
(1) The managerial motive hypothesis,
(2) The illiquidity hypothesis, and
(3) The bargaining power hypothesis.
These three hypotheses explain the major reasons of lower returns for acquisition
of listed firms as: (i) that agency problems are more likely for acquirers of listed
firms but do not apply to acquirers of privately held and unlisted target firms,
(ii) lack of liquidity of unlisted firms reduce their bargaining power of target firms
which, in turn, (iii) leads to reduction in their bargaining power to negotiate higher
premiums from the acquirers. This creates value for acquirers.

3.6.1 Analysis of Short-Term Performance of M&A

of Unlisted Firms

Table 3.14 illustrates the short-term performance of acquisitions of unlisted target

firms. The acquirer shareholders earn 1.30, 1.19, and 0.72 % average abnormal
return, precision-weighted average abnormal return, and median abnormal return on
the announcement day; moreover, the results are highly significant. Shareholders of
as much as 61 % stocks experience positive abnormal returns on the announcement
day. The maximum CAAR of 2.65 %, PWCAAR of 2.12 %, and median abnormal
return of 1.43 % are observed during the pre-event window (−5, 0); the results are
significant at 1 %.
Notable finding is that acquisition of unlisted target firm generates positive
CAAR during all the event windows as well as pre-event windows. But acquisitions
reduce wealth during all the post-event window of (0, +5) onward; however, the
results are not significant. The negative abnormal returns are 1.55 % for the
post-event window (+2, +20). During the post-announcement windows (+2, +5),
(+2, +10), (+2, +15), and (+2, +20), there is a consistent fall in the CAAR values
indicating that the positive reaction is almost nullified by the negative reaction (the
peak value of CAAR decline from 3.40 % on day (0, +2) to and settles at 1.81 % on
day (0, +20)). AAR of acquisition of unlisted target firm during event window
(−20, +20) is portrayed in Fig. 3.24. The trend shown in graph corroborates the
above finding. It is obvious from the graph of CAAR of acquisition of unlisted
target firm during event window (−20, +20) depicted in Fig. 3.25 that CAAR
reaches maximum on day (0, +2) and starts falling after that (Figs. 3.24, 3.25 and
Table 3.14).
Table 3.14 Abnormal returns to the shareholders of acquiring firms of M&A of (unlisted firms, N = 713) on the announcement day and during multidays
event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 1.59 1.44 0.46 368:344 2.560a 2.668b 3.223b 2.820b 3.348b 3.020b 1.436
(−15, −2) 1.87 1.59 0.71 374:338 3.515b 3.798b 4.089b 3.782b 3.800b 3.774b 2.662b
3.6 Analysis of Listing Effect

(−10, −2) 1.69 1.34 0.35 365:347 3.955b 4.356b 4.262b 4.033b 3.123b 3.783b 3.037b
(−5, −2) 0.98 0.69 0.22 365:347 3.428b 3.907b 3.306b 3.228b 3.123b 3.278b 2.836b
(−5, 0) 2.65 2.12 1.43 420:292 7.584b 8.002b 8.241b 7.428b 7.262b 6.802b 6.840b
(−1, 0) 1.67 1.44 0.87 438:272 8.312b 8.053b 9.649b 7.560b 8.698b 7.146b 7.967b
(0, 0) 1.30 1.19 0.72 434:279 9.161b 8.505b 11.22b 8.213b 8.099b 7.930b 8.962b
(0, +1) 1.41 1.24 0.69 408:302 6.995b 6.361b 8.282b 6.231b 6.436b 5.943b 6.243b
(0, +5) 1.05 0.92 0.06 359:353 3.021b 3.029b 3.633b 3.039b 2.671b 2.050a 1.838
(+2, +5) −0.35 −0.30 −0.74 313:396 −1.237 −1.309 −1.375 −1.3 −0.69 −1.692 −2.451a
(+2, +10) −1.09 −0.89 −1.66 282:429 −2.554a −2.645b −2.782b −2.474a −3.093b −2.546a −3.177b
(+2, +15) −1.06 −0.85 −2.32 288:423 −1.981a −1.971a −2.119a −1.854 −2.641b −1.814 −2.828b
(+2, +20) −1.55 −1.13 −2.48 289:423 −2.501a −2.444a −2.887b −1.866 −2.598b −2.160a −3.526b
(−1, +1) 1.78 1.49 1.04 410:301 7.214b 6.782b 8.174b 6.405b 6.548b 6.109b 6.391b
(−2, +2) 2.13 1.72 1.34 415:297 6.679b 6.655b 7.371b 6.197b 6.886b 5.610b 5.859b
(−5, +5) 2.40 1.86 1.06 390:322 5.086b 5.405b 5.420b 4.934b 5.004b 4.147b 3.636b
(−10, +10) 2.38 1.93 0.58 372:340 3.642b 3.751b 4.059b 3.550b 3.649b 3.119b 2.300a
(−20, +20) 1.81 1.93 0.70 370:343 1.986a 1.990a 2.511b 2.203a 3.462b 2.238a 0.221
a, b
Denote significance at 5 and 1 %, respectively
73
74 3 Short-Term Performance of Mergers and Acquisitions

Average abnormal return of acquisition of unlisted firms

1.40%
1.20%
1.00%
0.80%
Returns

0.60%
0.40%
0.20%
0.00%
-0.20% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.40%
Event window (days)

Fig. 3.24 AAR of M&A of unlisted firms over event window (−20, +20)

Cumulative average abnormal return of acquisition of unlisted firms

4.00%
3.50%
3.00%
2.50%
Returns

2.00%
1.50%
1.00%
0.50%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%
Event window (days)

Fig. 3.25 CAAR of M&A of unlisted firms over event window (−20, +20)

3.6.2 Analysis of Short-Term Performance of M&A

of Listed Firms

As illustrated in Fig. 3.26, the acquisition of listed target firms does not generate
significant abnormal returns for all the event windows. The AAR is positive as well
as significant on announcement day. The relevant data contained in the Table 3.15
shows that the CAAR values of 2.01 and 1.71 % for the event window (−5, +5) and
(−10, +10) though positive, are not statistically significant.
During the post-announcement windows (0, +5), (+2, +5), (+2, +10), (+2, +15),
and (+2, +20), there is a consistent fall in the CAAR values indicating that even
positive reaction for a small event window is almost nullified by the negative
reaction (the peak value of CAAR declines from 2.80 % on day t(0) to −0.49 % on
day t(+20)) (Fig. 3.27).
3.6 Analysis of Listing Effect 75

Average abnormal return of acquisition of listed firms

1.50%

1.00%

0.50%
Returns

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
- 0.50%

- 1.00%
Event window (days)

Fig. 3.26 AAR of M&A of listed firms over event window (−20, +20)

Cumulative average abnormal return of acquisition of listed firms

3.00%

2.00%

1.00%
Returns

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-1.00%

-2.00%
Event window (days)

Fig. 3.27 CAAR of M&A of listed firms over event window (−20, +20)

3.6.3 Listing Effect

Independent t-test has been conducted to measure the difference between mean
CAR of acquisition of unlisted target firms and mean CAR of acquisitions of
unlisted target firms; the results are tabulated in Table 3.16. It is apparent that mean
difference is positive for all the windows except pre-event window (−15, −2). Still,
the difference is not significant for any event window. However, it is important to
note that unlisted target firms, on the whole, perform better than their public
counterparts.
 76

Table 3.15 Abnormal returns to the shareholders of acquiring firms of M&A of (listed firms, N = 83) on the announcement day and during multidays event
windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Z Rank Z Jackknife Z
(%) (%) (%)
(−20, −2) 0.80 1.00 0.08 42:41 0.493 0.498 0.785 0.635 1.003 0.615 −0.23
(−15, −2) 1.31 1.52 1.68 42:41 0.942 0.978 1.389 1.222 1.003 0.565 0.366
(−10, −2) 1.36 1.14 0.78 46:37 1.226 1.438 1.323 1.25 1.885 0.949 0.674
(−5, −2) 1.26 1.13 0.42 42:41 1.703 1.725 1.929a 1.891 1.003 1.873 1.436
(−5, 0) 3.27 2.56 2.03 51:32 3.609b 3.554b 3.541b 3.439b 2.988b 3.179b 3.070b
(−1, 0) 2.01 1.43 0.92 51:32 3.844b 3.292b 3.405b 3.004b 2.988b 2.858b 3.080b
(0, 0) 1.26 1.10 0.91 48:35 3.402b 2.972b 3.685b 2.928b 2.327a 3.093b 2.817b
(0, +1) 1.19 1.29 0.49 46:37 2.281a 2.131a 3.070b 2.438a 1.885 2.202a 2.112a
(0, +5) −0.01 0.21 −0.04 41:42 −0.008 −0.009 0.287 0.268 0.783 −0.619 0.049
(+2, +5) −1.20 −1.08 −1.59 29:54 −1.623 −1.849 −1.820a −1.891 −1.864 −2.315a −1.8
(+2, +10) −1.60 −1.45 −2.95 28:55 −1.441 −1.479 −1.618 −1.674 −2.085a −2.379a −1.949
(+2, +15) −2.61 −2.48 −3.35 26:57 −1.887 −1.959 −2.227a −2.126a −2.526a −2.684b −2.289a
(+2, +20) −3.22 −3.03 −3.55 29:54 −1.996a −2.130a −2.319a −2.192a −1.864 −2.529a −2.700b
(−1, +1) 1.95 1.62 1.05 48:35 3.037b 2.755b 3.159b 2.801b 2.327a 2.345a 2.600b
(−2, +2) 2.35 1.96 1.66 50:33 2.843b 2.610b 2.962b 2.717b 2.768b 2.096a 2.430a
(−5, +5) 2.01 1.67 1.74 47:36 1.634 1.853 1.715a 1.734 2.106a 0.958 1.352
(−10, +10) 1.71 1.32 0.62 45:38 1.007 0.997 1.001 0.861 1.665 −0.05 0.212
(−20, +20) −0.48 −0.43 −0.19 41:42 −0.201 −0.186 −0.193 −0.177 0.783 −0.669 −1.084
a, b
Denote significance at 5 and 1 %, respectively
3 Short-Term Performance of Mergers and Acquisitions
3.6 Analysis of Listing Effect 77

Table 3.16 Independent samples t-test for difference of mean CAR (unlisted firms, listed firms)
Event Mean CAR (%) Mean CAR (%) Mean t-value Significance
Window M&A of unlisted M&A of listed difference value
firms (N = 713) firms (N = 83)
(−20, −2) 1.59 0.80 0.79 0.32 0.75
(−15, −2) 1.87 1.31 0.56 0.17 0.86
(−10, −2) 1.69 1.36 0.33 0.05 0.96
(−5, −2) 0.98 1.26 −0.28 −0.81 0.42
(−5, 0) 2.65 3.27 −0.62 −0.42 0.68
(−1, 0) 1.67 2.01 −0.34 0.33 0.74
(0, 0) 1.30 1.26 0.04 0.25 0.80
(0, +1) 1.41 1.19 0.22 0.52 0.60
(0, +5) 1.05 −0.01 1.06 0.67 0.50
(+2, +5) −0.35 −1.20 0.85 1.39 0.17
(+2, +10) −1.09 −1.60 0.51 0.73 0.46
(+2, +15) −1.06 −2.61 1.55 1.58 0.12
(+2, +20) −1.55 −3.22 1.67 1.41 0.16
(−1, +1) 1.78 1.95 −0.17 −0.35 0.73
(−2, +2) 2.13 2.35 −0.22 −0.46 0.64
(−5, +5) 2.40 2.01 0.39 0.12 0.91
(−10, +10) 2.38 1.71 0.67 0.31 0.75
(−20, +20) 1.81 −0.48 2.29 0.95 0.34
a, b
Denote significance at 5 and 1 %, respectively

The graph of AAR displayed in Fig. 3.28 reveals that AAR is positive for
21 days for unlisted target firm and 11 days for listed target firms. In addition, the
CAAR portrayed in Fig. 3.29 shows that abnormal returns are positive in the case
of acquisition of unlisted target firms. In marked contrast, the CAAR is positive for
a shorter duration for acquisition of listed target firms.
Lack of liquidity of unlisted firms reduces their bargaining power which, in turn,
reduces their bargaining power to negotiate higher premiums from the acquirers.
This creates value for acquirers. Further, agency problems are more likely for
acquirers of listed firms but do not apply to acquirers of privately held and unlisted
target firms which may be a major reason of lower returns for acquisition of listed
firms. The plausible reason for better performance of unlisted target could also be
explained by the fact that these firms are relatively small compared to public
companies that are generally owned by a small group of people, monitoring and
control can be exercised effectively thereby leading to a reduction in agency cost
and better wealth gains. This finding is consistent with the conclusions of various
studies by Draper and Paudal (2006), Conn et al. (2005), Fuller et al. (2002), Chang
(1998).
78 3 Short-Term Performance of Mergers and Acquisitions

Average abnormal return of acquisition of unlisted firms

Average abnormal return of acquisition of listed firms
1.50%

1.00%
Returns

0.50%

0.00%
-20-18-16-14-12-10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
- 0.50%

- 1.00%
Event window (days)

Fig. 3.28 AAR over event window (−20, +20) based on the type of target firm (unlisted, listed)
acquired

Cumulative average abnormal return of acquisition of unlisted firms

Cumulative average abnormal return of acquisition of listed firms
4.00%

3.00%

2.00%
Returns

1.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-1.00%

-2.00%
Event window (days)

Fig. 3.29 CAAR over event window (−20, +20) based on the type of target firm (unlisted, listed)
acquired

3.7 Analysis of Payment Effect

In making an acquisition, the acquiring firm can pay either in cash or stock. The
mode of payment can influence the acquirer’s performance. Most empirical studies
agree that the method of payment plays an important role in explaining acquiring
firms’ stock return. The stock market reacts differently to the announcement of
acquisitions on the basis of mode of financing being used. In an acquisition, the
acquirer can pay the claims of the shareholders of target firm either by paying cash
or by issuing stock or by a combination of both cash and stock. Asquith, Bruner,
and Mullins (1987), Huang and Walkling (1987), Travlos (1987), Yook (2003), and
3.7 Analysis of Payment Effect 79

Heron and Lie (2002) observed that acquisitions financed with stock generate
negative returns to the acquirer shareholders on acquisition announcement, whereas
returns for acquisitions, financed with cash, generate either zero or very marginal
positive return.
Many hypotheses have been put forward to explain the theoretical rationale why
the share prices are influenced by the choice of the payment method.
The “free cash flow” hypothesis contends that acquisitions, being paid for in
cash, reduce the agency costs and convey positive signal to market (Jensen 1986;
Masse et al. 1990). Free cash flow hypothesis proposes that cash transactions result
in positive abnormal returns.
Asymmetric information hypothesis (also known as the information content
hypothesis) states that an offer to pay in shares for an acquisition will be seen by
market participants as a signal that the stocks are overvalued (Myers and Majluf
1984). A stock offer enables an acquirer to share the risk of not realizing the
expected future growth opportunities with the target firm in the post-acquisition
period. Hansen (1987) supports asymmetric information hypothesis with a different
point of view. He argues that when an acquirer is not able to assess the true value of
the assets of the target firm, it will finance such an acquisition with stock. He
proposes that the stock financing has a “contingent pricing effect” and enables the
acquirer to share the risk of overvaluation of the target firm with that of the target
firm shareholders in the post-acquisition period. Stock offers convey a negative
signal to the market that the acquirer is not confident about the valuation of the
target company and wants to share the risk of overvaluation with the target com-
pany’s shareholders in the post-acquisition period.
A few studies have investigated the impact of asymmetric information on the
choice of mode of payment (cash or stock) by the acquiring firms (Fishman 1989;
Eckbo et al. 1990). The acquiring firm may experience the risk of overpaying the
target firm under high information asymmetry. If the payment is made in cash, the
target firms will accept the offer only when the offer value exceeds the firm’s
intrinsic value (known to the target but not known to the acquirer). The risk of
overpayment is much higher in this case. If the payment is made in the acquiring
firm’s stock, the value of the offer is determined by the combined value of the
acquirer and the target as well as the synergy resulting from the acquisition.
Because of the “contingent pricing effect” (Hansen 1987) in the stock payment, the
cost of overpayment is reduced, as any of such cost will be absorbed by the
combined firms and, thus, partly shared by the target firms. Therefore, it is expected
that higher information asymmetry will lead to lower cash payment or more stock
swaps in the acquisition. Asymmetric information hypothesis concludes that stock
transactions lead to negative abnormal returns around the announcement date.
Extant literature establishes that cash offers, internationally, are accompanied
with higher returns to the acquirer firm shareholders than the stock offers. The
rationale suggested is that cash is usually employed in financing an acquisition
when the acquirer has less information asymmetry about the true value of the target
company’s assets.
80 3 Short-Term Performance of Mergers and Acquisitions

Contrary to the above hypotheses examined by Myers and Majluf (1984), Jensen
(1986), Martin (1996) reports that stock transactions are no longer observed as a
negative signal by the market participants. He suggested the investment opportunity
hypothesis and the risk-sharing hypothesis.
The investment opportunity hypothesis proposes that firms with excellent future
investment opportunities should not pay in cash for acquisitions. Cash transactions
often have to be financed with new debt. Cash flows, however, should not be used
for debt service payments since this reduces the amount of discretionary cash flows
available in the future (Jung et al. 1996; Martin 1996).
The risk-sharing hypothesis proposes that it could be beneficial to pay in stock
especially in high-risk transactions, because in this case, the target firm will have an
incentive to make a success of the takeover transaction (Rappaport and Sirower
1999; Martin 1996). Martin (1996) examines this hypothesis and observes that the
acquirer is more likely to use stock to finance an acquisition when the acquirer’s
growth opportunities are higher.
The risk-sharing hypothesis and the investment opportunity hypothesis conclude
that stock transactions are no longer observed as a negative signal by the market
participants.

3.7.1 Analysis of Short-Term Performance of M&A

Financed with Cash

Table 3.17 contains the results of the impact of announcements of M&A, financed
with cash payment, across various event windows by reporting the CAAR values
and their corresponding test statistic values. The CAAR values across various
preannouncement event windows (−20, −2) (−15, −2) (−10, −2), (−5, −2), and
(−5, −0) are 1.62, 1.84, 1.47, 0.78, and 2.54 %, respectively; the CAAR values are
also significant at 1 % level. This announcement effect during the event windows
(−1, 0), (0, +1), (−1, +1), (−2, +2), (−5, +5), and (−10, +10) has been interpreted
by analyzing the CAAR values of 1.77, 1.49, 1.93, 2.20, 2.38, and 2.21 %,
respectively. These values are highly significant at 1 % indicating that null
hypothesis of zero CAAR has been rejected.
During the post-announcement windows (+2, +5), (+2, +10), (+2, +15), and (+2,
+20), there is a mild fall in the CAAR values indicating that the positive reaction is
somewhat diluted by the negative reaction (the peak value of CAAR decline from
3.56 % on day t(+1) to 1.69 % on day t(+20)). The CAAR value of 1.69 % for the
event window (−20, +20) is statistically significant as per GSign test.
The graph portrayed in Fig. 3.30 depicts that AAR is positive for 21 days during
event window. Figure 3.31 corroborates the conclusion that strong positive market
reaction generates high abnormal returns and after announcement starts falling and
remains positive during the entire event window.
Table 3.17 Abnormal returns to the shareholders of acquiring firms of M&A (financed with cash, N = 645) on the announcement day and during multidays
event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 1.62 1.52 0.61 337:307 2.604b 2.747b 3.306b 2.944b 3.557b 2.812b 2.002a
(−15, −2) 1.84 1.62 0.76 339:305 3.442b 3.713b 4.071b 3.799b 3.716b 3.284b 3.027b
(−10, −2) 1.47 1.18 0.30 329:315 3.429b 3.921b 3.658b 3.548b 2.924b 3.118b 3.021b
3.7 Analysis of Payment Effect

(−5, −2) 0.78 0.61 0.28 333:311 2.724b 3.174b 2.770b 2.843b 3.241b 2.894b 2.865b
(−5, 0) 2.54 2.05 1.47 382:262 7.284b 7.766b 7.841b 7.431b 7.119b 6.596b 7.327b
(−1, 0) 1.77 1.46 0.90 399:245 8.763b 8.077b 9.700b 7.692b 8.465b 7.331b 8.062b
(0, 0) 1.33 1.17 0.72 388:255 9.334b 8.430b 10.944b 8.135b 7.636b 7.835b 8.743b
(0, +1) 1.49 1.29 0.75 374:270 7.401b 6.800b 8.576b 6.512b 6.486b 6.260b 6.743b
(0, +5) 1.17 1.08 0.40 340:304 3.341b 3.460b 4.186b 3.579b 3.795b 2.514a 2.670b
(+2, +5) −0.33 −0.20 −0.60 289:353 −1.145 −1.23 −0.937 −0.869 −0.17 −1.347 −2.039a
(+2, +10) −1.19 −0.86 −1.45 258:385 −2.780b −2.930b −2.701b −2.410a −2.662b −2.625b −3.613b
(+2, +15) −1.25 −0.90 −2.21 262:381 −2.350a −2.421a −2.239a −1.975a −2.345a −2.049a −3.314b
(+2, +20) −1.86 −1.20 −2.29 265:379 −2.993b −3.051b −3.054b −1.980a −2.142a −2.551a −4.360b
(−1, +1) 1.93 1.58 1.07 378:266 7.817b 7.251b 8.617b 6.835b 6.803b 6.574b 7.072b
(−2, +2) 2.20 1.80 1.44 383:261 6.893b 6.978b 7.585b 6.568b 7.199b 5.951b 6.769b
(−5, +5) 2.38 1.97 1.35 367:277 5.036b 5.548b 5.601b 5.282b 5.932b 4.366b 4.615b
(−10, +10) 2.21 1.88 1.19 348:296 3.383b 3.690b 3.867b 3.486b 4.428b 2.807b 2.377a
(−20, +20) 1.69 2.01 1.02 341:304 1.847 1.946 2.536b 2.271a 3.835b 1.955 0.294
a, b
Denote significance at 5 and 1 %, respectively
81
82 3 Short-Term Performance of Mergers and Acquisitions

Average abnormal return of cash financed acquisitions

1.60%
1.40%
1.20%
1.00%
0.80%
Returns

0.60%
0.40%
0.20%
0.00%
-0.20% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.40%
-0.60% Event window (days)

Fig. 3.30 AAR over event window (−20, +20) of M&A financed with cash

Cumulative average abnormal return of cash financed acquisitions

4.00%
3.50%
3.00%
2.50%
Returns

2.00%
1.50%
1.00%
0.50%
0.00%
-0.50% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Event window (days)

Fig. 3.31 CAAR over event window (−20, +20) of M&A financed with cash

3.7.2 Analysis of Short-Term Performance of M&A

Financed with Stock

Table 3.18 reveals that market reacts negatively to the announcement of acquisi-
tions financed with stock. The shareholders of acquiring companies experience
negative abnormal returns during pre-event window (−20, −2), however, the results
are not statistically significant. During pre-event window (−15, −2), (−10, −2), and
(−5, −2), the average abnormal returns are positive but the median abnormal returns
are negative; they are also not significant. The market starts reacting positively near
the announcement day and generates 0.78 % return on the announcement day.
During the post-announcement windows (+2, +5), (+2, +10), (+2, +15), and (+2,
+20), there is a consistent fall in the CAAR values indicating that the negative
Table 3.18 Abnormal returns to the shareholders of acquiring firms of M&A (financed with stock, N = 137) on the announcement day and during multidays
event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) −0.69 −9.52 −1.95 65:72 −0.458 −0.369 0.186 −1.054 −0.287 0.707 −1.684
(−15, −2) 0.42 −4.75 −0.68 69:68 0.319 0.292 1.045 −0.934 0.546 1.786 −0.721
(−10, −2) 0.64 −3.12 −0.57 75:62 0.609 0.549 2.305a −0.919 0.713 1.475 −0.624
3.7 Analysis of Payment Effect

(−5, −2) 1.01 −3.28 −0.64 67:70 1.451 1.344 2.678b −0.895 −0.378 1.783 0.138
(−5, 0) 2.09 −4.43 0.97 80:57 2.448a 2.231a 3.569b −0.833 2.379a 2.946b 0.844
(−1, 0) 1.10 −1.41 0.55 78:57 2.233a 2.235a 2.417b −0.751 2.718b 2.580a 1.925
(0, 0) 0.78 0.72 0.76 77:57 2.240a 2.132a 2.437a 1.994a 2.647b 2.855b 2.577b
(0, +1) 0.38 −2.54 −0.03 68:67 0.778 0.638 1.828a −0.928 0.872 1.033 0.306
(0, +5) −0.97 −6.95 −1.30 52:85 −1.135 −0.935 −0.604 −1.099 −1.453 −1.47 −1.928
(+2, +5) −1.35 −4.82 −1.91 50:86 −1.946 −1.734 −1.976a −1.212 −2.050a −2.530a −2.772b
(+2, +10) −2.76 −15.34 −3.98 46:91 −2.648b −2.216a −1.203 −1.115 −3.453b −3.004b −2.292a
(+2, +15) −3.72 −23.01 −5.61 49:88 −2.860b −2.301a −1.151 −1.106 −3.786b −2.930b −2.605b
(+2, +20) −4.83 −30.04 −5.66 50:87 −3.185b −2.571a −1.16 −1.107 −3.952b −2.678b −2.653b
(−1, +1) 0.72 −3.85 0.45 67:69 1.201 1.004 1.695a −0.917 1.461 1.301 0.361
(−2, +2) 1.39 −4.84 0.87 73:64 1.784 1.454 2.446b −0.896 2.046a 1.48 0.175
(−5, +5) 0.38 −10.79 −1.51 63:74 0.327 0.271 1.294 −1.013 −0.12 0.229 −1.204
(−10, +10) −1.41 −19.63 −3.78 61:76 −0.884 −0.646 1.401 −1.051 −0.62 −0.509 −1.531
(−20, +20) −0.69 −9.52 −1.95 63:74 −2.157a −1.653 −0.117 −1.084 −0.787 −0.99 −2.506a
a, b
Denote significance at 5 and 1 %, respectively
83
84 3 Short-Term Performance of Mergers and Acquisitions

reaction turns more strong (the peak value of negative CAAR rises from 0.06 % on
day t(+2) to 4.93 % on day t(+20)). The CAAR values of 1.98, 0.94, and 1.28 %
for the event windows (−5, 0), (−1, 0), and (−2, +2), though positive, are not
statistically significant. The extent of negative median abnormal returns during the
post-event window is noticeable.
Figure 3.32 depicts that AAR is positive only for 13 days during the event
window. Figure 3.33 corroborates the conclusion that negative market reaction
generates negative abnormal returns and, after announcement, starts falling more
sharply and remains negative during the entire event window.
Shareholders of the acquiring firm perceive higher chances of dilution of earn-
ings per share (EPS) of the stock of the acquiring firm in case acquisition is financed
with the stock. Issue of new stock may erode the wealth of the existing shareholders
by diluting EPS. On the basis of above findings it is reasonable to conclude that

Average abnormal return of stock financed acquisitions

1.00%
0.80%
0.60%
0.40%
0.20%
Returns

0.00%
-0.20% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.40%
-0.60%
-0.80%
-1.00%
Event window (days)

Fig. 3.32 AAR over event window (−20, +20) of M&A financed with stock

Cumulative average abnormal return of stock financed acquisitions

1.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-1.00%
Returns

-2.00%

-3.00%

-4.00%

-5.00%

-6.00%
Event window (days)

Fig. 3.33 CAAR over event window (−20, +20) of M&A financed with stock
3.7 Analysis of Payment Effect 85

“Issuance of new stock for M&A is a bad news for the market.” The finding is in
agreement with financial theory (Myers and Majluf 1984) suggesting that issuance
of stock is viewed negatively by capital markets. The results are also in line with the
empirical evidence with respect to stock issues (DeAngelo et al. 1984; Hansen
1987; Jensen 1986).

3.7.3 Analysis of Short-Term Performance of M&A

Financed with Mixed Payment/Earn-Outs

This section explores the influence of innovative mode of financing like combi-
nation of cash and stock or earn-out offers used in the acquisitions.2 Average
abnormal returns on the announcement day and cumulative average abnormal
returns (CAARs) for various event windows have been analyzed for all acquisi-
tions, financed with a combination of cash and stock or earn-outs. The results
indicate that acquisitions generate statistically significant positive abnormal returns
when earn-outs are used as a mode of payment for acquisition.
It is obvious from the data summarized in Table 3.19 that shareholders of
acquiring companies earn substantial return of 3.49 % on the announcement day.
Median abnormal returns are 3.60 %. Returns are positive for more than 78 %
stocks. Moreover, the results are statistically significant.
The study documents that the shareholders of acquiring Indian corporates
employing mixed financing or earn-outs as a mode of payment experience positive
abnormal return of 3.49 % (statistically significant) on the announcement day.
The relevant data shows that the acquirers experience 3.82 % cumulative
average abnormal return over the event window of 3 days (−1, 1). The notable
finding is that the median cumulative abnormal return is 3.39 %. More than 78 %
stocks have positive returns. The results are statistically significant at 5 %. The
abnormal returns are also quite impressive of more than 6 % during the pre-event
window as well as multidays event window of 6 days (−5, 0), 2 days (−1, 0), and
3 days (−1, +1). Moreover, they are statistically also significant.
The cumulative average abnormal returns are also positive for longer event
windows of 11 days (−5, +5), 21 days (−10, +10), and 41 days (−20, +20). The
positive and impressive returns (6.69 %) over the longer window of 41 days are
noteworthy.
Figure 3.34 presents the average abnormal return for the entire event window.
The graph portrayed in Fig. 3.35 supports the conclusion that shareholders of

2
Earn-out refers to two-part contractual financing structure in mergers and acquisitions where the
target firm must “earn” part of the valuation based on the performance of the business following
the acquisition. In an earn-out, part of the acquisition price is paid after closing based on the target
firm’s ability to attain certain predefined financial goals.
 86

Table 3.19 Abnormal returns to the shareholders of acquiring firms of M&A (financed with earn-outs, combinations, N = 18) on the announcement day and
during multidays event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 4.55 4.84 3.82 10:08 1.165 0.999 1.507 1.277 0.869 1.371 0.49
(−15, −2) 2.79 3.51 2.13 9:09 0.831 1.045 1.27 1.378 0.395 1.084 0.629
(−10, −2) 2.52 2.89 0.20 9:09 0.937 1.117 1.304 1.354 0.395 1.145 0.835
(−5, −2) 1.74 2.30 0.33 9:09 0.973 0.932 1.565 1.089 0.395 0.879 0.436
(−5, 0) 6.24 6.51 4.65 11:07 2.841b 2.150a 3.590b 1.714 1.342 2.118a 1.691
(−1, 0) 4.49 4.18 3.46 14:4 3.545b 2.640b 4.005b 1.793 2.762b 2.426a 2.371a
(0, 0) 3.49 3.60 2.83 14:4 3.892b 2.974b 4.875b 2.369a 2.762b 2.929b 2.735b
(0, +1) 2.81 2.81 3.03 14:4 2.216a 2.428a 2.685b 2.191a 2.762b 1.654 2.218a
(0, +5) 0.19 0.21 0.58 10:08 0.085 0.071 0.111 0.095 0.869 −0.849 −0.062
(+2, +5) −2.62 −2.60 −3.42 4:14 −1.464 −1.377 −1.763a −1.636 −1.972a −2.209a −1.549
(+2, +10) −2.24 −2.33 −5.30 7:11 −0.832 −0.746 −1.044 −0.815 −0.552 −1.492 −1.104
(+2, +15) −1.68 −2.10 −5.05 5:13 −0.502 −0.44 −0.748 −0.65 −1.499 −1.033 −0.716
(+2, +20) −1.68 −2.98 −6.40 6:12 −0.429 −0.322 −0.918 −0.682 −1.025 −1.135 −0.806
(−1, +1) 3.82 3.39 3.69 15:3 2.458a 2.378a 2.648b 1.675 3.236b 1.64 2.236a
(−2, +2) 2.23 1.99 2.87 11:07 1.11 1.001 1.211 0.816 1.342 0.528 0.637
(−5, +5) 2.94 3.08 0.71 9:09 0.988 0.81 1.263 0.833 0.395 0.054 0.36
(−10, +10) 4.10 3.92 3.83 10:08 0.998 0.801 1.171 0.778 0.869 0.393 0.397
(−20, +20) 6.69 5.11 1.97 10:08 1.166 0.784 1.117 0.749 0.869 0.604 0.163
a, b
Denote significance at 5 and 1 %, respectively
3 Short-Term Performance of Mergers and Acquisitions
3.7 Analysis of Payment Effect 87

Average abnormal return of acquisitions with a combination of cash and

stock/earn outs

4.00%

3.00%

2.00%
Returns

1.00%

0.00%
-20-18-16-14-12-10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-1.00%

-2.00%
Event window (days)

Fig. 3.34 AAR of M&A financed with a combination of cash and stock/earn-outs over event
window (−20, +20)

Cumulative average abnormal return of acquisitions with a combination

of cash and stock/earn outs

10.00%

8.00%
Returns

6.00%

4.00%

2.00%

0.00%
-20-18-16-14-12-10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Event window (days)

Fig. 3.35 CAAR of M&A financed with a combination of cash and stock/earn-outs over event
window (−20, +20)

acquiring companies experience substantial gain when acquisition is financed with

some combination or earn-outs.

3.7.4 Payment Effect

Independent t-test has been conducted to measure the difference between mean
CAR of acquisitions when cash and stock is employed as mode of payment; the
results are tabulated in Table 3.20.
88 3 Short-Term Performance of Mergers and Acquisitions

Table 3.20 Independent samples t-test for difference of mean CAR (cash payment, stock
payment)
Event Mean CAR (%) Mean CAR (%) Mean t-value Significance
window Cash payment Stock payment difference value
(N = 645) (N = 137) (%)
(−20, −2) 1.62 −0.69 2.31 1.17 0.24
(−15, −2) 1.84 0.42 1.42 0.57 0.57
(−10, −2) 1.47 0.64 0.83 0.65 0.51
(−5, −2) 0.78 1.01 −0.23 −0.96 0.34
(−5, 0) 2.54 2.09 0.45 0.17 0.87
(−1, 0) 1.77 1.10 0.67 0.93 0.35
(0, 0) 1.33 0.78 0.55 0.27 0.79
(0, +1) 1.49 0.38 1.11 0.43 0.67
(0, +5) 1.17 −0.97 2.14 1.94 0.05
(+2, +5) −0.33 −1.35 1.02 2.29a 0.02
(+2, +10) −1.19 −2.76 1.57 0.77 0.44
(+2, +15) −1.25 −3.72 2.47 0.97 0.33
(+2, +20) −1.86 −4.83 2.97 0.7 0.48
(−1, +1) 1.93 0.72 1.21 0.91 0.37
(−2, +2) 2.20 1.39 0.81 0.38 0.70
(−5, +5) 2.38 0.38 2.00 1.3 0.20
(−10, +10) 2.21 −1.41 3.62 0.47 0.64
(−20, +20) 1.69 −0.69 2.38 1.42 0.16
a, b
Denote significance at 5 and 1 %, respectively

It is apparent that mean difference is positive for all the windows except
pre-event window of 4 days (−5, −2). However, the difference is significant for
event window [(+2, +5) (p-value = 0.02 < 0.05)] (Tables 3.21 and 3.22).
Figure 3.36 depicts that AAR is positive for 21 days in the case of cash-financed
acquisitions, only for 13 days in the case of stock-financed acquisitions and for
25 days in the case of mixed financing/earn-outs acquisitions during the event
window.
Figure 3.37 corroborates the conclusion that market reaction is positive for
cash-financed acquisitions and negative for stock-financed acquisitions.
Shareholders of the acquiring firm perceive lower possibility of dilution of earnings
per share (EPS) of the stock of the acquiring firm in case acquisition is financed
with cash. Issue of new stock may erode the wealth of the existing shareholders by
diluting EPS.
3.7 Analysis of Payment Effect 89

Table 3.21 Independent samples t-test for difference of mean CAR (cash payment, mixed
payment/earn-outs)
Event Mean CAR Mean CAR (%) Mean t-value Significance
window (%) Cash Mixed difference value
payment payment/earn-outs
(N = 645) (N = 18)
(−20, −2) 1.62 4.55 −2.93 −1.04 0.297
(−15, −2) 1.84 2.79 −0.95 −1.11 0.268
(−10, −2) 1.47 2.52 −1.05 −1.03 0.302
(−5, −2) 0.78 1.74 −0.96 −1.65 0.100
(−5, 0) 2.54 6.24 −3.70 −0.42 0.673
(−1, 0) 1.77 4.49 −2.72 −0.92 0.36
(0, 0) 1.33 3.49 −2.16 −0.4 0.689
(0, +1) 1.49 2.81 −1.32 −1.42 0.157
(0, +5) 1.17 0.19 0.98 0.23 0.821
(+2, +5) −0.33 −2.62 2.29 1.51 0.132
(+2, +10) −1.19 −2.24 1.05 0.92 0.356
(+2, +15) −1.25 −1.68 0.43 0.72 0.474
(+2, +20) −1.86 −1.68 −0.18 −0.96 0.339
(−1, +1) 1.93 3.82 −1.89 −1.20 0.231
(−2, +2) 2.20 2.23 −0.03 −0.31 0.755
(−5, +5) 2.38 2.94 −0.56 −0.76 0.446
(−10, +10) 2.21 4.10 −1.89 −0.55 0.581
(−20, +20) 1.69 6.69 −5.00 −0.39 0.695
a, b
Denote significance at 5 and 1 %, respectively

The acquisitions, financed with cash, experience higher returns than the acqui-
sitions financed with stock. This could be a signal in favor of “asymmetric infor-
mation hypothesis and free cash flow hypothesis.”
On the basis of above findings, it is reasonable to conclude that “Issuance of new
stock is a bad news for the market.” The study also has managerial application in
indicating mergers and acquisition strategies are the source of value creation for an
emerging economy like India when earn-outs or a mixed method of financing is
employed to mitigate the risk of valuation and adverse selection.
90 3 Short-Term Performance of Mergers and Acquisitions

Table 3.22 Independent samples t-test for difference of mean CAR (stock payment, mixed
payment/earn-outs)
Event Mean CAR Mean CAR (%) Mean t-value Significance
window (%) Stock Mixed difference value
payment payment/earn-outs
(N = 137) (N = 18)
(−20, −2) −0.69 4.55 −5.24 −1.32 0.191
(−15, −2) 0.42 2.79 −2.37 −1.11 0.268
(−10, −2) 0.64 2.52 −1.88 −0.61 0.54
(−5, −2) 1.01 1.74 −0.73 −1.02 0.3094
(−5, 0) 2.09 6.24 −4.15 −2.2a 0.0295
(−1, 0) 1.10 4.49 −3.39 −2.47a 0.015
(0, 0) 0.78 3.49 −2.71 −2.79b 0.006
(0, +1) 0.38 2.81 −2.43 −1.22 0.2252
(0, +5) −0.97 0.19 −1.16 −0.04 0.9678
(+2, +5) −1.35 −2.62 1.27 0.94 0.347
(+2, +10) −2.76 −2.24 −0.52 −0.49 0.6273
(+2, +15) −3.72 −1.68 −2.04 −0.22 0.8261
(+2, +20) −4.83 −1.68 −3.15 −0.18 0.858
(−1, +1) 0.72 3.82 −3.10 −1.43 0.1538
(−2, +2) 1.39 2.23 −0.84 −0.05 0.959
(−5, +5) 0.38 2.94 −2.56 −0.13 0.899
(−10, +10) −1.41 4.10 −5.51 −0.22 0.828
(−20, +20) −0.69 6.69 −7.38 −0.73 0.467
a, b
Denote significance at 5 and 1 %, respectively

3.8 Analysis of Geography Effect

One of the sources of benefits of cross-border acquisitions is the geographical

diversification that enables acquiring firms to internationalize and use their strategic
advantages in overseas markets. The benefits of intercountry diversification are not
same for all the international markets in which the acquiring firm acquires target
firms. Regional domicile hypothesis considers geographic influence on the per-
formance of acquiring firms. A disaggregated analysis has been conducted on the
basis of geographic origin of target firms to examine the performance of the ac-
quirers of cross-border acquisitions. The sample of cross-border acquisition has
been segregated for target firms from developed markets and emerging markets.
The target firms from developed markets have been further segregated in acquisi-
tions of US and non-US target firms.
3.8 Analysis of Geography Effect 91

Average abnormal return of cash financed acquisitions

Average abnormal return of stock financed acquisitions
Average abnormal return of acquisitions with a combination of cash and stock/earn outs
4.00%

3.00%

2.00%
Returns

1.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

-1.00%

-2.00%
Event Window (days)

Fig. 3.36 AAR over event window (−20, +20) of M&A based on mode of payment (cash, stock,
mixed/earn-outs)

3.8.1 Analysis of Short-Term Performance of Acquisitions

of Target Firms from Developed Markets

Table 3.23 presents the data relating to the impact of announcements of

cross-border acquisitions of target firms from developed markets across various
event windows by reporting the CAAR values and their corresponding test statistic
values. The CAAR values across various preannouncement event windows (−20,
−2), (−15, −2), (−10, −2), (−5, −2), and (−5, 0) are 1.62, 1.45, 1, 0.93, and 3.15 %,
respectively. The CAAR values for the last window are significant at 1 % level.
This announcement effect during the event windows (−1, 0), (0, +1), (−1, +1),
(−2, +2), (−5, +5), and (−10, +10) has been interpreted by analyzing the CAAR
values of 2.22, 2.07, 2.5, 3.07, 3.19, and 2.21 %, respectively. These values are
highly significant at 1 % indicating that null hypothesis of zero CAAR has been
rejected.
During the post-announcement windows (+2, +5), (+2, +10), (+2, +15), and
(+2, +20), there is a consistent fall in the CAAR values indicating that the positive
reaction is almost nullified by the negative reaction (the peak value of CAAR
92 3 Short-Term Performance of Mergers and Acquisitions

Cumulative average abnormal return of cash financed acquisitions

Cumulative average abnormal return of stock financed acquisitions
Cumulative average abnormal return of acquisitions with a combination of cash and stock/earn outs

10.00%

8.00%

6.00%

4.00%
Returns

2.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

-2.00%

-4.00%

Event window (days)

-6.00%

Fig. 3.37 CAAR over event window (−20, +20) of M&A based on method of payment (cash,
stock)

decline from 4.31 % on day t(+3) to 1.7 % on day t(+20)). The CAAR values of
1.70 % for the event window, and (−20, +20), though positive, are not statistically
significant.
Figure 3.38 depicts that AAR is positive for 21 days during event window.
Figure 3.39 corroborates the conclusion that strong positive market reaction gen-
erates high abnormal returns and, after announcement, starts falling and remains
positive during the entire event window.

3.8.1.1 Analysis of Short-Term Performance of Acquisitions of US

Target Firms

Table 3.24 depicts the abnormal returns for the cross-border acquisitions of target
firms from US. It is revealed from the data contained in the Table that positive
market reaction is strong on the announcement and the windows around the
announcement. This announcement effect during the event windows (−5, 0),
(−1, 0), (0, +1), (−1, +1) (−2, +2), and (−5, +5) has been interpreted by analyzing
Table 3.23 Abnormal returns to the shareholders of acquiring firms of cross-border acquisitions (developed markets N = 291) on the announcement day and
during multidays event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 1.62 1.60 0.47 151:140 1.835 1.95 2.479b 2.237a 2.259a 1.846 1.31
(−15, −2) 1.45 1.43 0.45 152:139 1.909 2.163a 2.564b 2.485a 2.377a 2.001a 1.599
(−10, −2) 1.00 0.89 −0.26 138:153 1.643 2.047a 1.934a 2.011a 0.728 1.263 1.198
3.8 Analysis of Geography Effect

(−5, −2) 0.93 0.65 0.02 146:145 2.290a 2.705b 2.128a 2.215a 1.671 2.062a 2.081a
(−5, 0) 3.15 2.61 2.02 189:102 6.343b 6.861b 7.145b 6.216b 6.734b 5.692b 6.454b
(−1, 0) 2.22 1.98 1.28 202:89 7.749b 7.303b 9.436b 6.630b 8.265b 6.942b 7.494b
(0, 0) 1.80 1.64 1.22 200:91 8.859b 7.453b 11.016b 7.030b 8.030b 7.638b 7.956b
(0, +1) 2.07 1.84 1.43 185:106 7.214b 6.449b 8.741b 5.972b 6.263b 6.041b 6.366b
(0, +5) 1.84 1.62 0.66 157:134 3.699b 3.725b 4.448b 3.624b 2.966b 2.775b 3.357b
(+2, +5) −0.23 −0.21 −0.56 132:159 −0.571 −0.605 −0.734 −0.641 0.022 −0.873 −1.183
(+2, +10) −1.28 −1.02 −1.31 115:176 −2.108a −2.328a −2.281a −2.022a −1.980a −2.229a −2.768b
(+2, +15) −1.46 −1.10 −1.84 116:175 −1.923 −2.123a −1.970a −1.772 −1.862 −1.78 −2.319a
(+2, +20) −2.42 −1.83 −2.76 117:174 −2.739b −2.922b −2.797b −2.497a −1.745 −2.352a −3.143b
(−1, +1) 2.50 2.18 1.88 190:101 7.103b 6.852b 8.486b 6.090b 6.852b 6.191b 6.594b
(−2, +2) 3.07 2.57 2.00 191:100 6.760b 7.001b 7.713b 6.225b 6.970b 5.884b 6.640b
(−5, +5) 3.19 2.59 2.55 178:113 4.746b 5.257b 5.248b 4.695b 5.439b 3.950b 4.504b
(−10, +10) 2.21 2.01 1.74 166:125 2.381a 2.739b 2.939b 2.644b 4.026b 1.708 1.858
(−20, +20) 1.70 1.91 1.02 159:132 1.306 1.401 2.065a 1.727 3.202b 1.33 0.656
a, b
Denote significance at 5 and 1 %, respectively
93
94 3 Short-Term Performance of Mergers and Acquisitions

Average abnormal return of cross-border acquisitions of target firms in developed markets

2.00%

1.50%

1.00%
Returns

0.50%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%

-1.00% Event window (days)

Fig. 3.38 AAR over event window (−20, +20) of cross-border acquisitions from developed
markets

Cumulative average abnormal return of cross-border acquisitions of target firms

from developed markets
5.00%

4.00%

3.00%
Returns

2.00%

1.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Event window (days)

Fig. 3.39 CAAR over event window (−20, +20) of cross-border acquisitions from developed
markets

the CAAR values of 3.20, 2.57, 2.6, 3.04, 3.60, and 3.44 %, respectively. These
values are highly significant at 1 % indicating that null hypothesis of zero CAAR
has been rejected.
The acquirer’s shareholders experience negative abnormal returns during
pre-event window (−20, −2); however, the results are not statistically significant.
During the post-announcement windows (+2, +5), (+2, +10), (+2, +15), and
(+2, +20), there is a consistent fall in the CAAR values indicating that the negative
reaction turns more strong (the peak value of positive CAAR decline from 2.78 %
on day t(+2) to 0.33 % on day t(+20)). The CAAR values of 1.61 % (−10, +10)
though positive, are not statistically significant.
Table 3.24 Abnormal returns to the shareholders of acquiring firms of cross-border acquisitions from US (N = 130) on the announcement day and during
multidays event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) −0.37 −0.20 −2.30 57:73 −0.31 −0.31 −0.173 −0.185 −0.422 −0.128 −1.057
(−15, −2) 0.91 1.09 0.39 66:64 0.874 0.967 1.268 1.233 1.162 1.068 0.243
(−10, −2) 0.31 0.48 −0.84 58:72 0.367 0.429 0.679 0.658 −0.246 0.593 −0.108
3.8 Analysis of Geography Effect

(−5, −2) 0.63 0.46 −0.62 59:71 1.13 1.213 1.011 1.106 −0.07 1.159 0.848
(−5, 0) 3.20 2.69 2.04 84:46 4.711b 4.800b 4.711b 4.506b 4.331b 4.127b 4.788b
(−1, 0) 2.57 2.22 1.49 96:34 6.562b 5.439b 6.734b 4.457b 6.444b 5.510b 5.687b
(0, 0) 2.13 1.80 1.38 91:39 7.692b 5.480b 7.699b 4.472b 5.564b 5.879b 5.716b
(0, +1) 2.60 2.07 1.75 92:38 6.641b 4.831b 6.249b 3.828b 5.740b 5.122b 4.689b
(0, +5) 2.37 1.77 1.17 71:59 3.491b 3.009b 3.097b 2.454a 2.043a 2.296a 2.554a
(+2, +5) −0.23 −0.29 −0.66 58:72 −0.42 −0.37 −0.625 −0.529 −0.246 −0.809 −0.841
(+2, +10) −1.73 −1.41 −1.65 51:79 −2.087a −1.972a −2.024a −1.831 −1.479 −2.234a −2.688b
(+2, +15) −2.15 −1.88 −2.32 53:77 −2.078a −2.046a −2.143a −1.992a −1.127 −1.88 −2.513a
(+2, +20) −2.33 −2.03 −2.29 53:77 −1.933 −1.8 −1.965a −1.849 −1.127 −1.694 −2.431a
(−1, +1) 3.04 2.49 2.18 94:36 6.339b 5.101b 6.163b 3.987b 6.092b 5.286b 5.019b
(−2, +2) 3.60 2.93 2.90 87:43 5.815b 5.177b 5.624b 4.209b 4.860b 4.960b 5.165b
(−5, +5) 3.44 2.66 2.69 82:48 3.739b 3.608b 3.448b 3.054b 3.979b 2.971b 3.179b
(−10, +10) 1.61 1.52 0.49 68:62 1.27 1.263 1.433 1.215 1.514 0.924 0.449
(−20, +20) 0.33 0.22 0.37 67:63 0.188 0.179 0.208 0.124 1.338 0.19 −0.808
a, b
Denote significance at 5 and 1 %, respectively
95
96 3 Short-Term Performance of Mergers and Acquisitions

Average abnormal return of cross-border acquisitions of US target firms

2.50%

2.00%

1.50%
Returns

1.00%

0.50%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%

-1.00%
Event window (days)

Fig. 3.40 AAR over event window (−20, +20) of cross-border acquisitions of US firms

Cumulative average abnormal return of cross-border acquisitions of US

target firms
3.00%
2.50%
2.00%
1.50%
Returns

1.00%
0.50%
0.00%
-0.50% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-1.00%
-1.50%
Event window (days)

Fig. 3.41 CAAR over event window (−20, +20) of cross-border acquisitions of US firms

Figure 3.40 depicts that AAR is positive for 14 days during the event window.
Figure 3.41 corroborates the conclusion that market reaction generates positive
abnormal returns and, after announcement, starts falling more sharply.

3.8.1.2 Analysis of Short-Term Performance of Acquisitions of Target

Firms from Non-US Developed Markets

Table 3.25 illustrates the impact of announcements of cross-border acquisitions of

target firms from non-US developed markets across various event windows by
reporting the CAAR values and their corresponding test statistic values. The CAAR
values across various preannouncement event windows (−20, −2), (−15, −2),
Table 3.25 Abnormal returns to the shareholders of acquiring firms of cross-border acquisitions (non-US developed markets, N = 161) on the announcement
day and during multidays event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 3.24 2.94 2.60 94:67 2.484a 2.855b 3.487b 3.075b 3.420b 2.727b 2.590b
(−15, −2) 1.89 1.69 0.60 86:75 1.689 1.994a 2.307a 2.210a 2.152a 1.909 1.852
(−10, −2) 1.56 1.19 −0.03 80:81 1.742 2.330a 1.990a 2.163a 1.202 1.277 1.642
3.8 Analysis of Geography Effect

(−5, −2) 1.17 0.79 0.79 87:74 1.964a 2.549a 1.952a 1.941 2.311a 1.919 1.981a
(−5, 0) 3.12 2.56 1.99 105:56 4.257b 4.910b 5.373b 4.373b 5.162b 4.488b 4.425b
(−1, 0) 1.94 1.81 1.04 106:55 4.597b 4.901b 6.635b 4.909b 5.321b 5.060b 4.938b
(0, 0) 1.53 1.52 1.04 109:52 5.112b 5.064b 7.893b 5.503b 5.796b 5.725b 5.533b
(0, +1) 1.64 1.67 0.84 93:68 3.881b 4.293b 6.137b 4.664b 3.261b 4.117b 4.315b
(0, +5) 1.41 1.51 0.51 86:75 1.926 2.252a 3.196b 2.659b 2.152a 1.937 2.204a
(+2, +5) −0.23 −0.16 −0.21 74:87 −0.386 −0.489 −0.424 −0.38 0.251 −0.539 −0.829
(+2, +10) −0.92 −0.72 −1.06 64:97 −1.024 −1.312 −1.248 −1.087 −1.333 −1.223 −1.25
(+2, +15) −0.90 −0.53 −1.52 63:98 −0.804 −0.991 −0.722 −0.638 −1.492 −0.896 −0.824
(+2, +20) −2.49 −1.69 −2.76 64:97 −1.915 −2.319a −1.994a −1.707 −1.333 −1.873 −2.022a
(−1, +1) 2.05 1.96 1.45 96:65 3.970b 4.590b 5.871b 4.658b 3.736b 4.188b 4.317b
(−2, +2) 2.63 2.31 1.80 104:57 3.942b 4.725b 5.315b 4.588b 5.004b 4.035b 4.244b
(−5, +5) 3.00 2.55 2.48 96:65 3.025b 3.813b 3.957b 3.557b 3.736b 3.019b 3.191b
(−10, +10) 2.70 2.37 2.90 98:63 1.971a 2.604b 2.664b 2.511a 4.053b 1.618 2.124a
(−20, +20) 2.80 3.17 2.01 92:69 1.462 1.757 2.590b 2.221a 3.103b 1.714 1.645
a, b
Denote significance at 5 and 1 %, respectively
97
98 3 Short-Term Performance of Mergers and Acquisitions

(−10, −2), (−5, −2), and (−5, 0) are 3.24, 1.89, 1.56, 1.17, and 3.12 %, respec-
tively. The CAAR value for the last window is maximum significant at 1 % level.
This announcement effect during the event windows (−1, 0), (0, +1), (−1, +1),
(−2, +2), (−5, +5), and (−10, +10) has been interpreted by analyzing the CAAR
values of 1.94, 1.64, 2.05, 2.63, 3, and 2.47 %, respectively. These values are highly
significant at 1 % indicating that null hypothesis of zero CAAR has been rejected.
During the post-announcement windows (+2, +5), (+2, +10), (+2, +15), and
(+2, +20), there is a consistent fall in the CAAR values indicating that the positive
reaction is almost nullified by the negative reaction (the peak value of CAAR decline
from 5.55 % on day t(+3) to 2.80 % on day t(+20)). The CAAR values of 2.80 % for
the event window (−20, +20), though positive, are not statistically significant.
Figure 3.42 depicts that AAR is positive for 23 days during event window.
Figure 3.43 corroborates the conclusion that strong positive market reaction for
target firms from non-US developed markets generates high positive abnormal
returns and remains positive during the entire event window.

Average abnormal return of cross-border acquisitions of target firms from

non-US developed markets
2.00%
1.50%
1.00%
Returns

0.50%
0.00%
-0.50% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

-1.00% Event window (days)

Fig. 3.42 AAR over event window (−20, +20) of cross-border acquisitions of target firms from
non-US developed markets

Cumulative average abnormal return of cross-border acquisitions of target

firms from non-US developed markets
6.00%
5.00%
4.00%
Returns

3.00%
2.00%
1.00%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Event window (days)

Fig. 3.43 CAAR over event window (−20, +20) of cross-border acquisitions of target firms from
non-US developed markets
3.8 Analysis of Geography Effect 99

3.8.2 Analysis of Short-Term Performance of Cross-Border

Acquisitions of Target Firms from Emerging Markets

Table 3.26 illustrates the impact of announcements of cross-border acquisitions of

target firms from emerging markets. The CAAR values across various prean-
nouncement event windows (−20, −2), (−15, −2), (−10, −2), (−5, −2), and (−5, 0)
are 3.98, 3.20, 3.07, 1.36, and 2.46 %, respectively. The CAAR values for the
pre-event windows are significant at 5 % level.
This announcement effect during the event windows (−1, 0) and (0, +1) has been
interpreted by analyzing the CAAR values of 1.10 and 1.16 %, respectively. These
values are significant at 5 % indicating that null hypothesis of zero CAAR has been
rejected.
During the post-announcement windows (+2, +5), (+2, +10), (+2, +15), and (+2,
+20), there is decline in the CAAR values. The peak value of CAAR declined from
5.11 % on day (0, +1) to 4.76 % on day (0, +20). The CAAR values of 1.67, 2.11,
3.47, and 2.74 % for the event windows (−1, +1) (−2, +2), (−5, +5), (−10, +10),
and (−20, +20), though positive, are not statistically significant.
Figure 3.44 depicts that AAR is positive for 20 days during event window.
Figure 3.45 corroborates the conclusion that strong positive market reaction for
target firms from emerging markets generates high positive abnormal returns and
remains positive during the entire event window.

3.8.2.1 Geography Effect

Independent t-test has been conducted to measure the difference between mean
CAR of acquisitions of target firm from developed markets and emerging markets.
The results are tabulated in Table 3.27.
It is apparent from the relevant data contained in Table 3.27 that mean difference
of CAR acquisitions of target firm from developed markets and emerging markets
vary for different event windows; in some cases, the difference is positive while in
others it is negative. However, the difference is significant for the announcement
day (p = 0.008 < 0.01) and event windows around the announcement (−1,0)
(p = 0.008 < 0.01), (−1, +1) (p = 0.0171 < 0.05) (−2, +2) (p = 0.033 < 0.05).
Figure 3.46 depicts that AAR is positive for 20 days in the case of acquisitions
of target firms from emerging markets and 22 days for acquisitions of target firms
from developed markets. Figure 3.47 depicts that abnormal returns of acquisitions
from developed as well as emerging markets are positive during the event window.
It is noted that though the abnormal returns of cross-border acquisitions from
developed markets and emerging markets vary for different event windows, the
difference is not statistically significant.
In addition, independent t-test has also been conducted to measure the difference
between mean CAR of acquisitions of target firm from US and non-US developed
markets; the results are tabulated in Table 3.28.
 100

Table 3.26 Abnormal returns to the shareholders of acquiring firms of cross-border acquisitions (emerging markets N = 52) on the announcement day and
during multidays event windows, 2003–2015
Event Average abnormal return Positive: Parametric tests Nonparametric tests
window Cumulative Precision-weighted Median negative CDA t CSS t Patell Z SCS Z GSign Rank Z Jackknife
(%) (%) (%) Z Z
(−20, −2) 3.98 4.01 2.06 33:19 2.487a 1.857 2.849b 1.960a 2.636b 2.757b 1.852
(−15, −2) 3.20 3.15 2.20 31:21 2.331a 2.125a 2.612b 2.339a 2.079a 2.347a 1.990a
(−10, −2) 3.07 2.87 0.82 31:21 2.787b 2.491a 2.960b 2.523a 2.079a 2.832b 2.276a
(−5, −2) 1.36 1.44 0.81 32:20 1.851 1.926 2.227a 2.218a 2.358a 2.686b 1.924
(−5, 0) 2.46 2.05 1.10 29:23 2.734b 2.943b 2.591b 2.960b 1.522 3.267b 2.556a
(−1, 0) 1.10 0.61 0.68 30:22 2.118a 2.054a 1.338 1.274 1.8 1.859 1.316
(0, +1) 1.16 0.84 0.59 30:22 3.173b 2.845b 2.587b 2.299a 1.8 2.772b 2.387a
(0, 0) 1.20 0.83 0.47 33:19 2.322a 1.959 1.807a 1.453 2.636b 2.048a 1.565
(0, +5) 0.45 0.27 0.53 29:23 0.505 0.581 0.346 0.322 1.522 0.647 0.044
(+2, +5) −0.75 −0.56 −0.65 25:27 −1.024 −1.117 −0.854 −0.843 0.407 −0.655 −1.106
(+2, +10) −1.94 −1.53 −2.04 19:33 −1.763 −1.924 −1.564 −1.6 −1.264 −1.801 −1.892
(+2, +15) −1.53 −1.03 −1.53 23:29 −1.114 −1.224 −0.835 −0.823 −0.15 −0.975 −1.419
(+2, +20) −2.37 −2.13 −2.50 24:28 −1.485 −1.737 −1.508 −1.635 0.129 −1.7 −2.117a
(−1, +1) 1.14 0.60 1.00 30:22 1.793 1.721 1.075 0.95 1.8 1.59 1.077
(−2, +2) 1.08 0.78 1.03 30:22 1.321 1.348 1.086 0.926 1.8 1.691 0.872
(−5, +5) 1.75 1.49 0.99 29:23 1.436 1.683 1.389 1.481 1.522 2.055a 1.148
(−10, +10) 2.27 1.95 0.02 26:26 1.348 1.518 1.32 1.387 0.686 1.276 0.747
(−20, +20) 2.74 2.47 1.28 31:21 1.167 1.295 1.203 1.16 2.079a 1.15 0.363
a, b
Denote significance at 5 and 1 %, respectively
3 Short-Term Performance of Mergers and Acquisitions
3.8 Analysis of Geography Effect 101

Average abnormal return of cross-border acquisitions of target firms in

emerging markets
1.50%

1.00%
Returns

0.50%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%

-1.00% Event widow (days)

Fig. 3.44 CAAR over event window (−20, +20) of cross-border acquisitions from emerging
markets

Cumulative average abnormal return of cross-border acquisitions of

target firms in emerging markets
6.00%

4.00%
Returns

2.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-2.00%
Event window (days)

Fig. 3.45 CAAR over event window (−20, +20) of cross-border acquisitions from emerging
markets

Independent t-test shown in Table 3.28 indicates that mean difference between
CAR of acquisitions of target firms from US and non-US developed markets also
vary for different event windows; in some cases, the difference is positive while in
others it is negative. However, the difference is significant for event window (−20,
−2) (p = 0.043 < 0.05).
Figure 3.48 depicts that AAR is positive for only 17 days in the case of
acquisitions of target firms from US and 24 days for acquisitions of target firms
from non-US developed markets during the event window. Figure 3.49 depicts that
abnormal returns of acquisitions from developed markets as well as emerging is
positive during the event window.
On the basis of above findings, it may be concluded that though the abnormal
returns of cross-border acquisitions from non-US developed markets are higher than
that for US target firms, the difference is statistically significant only for one
window.
102 3 Short-Term Performance of Mergers and Acquisitions

Table 3.27 Independent samples t-test for difference of mean CAR of cross-border acquisitions
(developed markets, emerging markets)
Event Mean CAR (%) Mean CAR (%) Mean t-value Significance
window of acquisitions of acquisitions difference value
of developed of emerging (%)
market target market target
firms (N = 291) firms (N = 52)
(−20, −2) 1.62 3.98 −2.36 −1.34 0.1855
(−15, −2) 1.45 3.20 −1.75 −1.41 0.1632
(−10, −2) 1.00 3.07 −2.07 −1.84 0.0704
(−5, −2) 0.93 1.36 −0.43 −1.73 0.0885
(−5, 0) 3.15 2.46 0.69 0.42 0.6783
(−1, 0) 2.22 1.10 1.12 2.71b 0.008
(0, 0) 1.80 1.16 0.64 2.15a 0.0341
(0, +1) 2.07 1.20 0.87 1.79 0.0764
(0, +5) 1.84 0.45 1.39 1.49 0.1409
(+2, +5) −0.23 −0.75 0.52 0.32 0.7478
(+2, +10) −1.28 −1.94 0.66 0.45 0.6542
(+2, +15) −1.46 −1.53 0.07 0.27 0.7891
(+2, +20) −2.42 −2.37 −0.05 −0.32 0.749
(−1, +1) 2.50 1.14 1.36 2.43a 0.0171
(−2, +2) 3.07 1.08 1.99 2.17a 0.033
(−5, +5) 3.19 1.75 1.44 0.7 0.4839
(−10, +10) 2.21 2.27 −0.06 0.01 0.9882
(−20, +20) 1.70 2.74 −1.04 −0.27 0.7906
a, b
Denote significance at 5 and 1 %, respectively

Average abnormal return of cross-border acquisitions of target firms in developed markets

Average abnormal return of cross-border acquisitions of target firms in emerging markets
2.00%

1.50%

1.00%
Returns

0.50%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%
Event window (days)
-1.00%

Fig. 3.46 AAR over event window (−20, +20) of cross-border acquisitions (developed markets,
emerging markets)
3.8 Analysis of Geography Effect 103

Cumulative average abnormal return of cross-border acquisitions of target firms

from developed markets
Cumulative average abnormal return of cross-border acquisitions of target firms in
emerging markets
6.00%
5.00%
4.00%
Returns

3.00%
2.00%
1.00%
0.00%
-1.00% -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
Event window (days)

Fig. 3.47 CAAR over event window (−20, +20) of cross-border acquisitions (developed markets,
emerging markets)

Table 3.28 Independent samples t-test for difference of mean CAR of cross-border acquisitions
(US, non-US developed markets)
Event Mean CAR (%) Mean CAR Mean t-value Significance
Window acquisitions of (%) difference value
non-US developed acquisitions
market target firms of US target
(N = 161) firms
(N = 130)
(−20, −2) 3.24 −0.37 3.61 2.04a 0.0427
(−15, −2) 1.89 0.91 0.98 0.43 0.6639
(−10, −2) 1.56 0.31 1.25 0.52 0.6005
(−5, −2) 1.17 0.63 0.54 0.22 0.8246
(−5, 0) 3.12 3.20 −0.08 −0.14 0.8921
(−1, 0) 1.94 2.57 −0.63 −0.41 0.6838
(0, 0) 1.53 2.13 −0.60 −0.05 0.9609
(0, +1) 1.64 2.60 −0.96 −0.06 0.9512
(0, +5) 1.41 2.37 −0.96 −0.15 0.8836
(+2, +5) −0.23 −0.23 0.00 0.26 0.7957
(+2, +10) −0.92 −1.73 0.81 0.51 0.6128
(+2, +15) −0.90 −2.15 1.25 1.1 0.2729
(+2, +20) −2.49 −2.33 −0.16 −0.45 0.6531
(−1, +1) 2.05 3.04 −0.99 −0.37 0.7151
(−2, +2) 2.63 3.60 −0.97 −0.45 0.6559
(−5, +5) 3.00 3.44 −0.44 −0.04 0.9677
(−10, +10) 2.70 1.61 1.09 0.46 0.6474
(−20, +20) 2.80 0.33 2.47 1.46 0.146
a, b
Denote significance at 5 and 1 %, respectively
104 3 Short-Term Performance of Mergers and Acquisitions

Average abnormal return of cross-border acquisitions of US target firms

Average abnormal return of cross-border acquisitions of target firms from non-US developed
markets
2.50%
2.00%
1.50%
Returns

1.00%
0.50%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%
-1.00%
Event window (days)

Fig. 3.48 AAR over event window (−20, +20) of cross-border acquisitions (US, non-US
developed markets)

Cumulative average abnormal return of cross-border acquisitions of US target firms

Cumulative average abnormal return of cross-border acquisitions of target firms from

non-US developed markets
6.00%

4.00%
Returns

2.00%

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-2.00%
Event window (days)

Fig. 3.49 CAAR over event window (−20, +20) of cross-border acquisitions (US, non-US
developed markets)

3.9 Concluding Observations

The empirical research presents evidence that the market, usually, reacts positively
to the M&A announcements that are not contaminated by any other contempora-
neous firm specific announcements. The study finds evidence that shareholders of
acquiring Indian companies engaging in mergers and acquisitions experience a
statistically significant positive abnormal return on announcement day as well as
statistically cumulative abnormal returns over multi- day event windows. The
empirical findings suggest that mergers and acquisitions result in wealth creation for
shareholders of the Indian acquirers. The gains are significantly positive during the
event windows of 2, 3, 5, 11, and 41 days surrounding the announcement.
Although the positive reaction has been observed in all the subsamples, the stock
return behavior differs. The magnitude of the excess returns is much larger for
cross-border acquisitions, unlisted target firms, cash payment, complete control on
3.9 Concluding Observations 105

the target firm as wholly owned subsidiary and target firms from non-US developed
markets in comparison to that for domestic acquisitions, listed target firms, stock
payment, partial control, and US target firms. These findings are consistent with
other studies on the same subject.
As per the findings of the current study, the most beneficial investment window
for the investors is (−5, 0), as the returns provided to the investors during this
window are maximum. In the case of entire sample, the return is 2.75 % and, for the
cross-border acquisitions, it is 3.06 %. The complete acquisition of target firm as a
wholly owned subsidiary generates maximum return of 3.03 % during event win-
dow (−20, +20). This implies that investors associate information content with
M&A announcements. The M&A can be treated as a tool to augment the wealth of
the shareholders.
Keeping the investment perspective in mind, an investor can earn substantial
returns if he purchases the shares within 5 days before the news of M&A comes to
the market and sells 1 day after the announcement. An investor can also gain if the
shares of the acquiring company are purchased 2 days prior to the announcement
day and sold 2 days after the announcement day. Conclusion may be summed up as
“EARLIER HE SELLS MORE HE GAINS” and “ISSUANCE OF STOCK FOR
M&A IS NOT A GOOD NEWS”.

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Chapter 4
Financial Performance Analysis
of Mergers and Acquisitions

Abstract Mergers and acquisitions (M&A) have long been used as a strategy for
corporate growth and expansion. But, does the financial performance of the
acquiring firm (in long term) really improve following mergers and acquisitions?
This chapter addresses the major questions related to the long-term performance of
the acquiring firm.

Keywords Financial performance Operating performance Liquidity Leverage

Financial ratios

4.1 Introduction

The question of whether M&As improves corporate performance is one that has
been addressed by many researchers. Various accounting studies have examined the
reported financial results to assess post-merger performance of corporates. These
studies (Ravenscraft and Scherer 1987; Switzer 1996; Ramaswamy and Waegelein
2003; Ghosh 2001; Parrino and Harris 1999; Manson et al. 2000; Sharma and Ho
2002; Healy et al. 1992; Yeh and Hoshino 2000; Rahman and Limmack 2004;
Gugler et al. 2003; Ghosh and Jain 2000; Pawaskar 2001; Cosh et al. 1998; Mueller
1986; Ramakrishnan 2008) have focused on the accounting statements of the
acquirers pre-merger and post-merger to observe how financial performance
changes. Studies of mergers and acquisitions in India are very few. Moreover, these
empirical investigations have focused on comparing pre-merger and post-merger
performance on case-to-case basis.
The present chapter seeks to measure the impact of M&A on long-term per-
formance of the acquiring firms. It investigates profitability as well as operating
performance of the acquiring firms. This study uses long-term pre-and post-mergers
and acquisitions financial data to assess firms’ operating performance. Ratio anal-
ysis has been carried out to examine long-term financial performance of the
acquiring firm. The chapter measures and compares the pre-and post-merger and
acquisition financial performance of acquiring companies in terms of profitability,

© Springer Science+Business Media Singapore 2016 109

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6_4
110 4 Financial Performance Analysis of Mergers and Acquisitions

operating efficiency, leverage, and liquidity. A sufficiently long period is required to

analyze and understand the impact of a merger and acquisition since efficiency
improves over a long time horizon. Hence, financial performance of Indian
acquirers for 10 years period—5 years prior to and 5 year subsequent to the
mergers and acquisitions—has been analyzed.
Year 0, i.e., the year of merger and acquisition has been excluded from the
analysis as its inclusion may cause distortions due to change in financial reporting
caused due to adjustments in accounting. In order to provide a holistic view of the
long-term profitability and performance of mergers and acquisition, various
accounting measures have been investigated in the study. This chapter explains
various measures of pre-and post-mergers and acquisitions profitability and oper-
ational efficiency used in the study. To determine the significant difference over pre-
and post-merger and acquisition, two-sample paired t-test has been conducted for
each measure used in the study. The null hypothesis for each test is that the mean
level for the post-merger and acquisition period is not significantly different from
the mean from pre-merger and acquisition period. A positive t-value indicates a
higher mean value for post-merger and acquisition period and vice versa.
The chapter has been organized into six sections. Section 4.2 presents the paired
t-test and the distribution of the sample used in the study. Financial ratios used in
the study to analyze the long-term performance have been discussed in Sect. 4.3.
The discussion on empirical results of paired samples t-test is delineated in
Sect. 4.4. Section 4.5 comprises of analysis of sources of performance of M&A;
this section is divided into Sects. 4.5.1 and 4.5.2 describing the Du Pont analysis
based on operating profit margin and operating cash flow ratio respectively.
Section 4.6 contains the concluding observations.

4.2 Paired Samples t-Test

The crucial research question that is investigated by examining the major fourteen
financial ratios is: “Is post-merger and acquisition performance of acquiring firm
better than the performance of the acquiring firm in pre-merger and acquisition
period?” The selected accounting ratios for sample companies over a period of
5 years before (−5, −4, −3, −2, −1) and 5 years after (1, 2, 3, 4, 5) the merger and
acquisition event have been calculated. Paired samples t-test has been carried out on
14 ratios to assess the difference in post-M&A performance and pre-M&A perfor-
mance. The paired samples t-test compares the mean of two variables from the same
group. It determines whether the difference between the means of the two variables is
significantly different from zero. In this study, the two variables are mean ratios of
the acquired firm before and after the merger and acquisition. The paired samples
t-test, thus, determines whether there is significant change in the variable ‘pre and
post-merger and acquisition’. The paired samples t-test compares the mean of two
variables before and after an event from the same group. The performance of those
firms has been analyzed whose data is available pre-M&A and post-M&A. The
4.2 Paired Samples t-Test 111

performance of 14 ratios has been analyzed for 1 year pre-M&A and post-the event,
i.e., M&A (−1, 1), 1 year pre- and 2 year mean post-M&A (−1, 2), 1 year pre-M&A
and 3 year mean post-M&A (−1, 3), 1 year pre-M&A and 4 year mean post-M&A
(−1, 4), 1 year pre- and 5 year mean post-M&A (−1, 5). In addition, mean of 2 years
pre-M&A and post-M&A (−2, 2), mean of 3 years pre-M&A and post-M&A (−3,
3), mean of 4 years pre-M&A and post-M&A (−4, 4) and mean of 5 years pre-M&A
and post-M&A (−5, 5) have been compared.
A positive and significant difference in profitability ratios and efficiency ratios
indicates a better performance for the post-M&A period. A negative and significant
difference in expense ratios indicates operating economies for the post-M&A period.
Table 4.1 presents the distribution of sample across years. It is evident from the
table that the maximum 35 % of mergers and acquisition took place in the year
2007. The final sample consists of 61.3 % firms in manufacturing sector, 24.6 %
firms in services sector, 8.4 % in construction and real estate, 5.7 % in mining,
electricity and diversified sector as exhibited in Fig. 4.1.

Table 4.1 Distribution of sample across years, 2003–2015

Year Number of mergers and acquisitions studied Data on ratios available
2003 29 (5.9 %) 22 (5.5 %)
2004 25 (5.1 %) 20 (5 %)
2005 49 (10 %) 36 (9 %)
2006 109 (22.2 %) 91 (22.6 %)
2007 172 (35 %) 144 (35.8 %)
2008 90 (18.3 %) 77 (19.2 %)
2009 4 (0.8 %) 3 (0.7 %)
2010 4 (0.8 %) 3 (0.7 %)
2011 5 (1 %) 3 (0.7 %)
2012 1 (0.2 %) 1 (0.2 %)
2013 2 (0.4 %) 2 (0.5 %)
2014 1 (0.2 %) 0 (0 %)
2015 1 (0.2 %) 0 (0 %)
Total 491 (100 %) 402 (100 %)

Fig. 4.1 Sector-wise 3.7% 2.0%

distribution of sample 8.4%
Manufacturing

Services

Construction and real

24.6% estate
Electricity
61.3%
Diversified
112 4 Financial Performance Analysis of Mergers and Acquisitions

Extreme values have been excluded from the data to deal with the influence of
outliers. After analyzing data for outliers, the values beyond three standard devi-
ations have been dropped from the analysis. Only those firms have been retained in
analysis for which data is available in pairs relating to before and after M&A. The
mean difference of 14 ratios has been analyzed in following pairs:
(i) 1 year pre-M&A and post-M&A (−1, 1).
(ii) 1 year pre-M&A and 2 years post-M&A (−1, 2).
(iii) 1 year pre-M&A and 3 year mean post-M&A (−1, 3).
(iv) 1 year pre-M&A and 4 years mean post-M&A (−1, 4).
(v) 1 year pre-M&A and 5 years mean post-M&A (−1, 5).
(vi) 2 years mean pre-M&A and post-M&A (−2, 2).
(vii) 3 years mean pre-M&A and post-M&A (−3, 3).
(viii) 4 years mean pre-M&A and post-M&A (−4, 4).
(ix) 5 years mean pre-M&A and post-M&A (−5, 5).
Due to these inconsistencies, the number of firms utilized for long-term analysis
of financial performance (ratio analysis) varied, i.e., 402 firms for 1 year before and
after M&A (−1,1), 401 firms for 1 year before and 2 year mean after M&A (−1, 2),
391 firms for 1 year before and 3 year mean after M&A (−1, 3), 361 firms for
1 year before and 4 year mean after M&A (−1, 4), 351 firms for 1 year before and
5 year mean after M&A (−1, 5), the mean of 2 years before and after M&A (−2, 2)
of 401 firms, the mean of 3 years before and after M&A (−3, 3) of 398 firms, the
mean of 4 years before and after M&A (−4, 4) of 387 firms, the mean of 5 years
before and after M&A (−5, 5) of 360 firms have been analyzed.

4.3 Financial Ratios

Ratio analysis is an effective technique to assess the financial performance. Given

this fact, the technique has been used in the study. The improvement in post-M&A
period can arise from various sources such as better operating margins, greater assets
productivity or lower labor costs etc. Hence, primarily fourteen ratios pertaining to
profitability, efficiency, leverage and liquidity have been used in the study.

4.3.1 Profitability Ratios

Profitability has been measured in terms of rate of return (ROR) on investment and
sales, and on the two major concepts of investment, namely, return on equity funds
(ROE), and return on capital employed (ROCE). These rates have been computed
based on average assets, average capital employed, and average equity funds; the
average is based on their respective values at the beginning and end of the year.
4.3 Financial Ratios 113

Return on the basis of sales has been computed in terms of operating profit
margin based on sales (OPMS), operating profit margin based on assets (OPMA)
and net profit margin (NPM). Better margin in post-merger and acquisition period
indicates the managerial ability to realize the expected synergies and run the
business profitably. Actual economic gains from assets are captured by operating
cash flows. The change in acquisition-related performance of the acquirer is
examined by comparing operating performance before and after the acquisition. For
this purpose, operating cash flow profit ratio (OCFR) based on sales as well as
assets has also been calculated. This definition of operating performance is not
affected by depreciation, goodwill, etc. (Healy et al. 1992).

4.3.1.1 Return on Equity Funds (ROE)

ROE indicates the return for the equity owners.

Profit after taxes  preference dividend

ROE ¼ ð4:3:1Þ
Average equity funds

Equity fund = paid-up equity capital + reserves and surpluses + retained profit −
accumulated losses.

4.3.1.2 Return on Capital Employed (ROCE)

ROCE also determines how efficiently the financial resources are deployed by
acquiring companies. ROCE indicates how efficiently the long-term funds of the
owners and lenders are being used and focus directly on operating efficiency.

Profit before interest and taxes ðPBITÞ

ROCE ¼ ð4:3:2Þ
Average long  term assets used þ net working capital

Capital work-in-progress has been excluded.

4.3.1.3 Operating Profit Margin (OPM)

OPM based on sales indicates the magnitude of operating profit in terms of sales.

Profit before interest and taxes ðPBITÞ  non operating income

OPMS ¼
Net sales
ð4:3:3Þ
114 4 Financial Performance Analysis of Mergers and Acquisitions

The level of economic benefits generated by assets is represented by operating

profits. In addition to operating profit margin on sales, operating profit ratio based
on assets has also been calculated. Operating profit margin based on assets has also
been calculated by dividing pretax operating profits with average operating assets to
measure change in post-M&A performance. This measure can be compared across
time and firms. Total assets have been used net of preliminary expenses, fictitious
assets, and miscellaneous expenses.

Profit before interest and taxes ðPBITÞ  nonoperating income

OPMA ¼
Average of ðtotal assets  preliminery expenses  fictitious assets  miscell:expensesÞ
ð4:3:4Þ

The change in operating performance attributable to M&A is the comparison of

the post-M&A and pre-M&A OPM.

4.3.1.4 Net Profit Margin (NPM)

NPM determines the relationship of reported net profit after taxes to sales.

Profit after taxes

NPM ¼ ð4:3:5Þ
Net sales

4.3.1.5 Operating Cash Flow Ratio Based on Sales (OCFRS)

Operating cash flow ratio based on sales OCFRS has been calculated as

PBIT  nonoperating income þ depreciation þ amortisation þ any non cash expenditure

OCFRS ¼
Net sales
ð4:3:6Þ

4.3.1.6 Operating Cash Flow Ratio Based on Assets (OCFRA)

Pretax operating cash flows scaled by assets are used to measure the change in
performance measures.

PBIT  nonoperating income þ depreciation þ amortisation þ any non cash expenditure

OCFRA ¼
Average of ðtotal assets  preliminery expenses  fictitious assets  miscell:expensesÞ
ð4:3:7Þ
4.3 Financial Ratios 115

4.3.2 Expense Ratios

In addition to above profitability ratios, four expense ratios have been calculated to
measure various operating economies expected from mergers and acquisitions. The
source of operating economies could be realized through reduced manufacturing
cost due to large scale, labor expense, marketing expenses, and research and
development expenses.
Expense ratios, namely, cost of goods sold ratio (COGR), labor-related expense
ratio (LRE), selling, general and administration expense ratio (SRE), and research
and development expense ratio (RDE) have been analyzed. In case of expense
ratios, a negative t-value indicates a lower mean value for post-merger and
acquisition period. In other words, a lower mean value of expense ratio in
post-M&A period reveals that mergers and acquisitions have generated expected
economies.

4.3.2.1 Cost of Goods Sold Ratio (COGR)

Cost of goods sold

CGSR ¼ ð4:3:8Þ
Net sales

4.3.2.2 Labor Related Expense Ratio (LRE)

Labour related expenses

LRE ¼ ð4:3:9Þ
Net sales

4.3.2.3 Selling, General, and Administration Expense Ratio (SRE)

Selling; general and administration expenses

SGR ¼ ð4:3:10Þ
Net sales

4.3.2.4 Research and Development Expense Ratio (RDE)

R&D expenses
RDE ¼ ð4:3:11Þ
Net sales
116 4 Financial Performance Analysis of Mergers and Acquisitions

4.3.3 Efficiency Ratios

Efficiency ratios assess the operational performance of acquirers before and after
M&A. Efficiency in utilization of resources has been determined on the basis of
three dimensions, namely, total assets turnover ratio (TATR), fixed assets turnover
ratio (FATR), and current assets turnover ratio (CATR). High turnover ratio in
post-merger and acquisition period is indicative of better utilization of available
resources whereas low turnover ratio in post-merger and acquisition period shows
presence of idle capacity and under-utilization of available resources.
Total assets turnover indicates the efficiency with which the firm uses its assets
to generate sales. This measure is probably of the greatest interest to management
because it indicates whether firm’s operations have been financially efficient
(Gitman 2009, p. 82) Accordingly, total assets turnover ratio (TATR) has been
computed by dividing net sales to average total assets. Total assets have been used
net of preliminary expenses, fictitious assets and miscellaneous expenses. Fixed
assets turnover ratio (FATR) has been computed by dividing net sales by average
fixed assets. Current assets turnover ratio (CATR) has been computed by dividing
net sales by average current assets.

4.3.3.1 Total Assets Turnover Ratio (TATR)

Total assets turnover ratio (TATR) has been computed by dividing net sales by
average total assets. Total assets have been used net of preliminary expenses,
fictitious assets, and miscellaneous expenses.

Net Sales
TATR ¼
Average of ðtotal assets  preliminery expenses  fictitious assets  miscell:expenses
ð4:3:12Þ

4.3.3.2 Fixed Assets Turnover Ratio (FATR)

Fixed assets turnover ratio (FATR) has been computed by dividing net sales by
average fixed assets.

Net sales
FATR ¼ ð4:3:13Þ
Average fixed assets
4.3 Financial Ratios 117

4.3.3.3 Current Assets Turnover Ratio (CATR)

Current assets turnover ratio (CATR) has been computed by dividing net sales by
average current assets.

Net sales
CATR ¼ ð4:3:14Þ
Average current assets

4.3.4 Liquidity Ratio

Liquidity has been assessed by current ratio (CR). CR takes into account five items
of current assets, i.e., cash and bank balances, sundry debtors, inventories, loans
and advances, and stock of other current assets.

Current assets
CR ¼ ð4:3:15Þ
Current liabilities

4.3.5 Leverage Ratio

Leverage ratios are based on comprehensive measure of total external obligations

(long-term debt plus current liabilities) to total assets. The total debt to assets
(DA) ratio shows the proportion of a company’s assets which are financed through
external borrowing.

Total debt
DA ¼ ð4:3:16Þ
Total assets

4.4 Empirical Results of Paired Samples t-Test

The objective of the present chapter is to compare the financial performance of

acquirers before and after M&A in terms of profitability, efficiency, expenses,
liquidity, and leverage. It is hypothesized that acquirers have posted better
post-M&A financial performance vis-à-vis pre-M&A performance. The financial
performance is based on the four major groups of ratios, namely, profitability,
efficiency, leverage, and liquidity.
118 4 Financial Performance Analysis of Mergers and Acquisitions

4.4.1 Analysis of Pre-M&A and Post-M&A Profitability

Ratios

4.4.1.1 Profitability Ratios Related to Investment

It is hypothesized that profitability position of acquirers has improved during

post-M&A period. The paired sample t-test values for comparison of means of
profitability ratio based on investment (ROE and ROCE) before and after M&A
have been presented in Table 4.2. The relevant data contained in the table shows
that mean profitability in terms of rate of return on investment (ROCE and ROE)
has shown improvement in post-M&A period. The paired sample t-test for com-
parison of means (−1, 7) reveals that ROE exhibits increase of 2.92 % (significant
at 5 %) during post-M&A period. Positive mean difference in ROE has been
observed for majority (61.1 %) of acquirers. As expected, the profitability of the
acquirers has increased over post-M&A period. It is evident from Table 4.2 that
ROCE has improved to the extent of more than 7 % after M&A. Paired t-test has
identified the significant positive difference in mean ROCE after and before M&A

Table 4.2 Paired samples t-test of profitability ratios (related to investment) pre-M&A and
post-M&A
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
A: Return on equity (ROE)
(−1, +1) 16.6 16.03 0.57 192:210 0.706 401 0.480
(−1, +2) 15.9 15.4 0.5 187:214 0.658 400 0.511
(−1, +3) 14.94 14.89 0.05 172:219 0.054 390 0.957
(−1, +4) 15.19 12.45 2.74 220:141 1.97a 360 0.049
(−1, +5) 15.43 12.51 2.92 201: 150 2.28a 350 0.023
(−2, +2) 15.85 15.68 0.18 213:188 0.212 400 0.832
(−3, +3) 14.63 13.94 0.69 214:187 0.659 397 0.510
(−4, +4) 13.54 13.39 0.15 199:187 0.131 386 0.896
(−5, +5) 14.31 12.54 1.77 176:184 1.616 359 0.107
B: Return on capital employed (ROCE)
(−1, +1) 21.6 19.1 2.5 229:173 3.74b 401 0.000
(−1, +2) 22.1 18.6 3.5 223:178 3.86b 400 0.000
(−1, +3) 21.8 19.5 2.3 216:175 2.28a 390 0.023
(−1, +4) 23.7 18.3 5.4 203:158 5.29b 360 0.000
(−1, +5) 19.2 18.2 1.0 162:188 2.37a 350 0.018
(−2, +2) 21.6 19.3 2.3 227:174 2.87b 400 0.004
(−3, +3) 22.87 18.47 4.4 222:176 4.35b 397 0.000
(−4, +4) 23.16 16.19 7.3 225:162 5.08b 386 0.000
(−5, +5) 23.41 17.41 6.0 218:142 5.08b 359 0.000
a, b
Denote significance at 5 and 1 %, respectively
4.4 Empirical Results of Paired Samples t-Test 119

for all the pairs compared. The percentage increase is 2.5, 2.3, 4.4, 7.3, and 6 %
during 1, 2, 3, 4, and 5 years, respectively. Positive mean difference in ROCE has
been observed in the case of more than two-third acquirers for all the pairs.

4.4.1.2 Profitability Ratios Related to Sales

Table 4.3 presents the paired sample t-test for comparison of means of profitability
ratio based on sales (OPMS and NPM) before and after M&A. Operating profit
margin based on assets has also been presented in the Table.

Table 4.3 Paired samples t-test of pre-M&A and post-M&A profitability ratios (related to sales)
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
A: Operating profit margin based on sales (OPMS)
(−1, +1) 14.39 12.76 1.63 234:168 2.19a 401 0.029
(−1, +2) 14.60 12.87 1.73 212:189 2.34a 400 0.020
(−1, +3) 13.57 13.43 0.14 199:192 0.19 390 0.844
(−1, +4) 14.14 13.61 0.53 183:178 0.78 360 0.437
(−1, +5) 14.43 13.17 1.26 177:174 1.23 350 0.222
(−2, +2) 13.3 12.1 1.2 218:183 1.81 400 0.071
(−3, +3) 13.5 11.4 2.1 213:185 1.97a 397 0.049
(−4, +4) 14.01 12.33 1.68 208:179 0.403 386 0.687
(−5, +5) 13 9 4 198:162 2.06a 359 0.041
B: Operating profit margin based on assets (OPMA)
(−1, +1) 10.38 10.22 0.16 206:196 0.434 401 0.665
(−1, +2) 10.26 9.49 0.77 196:205 1.97a 400 0.049
(−1, +3) 9.84 9.46 0.38 191:200 0.939 390 0.348
(−1, +4) 9.78 9.1 0.68 185:176 1.67 360 0.095
(−1, +5) 9.15 8.66 0.49 181:170 1.02 350 0.311
(−2, +2) 9.8 9 0.8 208:193 2.01a 400 0.046
(−3, +3) 9.8 8.85 0.95 203:195 2.08a 397 0.039
(−4, +4) 9.58 8.71 0.87 211:176 1.79 386 0.075
(−5, +5) 9.36 9.09 0.27 171:189 0.605 359 0.546
A: Net profit margin (NPM)
(−1, +1) 9.66 9.25 0.41 229:173 0.597 401 0.551
(−1, +2) 9.59 9.53 0.06 208:193 0.109 400 0.913
(−1, +3) 10.36 9.02 1.34 189:202 1.164 390 0.245
(−1, +4) 10.06 9.37 0.7 174:187 0.806 360 0.421
(−1, +5) 10.79 8.75 2.04 187:164 1.286 350 0.199
(−2, +2) 9.8 8.6 1.2 209:192 1.71 400 0.081
(−3, +3) 8.4 8.3 0.1 210:188 0.11 397 0.916
(−4, +4) 10.14 6.27 3.87 208:179 1.22 386 0.225
(−5, +5) 7.01 6.52 0.49 194:166 0.312 359 0.755
a, b
Denote significance at 5 and 1 %, respectively
120 4 Financial Performance Analysis of Mergers and Acquisitions

The relevant data contained in the Table shows that NPM has exhibited
impressive improvement for all the pairs. Mean NPM has increased by 2.04 %
during 1 year before and 5 years after M&A. The positive mean difference has been
observed in NPM for all the pairs compared. Positive mean difference has been
found in the case of 53 % acquirers.
The positive mean difference of 1.63 and 1.73 % has been observed in OPM
based on sales for 1 and 2 years before and after M&A respectively. One significant
finding may be noted from the relevant data presented in Table 4.3 that operating
profit margin based on assets (OPMA) has shown only marginal improvement (up
to 1 %). The findings may be attributed to the advent of recessionary conditions
existing since 2008.
Table 4.4 shows that the paired sample t-test for comparison of means provides a
test-statistics of 2.48 (p = 0.014 < 0.05), 2.36 (p = 0.019 < 0.05), and 2.28
(p = 0.023 < 0.05) for OCFRS for 1 year pre- and 3 year mean post-M&A dif-
ference, 1 year pre- and 4 year mean post-M&A difference and 1 year pre- and
5 year mean post-M&A difference, respectively. Further, the mean difference is
positive for all the pairs. The firms’ performance appears to have improved sig-
nificantly in fifth year after M&A as indicated by positive and significant mean
difference post-M&A. The improvement seems to be higher as the years progress

Table 4.4 Paired samples t-test of pre-M&A and post-M&A profitability ratios (related to sales)
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
A: Operating cash flow ratio based on sales (OCFRS)
(−1, +1) 15.47 14.98 0.49 232:170 1.26 401 0.208
(−1, +2) 18.28 17.74 0.54 204:197 0.96 400 0.340
(−1, +3) 20.11 16.92 3.19 200:191 2.48a 390 0.014
(−1, +4) 18.74 16.37 2.37 181:180 2.36a 360 0.019
(−1, +5) 21.59 16.79 4.81 181:170 2.28a 350 0.023
(−2, +2) 17.6 16.98 0.62 207:194 1.08 400 0.282
(−3, +3) 18.58 16.71 1.87 205:193 2.03a 397 0.043
(−4, +4) 21.5 11.55 9.9 189:198 1.52 386 0.130
(−5, +5) 18.6 15.1 3.5 180:180 1.93 359 0.054
B: Operating cash flow ratio based on assets (OCFRA)
(−1, +1) 13 12.76 0.24 200:202 0.46 401 0.65
(−1, +2) 12.91 12.49 0.42 198:203 1.07 400 0.29
(−1, +3) 13 12.1 0.9 187:204 1.87 390 0.062
(−1, +4) 12.61 12.20 0.41 170:191 0.998 360 0.319
(−1, +5) 12.49 12.10 0.39 150:201 0.682 350 0.496
(−2, +2) 12.78 12.18 0.06 191:210 1.44 400 0.15
(−3, +3) 12.46 12.31 0.15 186:212 0.34 397 0.74
(−4, +4) 12.14 12.04 0.1 182:205 0.211 386 0.833
(−5, +5) 12.32 11.77 0.6 158:202 1.16 359 0.247
a, b
Denote significance at 5 and 1 %, respectively
4.4 Empirical Results of Paired Samples t-Test 121

post-M&A. This validates our hypothesis that M&A in India have resulted in
improved long-term operating performance.
The paired test is also carried out for operating cash flow ratio based on assets.
The test statistic related to OCFR based on assets is insignificant. This indicates that
the mean difference in OCFR based on assets post- and pre-M&A is due to chance
and it cannot be inferred that M&A has led to a significant improvement in
acquirers’ OCFR based on assets. Perhaps, longer time for larger assets base fol-
lowing post-M&A is required to generate expected returns.

4.4.1.3 Profitability Ratios Related to Expenses

Other profitability ratios related to sales are expense ratios; they are computed
dividing expenses by sales. Four major expense ratios, namely, COGR, LRE, SGR,
and RDE have been calculated to assess the impact of M&A on profitability of
acquirers. The empirical results of expense ratios have been presented in Table 4.5.
The significant finding, as revealed by expense ratios, is that nearly two-third
(66 %) acquirers have achieved economy in their selling, general, and adminis-
trative expenses in third, fourth year, and fifth years post-M&A as reflected in

Table 4.5 Paired samples t-test of pre-M&A and post-M&A expense ratios
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
A: COGR
(−1, +1) 69.02 69.06 0.03 224:178 −0.064 401 0.949
(−1, +2) 70.50 70.54 −0.04 224:177 −0.087 400 0.931
(−1, +3) 71.04 71.37 −0.33 222:169 −0.625 390 0.533
(−1, +4) 72.02 73.71 −1.69 201:160 −1.17 360 0.245
(−1, +5) 72.7 74.9 −2.28 198:153 −1.05 350 0.294
(−2, +2) 71.3 71.5 −0.18 218:183 −0.417 400 0.677
(−3, +3) 71.4 71.6 −0.2 237:161 −0.280 397 0.779
(−4, +4) 72.26 73.06 −0.8 239:148 −0.402 386 0.688
(−5, +5) 73.05 72.74 0.31 225:135 0.303 359 0.762
B: LRE
(−1, +1) 8.36 9.06 −0.7 114:288 −4.9a 401 0.000
(−1, +2) 9.75 9.86 −0.11 233:168 −0.690 400 0.490
(−1, +3) 10.03 10.59 −0.56 217:174 −1.705 390 0.089
(−1, +4) 9.83 10.43 −0.6 199:162 −1.98a 360 0.049
(−1, +5) 10.28 10.80 −0.52 187:164 −0.87 350 0.383
(−2, +2) 10.01 10.12 −0.11 167:234 −0.61 400 0.544
(−3, +3) 11.03 11.12 −0.09 213:185 −0.334 397 0.738
(−4, +4) 12.14 12.04 0.1 200:187 0.163 386 0.870
(−5, +5) 10.64 11.16 −0.52 195:165 −0.929 359 0.353
(continued)
122 4 Financial Performance Analysis of Mergers and Acquisitions

Table 4.5 (continued)

Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
D: SGR
(−1, +1) 5.59 6.2 −0.61 184:218 −6.8b 401 0.000
(−1, +2) 5.98 6.74 −0.75 176:225 −6.5b 400 0.000
(−1, +3) 5.87 7.25 −1.38 155:236 −4.61b 390 0.000
(−1, +4) 5.97 7.42 −1.45 133:228 −5.26b 360 0.000
(−1, +5) 5.96 7.35 −1.39 120:231 4.71b 350 0.000
(−2, +2) 6.21 6.75 −0.54 160:240 −4.48b 400 0.000
(−3, +3) 6.45 7.55 −1.1 151:248 −4.86b 397 0.000
(−4, +4) 7.73 8.44 −1.1 134:253 −0.66 386 0.500
(−5, +5) 4.87 7.73 −2.86 226:134 −0.502 359 0.616
E: RDE
(−1, +1) 1.3 1.6 −0.3 184:218 −0.458 401 0.647
(−1, +2) 1.02 1.34 −0.32 287:114 −3.39b 400 0.001
(−1, +3) 1.03 1.28 −0.25 276:135 −2.89a 390 0.004
(−1, +4) 1.11 1.36 −0.25 216:145 −2.64a 360 0.009
(−1, +5) 1.18 1.34 −0.16 199:152 1.74 350 0.082
(−2, +2) 1.05 0.96 −0.09 171:230 −1.48 400 0.141
(−3, +3) 0.74 0.72 0.02 188:210 0.34 397 0.734
(−4, +4) 1.17 1.51 0.34 189:198 −3.17b 386 0.002
(−5, +5) 1.48 1.55 −0.07 195:165 −0.577 359 0.565
a, b
Denote significance at 5 and 1 %, respectively

significant negative difference of SGR. The significant negative difference in SGR

may be due to the marketing economies realized post-M&A. Higher volume of
sales, avoidance of duplication of distribution, and advertising expenses may be the
reason.
Acquirers also seem to have achieved operational economies in their manufac-
turing expenses, as reflected in negative difference of COGR for almost all pairs of
comparison. The negative difference in COGR may be due to the economies
of scale realized, post-M&A. Higher volume of raw material and large scale of
economies post-M&A may be the reason.
The relevant data in Table 4.5 also reveals that the acquirers have also been able
to gain economy in research and development expenses (RDE) in post-M&A period
(reflected in negative mean difference); perhaps, this has been achieved due to the
elimination of duplicate efforts in research and development at the level of each firm
(acquirer and target firm) after M&A. There is significant negative difference in the
labor expense ratio in the first and fourth year post-M&A. Labor cost appears to
have reduced post-M&A in comparison to before M&A as indicated by negative
difference for all the pairs.
Paired t-test has also identified negative difference in terms of other expense
ratios, i.e., COGR, LRE, and SGR in all the pairs before and after M&A.
4.4 Empirical Results of Paired Samples t-Test 123

4.4.2 Analysis of Pre-M&A and Post-M&A Efficiency

Ratios

Efficiency ratios have been used to assess the operational performance of acquirers
before and after M&A.
Analysis has been carried out primarily on the basis of assets turnover ratios
(fixed, total, and current). It is hypothesized that efficiency of acquirers has shown
improvement in utilization of resources after M&A.
The relevant data contained in Table 4.6 suggests that the TATR and CATR of
both period (before and after M&A) is less than one for the entire period of study

Table 4.6 Paired samples t-test of pre-M&A and post-M&A efficiency ratios
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
A: FATR
(−1, +1) 4.43 4.06 0.37 233:169 3.52b 401 0.000
(−1, +2) 4.93 4.47 0.46 228:174 3.12b 400 0.002
(−1, +3) 5.14 4.51 0.63 223:168 3.74b 390 0.000
(−1, +4) 4.64 4.00 0.64 200:161 4.7a 360 0.000
(−1, +5) 4.51 4.17 0.34 186:165 2.37a 350 0.018
(−2, +2) 4.53 4.22 0.31 234:167 2.44a 400 0.015
(−3, +3) 4.84 4.37 0.47 235:163 2.75b 397 0.006
(−4, +4) 5.4 4.6 0.8 227:160 3.31b 386 0.001
(−5, +5) 5.15 4.15 1 219:141 4.63b 359 0.000
B: TATR
(−1, +1) 0.85 0.847 0.003 191:211 0.021 401 0.983
(−1, +2) 0.78 0.84 −0.06 168:233 −0.365 400 0.000
(−1, +3) 0.82 0.89 −0.07 154:237 −4.98b 390 0.000
(−1, +4) 0.80 0.87 −0.07 137:224 −4.72b 360 0.000
(−1, +5) 0.84 0.90 −0.06 129:222 −3.68b 350 0.000
(−2, +2) 0.82 0.87 −0.05 144:257 −3.53b 400 0.000
(−3, +3) 0.82 0.84 −0.02 150:238 −1.5 397 0.135
(−4, +4) 0.82 0.89 −0.07 154:233 −3.38b 386 0.001
(−5, +5) 0.81 0.87 −0.06 145:215 −3.15b 359 0.002
C: CATR
(−1, +1) 0.88 0.87 0.01 190:212 0.73 401 0.466
(−1, +2) 0.85 0.87 −0.02 184:217 −1.93 400 0.055
(−1, +3) 0.87 0.92 −0.05 182:209 −3.11b 390 0.002
(−1, +4) 0.86 0.92 −0.06 160:201 −4.55b 360 0.000
(−1, +5) 0.74 0.93 −0.19 128:223 −7.19b 350 0.000
(−2, +2) 0.89 0.91 −0.02 174:227 −1.80 400 0.072
(−3, +3) 0.91 0.87 −0.04 159:239 −2.27a 397 0.024
(−4, +4) 0.88 0.94 −0.06 152:235 −3.18b 386 0.002
(−5, +5) 0.731 0.727 0.004 225:135 0.303 359 0.762
a, b
Denote significance at 5 and 1 %, respectively
124 4 Financial Performance Analysis of Mergers and Acquisitions

(10 years); evidently, the TATR and CATR, prima-facie, do not seem to be sat-
isfactory and is indicative of under-utilization of resources before as well as after
M&A.
In contrast, fixed assets turnover ratio (FATR) has presented better picture of
efficiency in utilization of fixed assets before as well as after M&A. There is an
improvement, duly corroborated by paired t-test showing significant positive dif-
ference in FATR for all the pairs. Moreover, the positive mean difference in FATR
has been observed in the case of majority (56 %) of acquiring firms.

4.4.3 Analysis of Pre-M&A and Post-M&A Liquidity Ratios

A comparison has been made between liquidity position before and after M&A,
prima-facie, Indian acquiring firms seem to have adequate and satisfactory level of
liquidity position before as well as after M&A as reflected in mean current ratio.
The corporate firms in India have access to short-term borrowings in the form of
bank borrowings, overdraft, and cash credit limits from banks (Jain and Yadav
2000). These facilities enable management to operate on lesser margin of working
capital reflected in lower current ratio. The mean current ratio is quite high 2.6,
2.87, 2.96, 3.12, and 2.93 before 1, 2, 3, 4, and 5 years respectively. The acquirer
firms seem to have excessive inventories for the current requirements before M&A.
High current ratio is indicative of slack management practices and poor credit
management in terms of overextended accounts receivable also.
In light of this, acquiring firms have managed liquidity better during post-M&A
phase, as reflected in significant negative difference implying decrease in CR which
seems to be in order/desirable, given the fact that current ratio was higher than
normative norm of 2:1. Mean current ratio for 5 year before M&A is 2.74 which
quite high; it has reduced to 2.19 in fifth year after M&A (Table 4.7). The negative
difference is significant; three-forth (75 %) firms have negative current ratio. The
t-test has also revealed significant negative difference for all the pairs of mean
current ratio (Table 4.7). On the basis of empirical results, it may be concluded that
liquidity and credit management practices have improved significantly after M&A.

4.4.4 Analysis of Pre-M&A and Post-M&A Leverage Ratios

Total debt constitutes a significant source of financing total assets of acquiring firms
as corroborated by debt to total assets ratio presented in Table 4.8; evidently, DA,
prima-facie, seems to be satisfactory before as well as after M&A. Paired t-test has
not identified any considerable change in leverage (DA) post-M&A. As expected,
there is no change in the leverage of the acquirers over the post-M&A period. Based
on these findings, it may be concluded that M&A has no impact on the leverage of
acquiring firms before and after M&A.
4.5 Analysis of Sources of Performance 125

Table 4.7 Paired samples t-test of pre-M&A and post-M&A liquidity ratios
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
(−1, +1) 2.5 2.6 −0.1 192:210 −1.84 401 0.067
(−1, +2) 2.6 2.7 −0.1 193:208 −2.34a 400 0.020
(−1, +3) 2.6 2.8 −0.2 184:207 −3.28b 390 0.001
(−1, +4) 2.4 2.6 −0.2 154:207 −3.43b 360 0.001
(−1, +5) 2.19 2.74 −0.55 122:229 −7.35b 350 0.000
(−2, +2) 2.63 2.87 −0.24 184:217 −3.83b 400 0.000
(−3, +3) 2.68 2.96 −0.32 169:229 −3.6b 397 0.000
(−4, +4) 2.68 3.12 −0.44 142:245 −5.07b 386 0.000
(−5, +5) 2.42 2.93 −0.51 110:250 −6.87b 359 0.000
a, b
Denote significance at 5 and 1 %, respectively

Table 4.8 Paired samples t-test of pre-M&A and post-M&A leverage ratios
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
(−1, +1) 0.51 0.50 0.01 230:172 0.49 401 0.622
(−1, +2) 0.514 0.507 0.007 234:167 1.17 400 0.244
(−1, +3) 0.51 0.506 0.004 221:170 0.639 390 0.523
(−1, +4) 0.56 0.50 0.06 223:138 4.27b 360 0.000
(−1, +5) 0.52 0.51 0.01 207:144 1.67 350 0.096
(−2, +2) 0.52 0.50 0.02 241:160 3.27b 400 0.001
(−3, +3) 0.52 0.51 0.01 230:168 1.10 397 0.271
(−4, +4) 0.52 0.51 0.01 219:168 2.05a 386 0.041
(−5, +5) 0.53 0.52 0.01 199:161 1.26 359 0.207
a, b
Denote significance at 5 and 1 %, respectively

4.5 Analysis of Sources of Performance

The improvement in the period, following M&A, can arise from various sources
such as better operating margins, greater assets productivity, lower labor costs, or
higher volume or higher sales, etc. In order to ascertain the sources of the better
long-term post-M&A returns, the measure of operating performance has been
decomposed into its constituents in terms of Du Pont analysis. Du Pont analysis
indicates that the profitability has improved either by improving profit margin per
rupees of sales or by generating more sales revenue per rupee of investment.
126 4 Financial Performance Analysis of Mergers and Acquisitions

4.5.1 Du Pont Analysis Based on OPM

The operating profit margin, based on assets, can be decomposed into operating
profit margin based on sales and total assets turnover ratio. The operating profit
margin based on assets (OPMA) calculated as operating profit (OP) divided by
average total assets as per Eq. (4.5.1) may be decomposed into the operating profit
margin based on sales (OPMs) and the total assets turnover ratio as per Eq. (4.5.2)

PBIT  nonoperating income

OPMA ¼ ð4:5:1Þ
Average total assets

or

PBIT  nonoperating income net sales

OPMA ¼ ð4:5:2Þ
net sales Average total assets

where

PBIT  nonoperating income

¼ operating profit margin based on sale ðOPMS Þ
net sales

and

Net sales
¼ Total assets turnover ratio ðTATRÞ
Average total assets

In Du Pont terms

OPMA ¼ OPMS TATR ð4:5:3Þ

The operating profit margin based on sales depicts the operating profit obtained
through each rupee of sales. Total assets turnover indicates the efficiency with
which the firm uses its assets to generate sales. The relevant data contained in
Table 4.9 shows that the operating profit margin based on sales have improved
post-M&A. As we have divided the operating profit of the acquirer with the net
sales of the acquirer, the significant post-M&A operating margin indicates that the
acquirer appears to have generated higher operating profit per unit net sales
post-M&A. The analysis indicates the possible increase in market power due to
M&A in India. The better operating margin seems to be due to the lower costs as a
result of economies of scale. Negative t-values identified by paired sample t-test on
expense ratio (Table 4.5) also corroborate this finding. Further, the evidence of
increase in the operating profit margin based also supports these results.
4.5 Analysis of Sources of Performance 127

Table 4.9 Paired samples t-test of pre-M&A and post-M&A constituent ratios in terms of Du
Pont
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
A: Operating profit margin based on assets (OPMA)
(−1, +1) 10.38 10.22 0.16 206:196 0.434 401 0.665
(−1, +2) 10.26 9.49 0.77 196:205 1.97* 400 0.049
(−1, +3) 9.84 9.46 0.38 191:200 0.939 390 0.348
(−1, +4) 9.78 9.1 0.68 185:176 1.67 360 0.095
(−1, +5) 9.15 8.66 0.49 181:170 1.02 350 0.311
(−2, +2) 9.8 9 0.8 208:193 2.01* 400 0.046
(−3, +3) 9.8 8.85 0.95 203:195 2.08* 397 0.039
(−4, +4) 9.58 8.71 0.87 211:176 1.79 386 0.075
(−5, +5) 9.36 9.09 0.27 171:189 0.605 359 0.546
B: Operating profit margin based on sales (OPMS)
(−1, +1) 14.39 12.76 1.63 234:168 2.19a 401 0.029
(−1, +2) 14.60 12.87 1.73 212:189 2.34a 400 0.020
(−1, +3) 13.57 13.43 0.14 199:192 0.19 390 0.844
(−1, +4) 14.14 13.61 0.53 183:178 0.78 360 0.437
(−1, +5) 14.43 13.17 1.26 177:174 1.23 350 0.222
(−2, +2) 13.3 12.1 1.2 218:183 1.81 400 0.071
(−3, +3) 13.5 11.4 2.1 213:185 1.97a 397 0.049
(−4, +4) 14.01 12.33 1.68 208:179 0.403 386 0.687
(−5, +5) 13 9 4 198:162 2.06a 359 0.041
C: Total assets turnover ratio
(−1, +1) 0.85 0.847 0.003 191:211 0.021 401 0.983
(−1, +2) 0.78 0.84 −0.06 168:233 −0.365 400 0.000
(−1, +3) 0.82 0.89 −0.07 154:237 −4.98b 390 0.000
(−1, +4) 0.80 0.87 −0.07 137:224 −4.72b 360 0.000
(−1, +5) 0.84 0.90 −0.06 129:222 −3.68b 350 0.000
(−2, +2) 0.82 0.87 −0.05 144:257 3.53b 400 0.000
(−3, +3) 0.82 0.84 −0.02 150:238 −1.5 397 0.135
(−4, +4) 0.82 0.89 −0.07 154:233 −3.38b 386 0.001
(−5, +5) 0.81 0.87 −0.06 145:215 −3.15b 359 0.002
a, b
Denote significance at 5 and 1 %, respectively

The efficiency of utilization of assets to generate higher sales does not appear to
have improved as revealed by total assets turnover ratio post-M&A. It cannot be
inferred that acquirers’ total assets turnover after the M&A is significantly different
from pre-M&A levels. In fact, there is a marginal decrease in this ratio. Thus, we
cannot conclude that M&A have led to higher total assets turnover which indicates
that it is unlikely that acquirer firms have generated higher incremental sales uti-
lizing their assets more efficiently.
128 4 Financial Performance Analysis of Mergers and Acquisitions

4.5.2 Du Pont Analysis Based on OCFR

The operating cash flow ratio (OCFRA), based on assets, can be decomposed into
operating cash flow based on sales and total assets turnover ratio.
The operating cash flow ratio based on assets (OCFRA) calculated as operating
cash flow (OCF) divided by average total assets as per Eq. (4.5.4) may be
decomposed into the operating cash flow based on sales (OCFRs) and the total
assets turnover ratio as per Eq. (4.5.5)

PBIT  nonoperating income þ Depreciation þ Amortisation þ any non cash expenses

OCFRA ¼
Average total assets
ð4:5:4Þ

or

PBIT  nonoperating income þ Depreciation þ Amortisation þ any non cash expenses

OCFRA ¼
net sales
net sales
Average total assets
ð4:5:5Þ

where,

PBIT  nonoperating income þ Depreciation þ Amortisation þ any non cash expenses

net sales
¼ Operating cash flow ratio based on saleðOCFRS Þ

net sales
¼ Total assets turnover ratio (TATR)
Average total assets

and

In Du Pont terms

OCFRA ¼ OCFRS TATR ð4:5:6Þ

The operating cash flow based on sales depicts the operating cash flow obtained
through each rupee of sales. Total assets turnover indicates the efficiency with
which the firm uses its assets to generate sales.
Table 4.10 shows that the operating cash flow ratio (based on sales) has improved
post-M&A. As we have divided the operating cash flows of the acquirers by the net
sales of the acquirer, the significant post-M&A operating cash flow indicates that the
acquirers appear to have generated higher operating cash flow per unit net sales
post-M&A. The Du Pont analysis indicates the increase in the operating cash flow
ratio based on sales. The better operating cash flow seems to be due to the lower
4.5 Analysis of Sources of Performance 129

Table 4.10 Paired samples t-test of pre-M&A and post-M&A constituent ratios in terms of Du
Pont
Paired sample Mean ratio Mean Mean Positive: t-value Degree Significance
(pre-M&A, post-M&A ratio difference negative of
post-M&A) pre-M&A freedom
A: Operating cash flow ratio based on assets (OCFRA)
(−1, +1) 13 12.76 0.24 200:202 0.46 401 0.65
(−1, +2) 12.91 12.49 0.42 198:203 1.07 400 0.29
(−1, +3) 13 12.1 0.9 187:204 1.87 390 0.062
(−1, +4) 12.61 12.20 0.41 170:191 0.998 360 0.319
(−1, +5) 12.49 12.10 0.39 150:201 0.682 350 0.496
(−2, +2) 12.78 12.18 0.06 191:210 1.44 400 0.15
(−3, +3) 12.46 12.31 0.15 186:212 0.34 397 0.74
(−4, +4) 12.14 12.04 0.1 182:205 0.211 386 0.833
(−5, +5) 12.32 11.77 0.6 158:202 1.16 359 0.247
B: Operating cash flow ratio based on sales (OCFRS)
(−1, +1) 15.47 14.98 0.49 232:170 1.26 401 0.208
(−1, +2) 18.28 17.74 0.54 204:197 0.96 400 0.340
(−1, +3) 20.11 16.92 3.19 200:191 2.48a 390 0.014
(−1, +4) 18.74 16.37 2.37 181:180 2.36a 360 0.019
(−1, +5) 21.59 16.79 4.81 181:170 2.28a 350 0.023
(−2, +2) 17.6 16.98 0.62 207:194 1.08 400 0.282
(−3, +3) 18.58 16.71 1.87 205:193 2.03a 397 0.043
(−4, +4) 21.5 11.55 9.9 189:198 1.52 386 0.130
(−5, +5) 18.6 15.1 3.5 180:180 1.93 359 0.054
C: Total assets turnover ratio
(−1, +1) 0.85 0.847 0.003 191:211 0.021 401 0.983
(−1, +2) 0.78 0.84 −0.06 168:233 −0.365 400 0.000
(−1, +3) 0.82 0.89 −0.07 154:237 −4.98b 390 0.000
(−1, +4) 0.80 0.87 −0.07 137:224 −4.72b 360 0.000
(−1, +5) 0.84 0.90 −0.06 129:222 −3.68b 350 0.000
(−2, +2) 0.82 0.87 −0.05 144:257 3.53b 400 0.000
(−3, +3) 0.82 0.84 −0.02 150:238 −1.5 397 0.135
(−4, +4) 0.82 0.89 −0.07 154:233 −3.38b 386 0.001
(−5, +5) 0.81 0.87 −0.06 145:215 −3.15b 359 0.002
a, b
Denote significance at 5 and 1 %, respectively

costs as a result of economies of scale. This conclusion is also validated by evidence

of negative mean difference of expense ratios presented in Table 4.5.
However, the efficiency of utilization of assets to generate higher sales does not
appear to have improved as revealed by total assets turnover ratio post-M&A. It
cannot be inferred that acquirers’ total assets turnover after the M&A is signifi-
cantly different from pre-M&A levels. Thus, we cannot conclude that M&As have
led to higher total assets turnover which indicates that it is unlikely that acquirer
firms have generated higher incremental sales utilizing their assets more efficiently.
130 4 Financial Performance Analysis of Mergers and Acquisitions

4.6 Concluding Observations

The objective of this chapter is to analyze the financial performance of corporates

involved in M&A in India. The major hypothesis is that acquiring firms have
improved their performance post-M&A. The empirical evidence validates the
hypothesis that Indian acquirers have performed financially better after M&A,
compared to their performance in pre-M&A period.
The study indicates that in the long term, M&As appear to have been financially
beneficial for the acquiring companies. The findings suggest that profitability of
acquiring firms has improved during post-M&A phase. This improvement in per-
formance can be attributed to the mergers and acquisitions. Enhanced efficiency in
utilization of fixed assets by the acquiring firms appears to have generated higher
operating profits. Acquirers seem to have realized synergistic benefits of mergers
and acquisitions by controlling expenses, specially selling, general and adminis-
tration expenses as identified by negative (statistically significant) t-value of paired
samples test. Better management of liquidity position during the post-M&A period
has also been observed. These findings, in Indian context, are in sync with the
findings of Ramakrishnan (2008), Pawaskar (2001), Selvam et al. (2009), Kumar
and Bansal (2008), Rani et al. (2013, 2015), Sinha et al. (2010). However, these
findings are in contrast with the findings of Kumar (2009).
However, mergers and acquisitions have not resulted in improvement in all
assets turnover ratios. A reason for this may be that additional assets generate
additional capacities. Initially, it may not be possible to achieve 100 % capacity
utilization. Therefore, assets turnover ratio improves slowly. It appears that reces-
sion in the year 2008 resulted in low assets turnovers of acquiring firms. Further,
the two constituents of the measure of operating profits (operating profit margin
based on sales and total assets turnover) provide insights into sources of the eco-
nomic performance. The long-term operating profit margin of the acquiring firms,
on an average, appears to have improved. This means higher profit is generated per
unit net sales by the acquiring firm after the M&A.
The higher profits (profit before interest and taxes and nonoperating income) are
generated through the better margins. This might be due to the economies of scale
obtained by the firms’ larger size after M&A.
The analysis indicates the possible increase in market power due to M&A in
India. Survey findings by Rani et al. (2010) on motives of mergers and acquisitions
also corroborates this finding. Further, the evidence of significant increase in the
operating profit margin also supports these results. However, assets turnover of the
acquiring firms does not seem to have improved after M&A (also revealed by
paired samples t-test); net sales per unit of asset invested have not increased after
M&A. In operational terms, the efficiency/utilization of assets does not get mani-
fested in generating higher net sales after M&A. That may be, partly, due to
recessionary conditions in global economy after 2008.
4.6 Concluding Observations 131

On the basis of empirical results, it is reasonable to conclude that, on an average,

acquiring firms in India appear to have performed better financially after M&A,
compared to their performance in the pre-M&A period.

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Chapter 5
Survey of Management View on Motives
for Mergers and Acquisitions

Abstract The objective of this chapter is to investigate motives and trend of

merger activities of Indian companies during the period 2003–15. A survey has
been conducted in the present research work to understand the viewpoint of Indian
managers regarding motives of undertaking mergers and acquisitions (M&A). The
survey findings show that the primary motivation for mergers is to achieve oper-
ating synergies.

Keywords Economies of scale and scope Synergy

Motives
Operational

synergies Market power Cross-selling Subsidiary

5.1 Introduction

The existing literature as well as empirical work on motives of mergers does not
offer a conclusive explanation for why mergers occur. The present chapter seeks to
answer “Why do mergers take place?” As per the literature available, very few
surveys have been conducted to study the managerial views about motives for
undertaking mergers and acquisitions. The surveys that have been conducted are
primarily for United States (US) managers.
To gauge the viewpoint of Indian managers regarding motives of undertaking
mergers and acquisitions (M&A), a survey has been conducted in the present
research work. The target population for the surveys is the acquiring companies that
merged another company or have gone for acquisition of another company during
the chosen time period and are located all over India. The surveys are expected to
provide useful insights as the results of these surveys will enlighten the managers
about what is expected from these transactions and what are the motives for M&A.
In the survey, the viewpoints of the respondents have been captured on three
major aspects, namely, (i) management views on motives for M&A, (ii) manage-
ment views on sources of synergy from M&A, and (iii) motives of merger of
wholly owned subsidiary.

© Springer Science+Business Media Singapore 2016 133

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6_5
134 5 Survey of Management View on Motives …

The chapter has been organized into four sections. Section 5.2 explains the
survey research methodology. Section 5.2 is divided into three subsections, namely,
(i) validity analysis, (ii) sample, and (iii) respondents’ profile. Survey results and
discussions constitute the subject matter of Sect. 5.3. The concluding observations
have been presented in Sect. 5.4. The questionnaire used for the survey is at
Appendix.

5.2 Survey Methodology

The survey has been carried out to get the responses from the Director (Finance) of
the companies that adopted strategy of merger and acquisition during the specified
time period; these companies are located across India. The survey plays an
important role because the strategy of mergers and acquisitions are adopted by the
top management of the company keeping certain objectives in mind. Therefore, the
views and motives of the respondents make a basis for the expected performance
both in long-term as well as short-term.
For the survey, structured questionnaire has been used as a primary tool to
collect the required information from the respondents. A preliminary questionnaire
was developed on a set of questions based on an extensive review of the earlier
researches on motives of mergers and acquisitions. Previous studies have empiri-
cally assessed importance of acquisitions as a mode of entry in foreign market
(Andersen 1997; Kogut and Singh 1988), performance outcome of acquisitions like
knowledge transfer and learning post-acquisition (Brouthers and Brouthers 2001;
Bhagat et al. 2002) and creation of shareholder value, etc. (Ravenscraft and Scherer
1987; Gugler et al. 2003; Moeller et al. 2005; Mueller and Yurtoglu 2007).
Berkovitch and Narayanan (1993) have identified synergy, hubris, and agency as
three major motives of takeovers. Mukherjee et al. (2004) showed that primary
motivation for mergers and acquisitions is to achieve operating synergies.
Seth et al. (2000) lend support to the synergy hypothesis as the main motive. The
study also revealed that hubris also played an important role in these deals. Eun
et al. (1996) have concluded that acquisitions are synergy creating activities.
Ghosh (2004) suggests that market power is the source of value creation and a
rationale for merger and acquisition activities.
Wasserstein (1998) has identified five major causes of mergers. He states that the
process of merger is driven by the forces of technological change, regulatory, and
political reforms, fluctuations in financial markets, the role of leadership, and the
tension between scale and focus. Trautwein (1990) organized the theories of merger
motives into seven groups: efficiency, monopoly, empire building, raider, valuation,
and process and disturbance theory.
Kumar and Rajib (2007) observed capital structure characteristics as a main
motive for the merger for both acquirer and target companies in India. They reveal
that firms with tighter liquidity positions are more likely to become a target. Goold
and Campbell (1998) have pointed out that shared know-how, pooled negotiated
5.2 Survey Methodology 135

power, coordinated strategies, vertical integration, shared tangible resources, and

combined business creation bring synergy for merged entity. Eccles et al. (1999)
have suggested cost savings, process involvement, revenue enhancement, tax
benefits, financial engineering as main sources of synergy.
The questionnaire was modified on the inputs collected from experts’ opinion.
The experts include top level corporate managers and academicians in the area of
finance. They belonged to the organizations located in Mumbai, Delhi, and NCR
(National Capital Region). A preliminary version of this survey was pretested by a
personal interview of 20 CFOs, directors (finance, legal), and company secretaries.
The questionnaire was firmed-up after incorporating all the improvements sug-
gested by these experts. The survey explores four major issues involved in merger
and acquisition practices in India. Part I of the questionnaire contains the first issue
which involves background data. In part II three major questions related to types
and motives for engaging in mergers and acquisitions have been addressed. First,
what are the motives behind corporate mergers? Second, what are the sources of
synergies expected form M&A? Third, what are the reasons for a wave of merger of
the subsidiaries with the parent company during the sample period?
The respondents were asked to choose the three most important motives from a
list of eighth motives and ninth labeled as ‘Any other’ and, from a list of seven
motives and an eighth labeled as ‘Any other’ for the sources of synergies expected
from mergers and acquisitions. Additionally, in Part II of the questionnaire, we have
also investigated the motives behind the mergers of wholly owned subsidiaries with
the parent company.
The primary source of information, about the firms that acquired or merged other
companies, is Prowess1; it is a financial database of Indian companies. In addition,
the announcement dates were collected from online archives2 of the Bombay Stock
Exchange, the National Stock Exchange, the financial dailies, like The Economic
Times, The Hindu Business Line, and other financial websites like moneycontrol,
etc. We checked the names and address and email of the company secretaries, chief
financial officers, director finance, and head—investor relations from the websites
of the acquirer companies. We could obtain the email address of 750 companies.
We requested 280 companies from Mumbai, Delhi, Gurgaon, Noida, Faridabad,
Chandigarh, Ludhiana, Panchkula for an appointment for a personal interview and
mailed the questionnaire to the 270 companies in first round of survey. 200 more
companies were contacted in the second round of survey during 2015.
A follow up questionnaire was sent to the non-responding companies after
2 months. Further, the follow-up was done by sending emails to the companies
wherever email addresses were available. Interview of 168 persons were personally
scheduled and 52 responses were received through mail. Though the response
proportion is more than one-fourth (25.2 %), it should not be considered as

1
This database is a product of Centre for Monitoring Indian Economy Pvt. Ltd. (CMIE).
2
http://www.bseindia.com/stockinfo/ann.aspx.
http://www.nseindia.com/content/corporate/corp_introduction.htm.
136 5 Survey of Management View on Motives …

poor/low response rate. The reason is that the survey response to the subject of
finance is usually not encouraging. In general, the respondents are apprehensive and
shy away from giving their opinion or providing information related to financial
decision making. In fact, respondents normally consider information related to any
finance matter as very sensitive and confidential. They do not realize that the
opinion or information provided by them is summarized on an average basis
without quoting any one in particular. Hence, as a matter of policy, most of the
companies are reluctant to respond to a finance questionnaire.
The study is not free from limitations. One limitation is that our study addresses
only limited number of issues in the survey. This is not a comprehensive survey on
various hypotheses prevalent in the area of mergers and acquisitions. We limit the
scope to the acquiring companies only.

5.2.1 Validity Analysis

The questionnaire was validated by six finance experts—including academicians

and practitioners. Based on their evaluation, the questionnaire had high face
validity. Thus, the questionnaire maybe deemed suitable for further analysis.

5.2.2 Sample

The sample includes acquiring companies that merged or acquired companies

during period starting from January 1, 2003 and ending on December 31, 2015. The
sample consists of 755 companies that completed the transactions during the time
period chosen for the study.
Table 5.1 exhibits the year-wise distribution (2003–2015) of the number of
M&A completed by the sample companies and the respondent companies between
January 1st, 2003 and December 31st, 2015. Year–wise distribution shows that
1255 companies completed 1930 deals. But there are companies which made
multiple announcements across the year. So the sample consists of 755 companies
that completed 1930 mergers and acquisitions deals during the sample period. Out
of 755 companies email address of 750 companies could be obtained. So, the final
sample was reduced to 750 companies.
Further, 1930 mergers and acquisitions deals were completed during the time
span of the study; out of these, nearly one-fifth are in the year 2007. There are 189
companies that responded for this survey; out of these, nearly one-fourth respondents
announced M&A in the year 2007. It is evident from Table 5.1 that the respondent
companies are fairly representative of the sample companies. Out of the above
respondents, nearly two-third (65 %) are from manufacturing sector while one-forth
(26 %) are from services sector. Remaining almost one-tenth (9 %) represent con-
struction, real estate, electricity, and diversified sector (depicted in Fig. 5.1).
5.2 Survey Methodology 137

Table 5.1 Distribution of sample, year-wise (2003–2015)

Year No. of acquisitions No. of mergers No. of Number of respondent
completed completed companies companies
2003 13 15 23 13
2004 28 20 41 13
2005 52 18 47 15
2006 213 39 146 28
2007 260 59 174 54
2008 184 28 133 44
2009 97 15 87 6
2010 99 9 80 3
2011 129 18 98 4
2012 81 22 66 2
2013 95 51 99 3
2014 89 48 97 2
2015 178 70 164 2
Total 1518 412 1255 189
Year-wise distribution of sample, 2003–2015
Source CMIE Prowess

Fig. 5.1 Sector-wise 4%3% 2%

distribution of the respondent Manufacturing
companies 26%
Services
Construction and real estate

65% Electricity
Diversified

5.2.3 Respondents’ Profile

Table 5.2 depicts the respondents’ profile; the respondents are primarily the
executives who held top level management positions in their respective companies.
They include: more than one-fourth (27 %) chairman, managing directors, chief
executive officers, chief financial officers and directors, almost one-third (31.7 %)

Table 5.2 Respondents’ profile

Respondents designation Number
Chairman, Executive Directors (Finance) and Chief Financial Officers 51 (27 %)
Company Secretary and Deputy General Manager 60 (31.7 %)
Vice Presidents, Head, and Chief Legal Officers 42 (22.2 %)
General Manager (Finance, Investor Relations) 36 (19.1 %)
Total 189 (100 %)
138 5 Survey of Management View on Motives …

company secretary and deputy general managers, 22.2 % vice-presidents, and chief
legal officers and the remaining almost one-fifth (19.1 %) are general managers
(finance) and investor relation officers.

5.3 Survey Results and Discussion

The following three subsections present the results of the survey. They include the
characteristics of responding firms, motives for mergers and motives for mergers of
subsidiaries with the parent company. Table 5.3 depicts the results involving
number of mergers (Question 1). The survey indicates that almost three-fourths
(71.9 %) of the responding firms have been involved in multiple mergers. These
189 companies acquired and merged 1092 target companies during 2003–2015; out
of these half (50.1 %) acquirers have acquired or merged independent companies;
nearly one-third (34.2 %) acquirers have merged wholly owned subsidiaries and
rest have merged group companies, associates companies, and subsidiaries
(Table 5.4).
Table 5.5 reports the results involving ranking of motives of merging the other
firms (Question 3). The respondents were asked to select three most important
motives, in order of priority. They were given eight choices along with ninth as
‘any other’ option, where they could specify any other motive for

Table 5.3 Frequency Number of M&A N %

distribution related to number
of companies merged and 1 53 28.1
acquired by sample 2–4 60 31.7
corporates, 2003–2015 5–7 35 18.5
8–10 20 10.6
11–15 13 6.9
Above 15 8 4.2
Total 189 100

Table 5.4 Involvement in Type of M&A N %

mergers and acquisitions of
the sample companies, 2003– Acquired or merged an independent 547 50.1
2015 company
Merger of wholly owned subsidiary 373 34.2
Merger of a group company 92 8.4
Merger of an acquired company (now 40 3.6
subsidiary)
Merger of an associate company 40 3.7
Total 1092 100
5.3 Survey Results and Discussion 139

Table 5.5 Management view of motives for mergers of the sample companies, 2003–2015
Motive Motives for mergers Prime Second Third Weighted Rank
No. motive motive motive index
1 To take advantage of synergy 89 55 45 70 1
4 To consolidate 14 55 49 34 2
6 To adopt as a strategy for 24 34 45 31 3
inorganic growth
5 To restructure organization 9 20 30 16 4
8 To rehabilitate a company 24 0 0 12 5
through Board for Industrial and
Financial Reconstruction (BIFR)
7 Exit of joint venture by other 17 0 0 9 6
partner
3 To reduce tax on the combined 4 13 10 8 7
company
2 To diversify 4 12 9 8 7
9 Any other (specify) 4 0 1 2 8
Note The weighted score = [{(Prime Motive × 3) + (Second Motive × 2) + (Third Motive × 1)}
÷ 6]

merging/acquiring other firm. A weighted index has been calculated for each
motive for the purpose of ranking as per Eq. (5.3.1).
 
ðPrime motive  3Þ þ ðSecond motive  2Þ þ ðThird motive  1Þ
Index =
6
ð5:3:1Þ

For every statement, the number of respondents choosing it as prime motive has
been multiplied by three, as secondary motive by two and as tertiary motive by one.
These three numbers have been further summed up and then divided by six to get
the value of the index. Using this weighted index, the statements are ranked in the
descending order.
Table 5.5 reports the choices made by the respondents regarding the primary,
secondary and tertiary motives for mergers. The empirical findings of the survey
reveal that the primary motive of the mergers is to take advantage of synergies. The
second highest-ranked motive of merger is to consolidate.
The survey findings show that the primary motivation for mergers is to achieve
synergies. Synergy may arise from various sources. To investigate further, we asked
another question (Q4) about the most important source of synergy.
Table 5.6 presents the ranking of sources of synergy as revealed by respondents.
The respondents were asked to select three most important sources of synergy, in
order of priority. They were given seven choices along with eighth as ‘any other’
option, where they could specify any other source of synergy arising out of merger.
‘Operating economies’ has been chosen by the respondents as the top ranked source
of synergy. The second highest-ranked source of synergy is increased market
140 5 Survey of Management View on Motives …

Table 5.6 Management view of sources of synergy from mergers of the sample companies,
2003–16
Synergy Sources of synergy Prime Second Third Weighted Rank
No. motive motive motive index
2 Operating economies 55 45 41 23.5 1
4 Increased market power 54 40 45 23.2 2
1 Financial economies 21 34 29 14.0 3
6 Availing of cross-selling 15 14 31 10.0 4
opportunities
8 Other (specify) 20 15 19 9.0 5
3 Enhanced managerial 15 16 9 6.7 6
capabilities
7 Improved technology 5 20 8 5.5 7
5 Location economies 4 5 7 2.7 8
Note 1 The weighted score = [{(Prime Motive × 3) + (Second Motive × 2) + (Third
Motive × 1)} ÷ 6]
Note 2 The response indicated in “Others” included linkages and integration, such as backward,
forward and vertical, real estate/strategic assets, etc.

power. The findings are in agreement with Singh and Montgomery (1987);
Mukherjee et al. (2004); their empirical evidence documented that synergistic gains
in domestic acquisitions are derived from increase in operational efficiency and
increase in market power. The results also match with Ghosh (2004) who has
observed that market power is a rationale for acquiring other companies.
Keeping into consideration the trends of mergers as revealed in Table 5.4, 34 %
mergers by the respondent companies are of wholly owned subsidiaries. We
attempted to investigate the motive of mergers/amalgamation of wholly owned
subsidiaries. Table 5.7 contains the results.

Table 5.7 Management view of motives of merger of wholly owned subsidiary sample
companies, 2003–16
Motive Motives of merger in case of Prime Second Third Weighted Rank
No. wholly owned subsidiary motive motive motive index
2 A composite scheme of 22 21 13 20.2 1
arrangement for consolidation
4 A response to changes in 16 19 13 16.5 2
regulatory framework
5 To eliminate duplication of 8 10 17 10.2 3
compliance cost
1 To reduce complexity of 12 6 9 9.5 4
organizational structure
3 Tax savings due to elimination of 6 8 9 7.2 5
dividend distribution tax
6 Other (specify) 3 4 7 4 6
Note The weighted score = [{(Prime Motive × 3) + (Second Motive × 2) + (Third Motive × 1)}
÷ 6]
5.3 Survey Results and Discussion 141

The respondents revealed that the primary motive has been a composite scheme
of arrangement for consolidation. They opined that mergers of the wholly owned
subsidiary facilitate corporate restructuring and reallocate the resources to higher
valued uses.
Another important reason has been a response to the changes in regulatory
framework. The results are in agreement with other studies (Jarrell and Bradley
1980; Schipper and Thompson 1983; Solvin and Sushka 1998) who investigated
that regulatory changes play a key role in influencing the mergers and acquisition
strategies of firms.
Parent-subsidiary mergers have not been widely investigated in the finance lit-
erature, but have implications for corporate governance. It has been observed that
regulations related to corporate governance have evolved during 2003. SEBI moni-
tors and regulates corporate governance of listed companies in India through Clause
49. This clause is incorporated in the listing agreement of stock exchanges with
companies and it is compulsory for them to comply with its provisions. Some specific
developments in the various clauses of listing agreement during 2001–2005 are:
(a) SEBI has amended clause 323 and Clause 414 of Listing Agreement. In lieu of
the amended clause, a listed parent company is now mandatorily required to
publish audited Consolidated Financial Statements in the annual report in
addition to the separate financial statements.
(b) SEBI has revised Clause 49 of the Listing Agreement pertaining to corporate
governance.5 The major new provisions included in the revised Clause 49
regarding subsidiaries are:
(i) At least one independent director of the holding company to be a
director in material non-listed subsidiary company.
(ii) The audit committee of the listed company will review the financial
statements of the unlisted subsidiary, in particular, the investments
made by the unlisted subsidiary company.
(iii) The minutes of the Board meetings of the unlisted subsidiary company
will be placed at the Board meeting of the listed holding company. The
management should periodically bring to the attention of the Board of
Directors of the listed holding company, a statement of all significant
transactions, and arrangements entered into by the unlisted subsidiary
company.

3
Vide a notification SMDRP/Policy/Cir-44/01, dated, 31 August, 2001 available at http://www.
sebi.gov.in/circulars/2001/CIR442001.html.
4
Vide a notification SMD/Policy/Cir-2/2003 dated January 10, 2003 available at http://www.sebi.
gov.in/circulars/2003/cir02-2003.html.
5
Vide circular SEBI/CFD/DIL/CG/1/2004/12/10 dated October 29, 2004 available at http://web.
sebi.gov.in/circulars/2004/cfdcir0104.pdf.
142 5 Survey of Management View on Motives …

These changes are likely to result in an increase in administrative and

compliance cost of having a number of subsidiaries. The third motive
revealed by respondents is to eliminate the duplication of compliance
cost. It appears that these changes in regulations have influenced the
merger strategies of Indian companies.

5.4 Concluding Observations

The present chapter discusses the empirical survey of managers (management) of

Indian companies engaged in mergers and acquisitions. The survey has been
conducted to know their views about the motives of merging and acquiring other
firms. Survey findings reveal that the primary motive of mergers and acquisitions in
India during 2003–2015 has been to take advantage of synergies. Operating
economies, increased market share and financial economies (lower risk leading to
lower cost of capital) have been indicated in order of importance as the desired
synergies to be gained through corporate mergers and acquisitions in India.
Based on the survey evidence, it is reasonable to conclude that primary moti-
vation for mergers and acquisitions is to achieve operating synergies. For unlisted
wholly owned subsidiary, motive of mergers is to achieve consolidation and a
response to changing regulatory framework.
Empirical results suggest some implications for practitioners and researchers.
This exploratory study suggests a need for detailed investigation of the synergy
motive in Indian context. Parent-subsidiary mergers have not been widely inves-
tigated in the finance literature, but have implications for corporate governance. The
present study suggests that issue should be deliberated more in Indian context.
Management can merge the large number of unlisted subsidiaries to achieve con-
solidation and form a good governance structure. This practice will not only
achieve savings in compliance cost but also improve the corporate governance
standards of the company. Management of companies can adopt the strategy of
merging large number of unlisted subsidiaries to improve the corporate governance
structure of the companies.
Appendix 143

Appendix

Questionnaire Survey on Mergers & Acquisitions

I. BACKGROUND INFORMATION
1. What is your current position or title? (Pl. Specify) ___________________________
2. What is the principal nature of your business? (Pl. Fill in one circle)
O Manufacturing O Wholesale/retail O Service O Mining
O Transportation O Construction O Other (Pl. Specify)

II. ISSUES INVOLVING MERGERS & ACQUISITIONS

1. Company was involved in _____mergers and ________acquisitions during the

period January 1, 2003- December 31, 2015.

2. Company was involved in the merger/acquisition of following:

[Please tick the appropriate]

O An independent company O An associate company O A group company

O An acquired company O A wholly -owned subsidiary

3. Which of the following motives best explain your company’s merger/ acquisition

during the period January 1, 2003- December 31, 2015?

[Choose the three most important motives for merging the other firm]

Motive First Most Important Second Most Third

(Tick only one) Important Most
(Tick only one) Important
(Tick only
one)
1. To take advantage of synergy O O O
2. To Diversify O O O
3.To reduce tax on the combined company O O O
4. To use free cash O O O
5. To consolidate O O O
6. To restructure organization O O O
7. Strategic inorganic growth O O O
8.To rehabilitate a company through
Board for Industrial and Financial O O O
Reconstruction (BIFR)
9. Any other (pl. specify) O O O
144 5 Survey of Management View on Motives …

4. The following sources of synergies were expected from the merger/ acquisition:

[Choose the three most important sources of synergies from the merger]

Source First Most Second Most Third Most

Important Important Important
(Tick only one) (Tick only one) (Tick only one)
1. Financial Synergies O O O
2. Operating Synergies O O O
3. Enhanced managerial capabilities O O O
4. Increased Market power O O O
5. Location Economies O O O
6. Avail Cross-selling opportunity O O O
7. Improved Technology O O O
8. Any other (pl. specify) O O O

5. Which of the following motives best explain your companies merger of the wholly -

owned subsidiary with the parent company during the period January 1, 2003-

December 31, 2015. [Choose the three most important motives for merging the wholly-

owned subsidiary]

Motive First Most Second Most Third Most

Important Important Important
(Tick only one) (Tick only one) (Tick only one)
1. To reduce complexity of O O O
organizational structure
2. A composite scheme of O O O
arrangement for consolidation
3. Tax savings due to elimination of O O O
dividend distribution tax
4.A response to changes in O O O
regulatory framework
5. To eliminate duplication of O O O
compliance cost
6. Any other (pl. specify) O O O

Thank you for your cooperation

References 145

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Chapter 6
Development of Corporate Governance
Index

Abstract The objective of this chapter is to discuss the development of corporate

governance index. Inputs from questionnaire constitute the basis for preparing
corporate governance index. The questionnaire focused not only on the trans-
parency and disclosures but broader issues like management discipline and social
recognition and responsibility. Corporate Governance Score (CGS) is based on the
responses of the 67 issues, categorized under seven main aspects included in the
questionnaire. The chapter also presents corporate governance score of the
respondent companies.

Keywords Transparency
Disclosure
Corporate social responsibility

Accountability Fairness
Board independence
Board size

6.1 Introduction

Corporate governance has become a popular area of discussion recently throughout

the world and, also, in India. The relationship between corporate governance and
firm valuation has attracted particular attention among academics. The majority of
prior literature on relationship between corporate governance and firm value doc-
uments a positive association between stronger corporate governance and firm
valuation (Bebchuk et al. 2009; Cremers and Nair 2005; Core et al. 2006; Yermack
1996, Gompers et al. 2003). Virtually most of the previous works focus on the
specific aspect of corporate governance such as Gompers et al. (2003) on takeover
defenses; Yermack (1996), Lipton and Lorch (1992) on board size, Hermalin and
Weisbach (1991), Bhagat and Black (2007) on board composition, Bebchuk et al.
(2005) on management entrenchment, Cremers and Nair (2005), Core et al. (1999)
on executive compensation.
Another set of the empirical studies analyze the impact of corporate governance
in a cross-section of countries (Klapper and Love 2004; Durnev and Kim 2005).
A Few studies use primary and survey-based data on firm level corporate

© Springer Science+Business Media Singapore 2016 147

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6_6
148 6 Development of Corporate Governance Index

governance structure within a specific country (Balasubramaniam et al. 2010;

Beiner et al. 2006; Black et al. 2006; Drobetz et al. 2004; Chen et al. 2007).
Empirical studies utilizing various corporate governance indices have shown that
corporate governance is positively associated with firm value or stock returns
(Bebchuk et al. 2005; Gompers et al. 2003; Garay and González 2008).
An important question in this regard is how corporate governance practices of
acquirer firms directly influence performance outcomes of acquisitions’ decisions.
The question deserves attention for several reasons. Mergers and acquisitions serve
as an important instrument of corporate governance to increase corporate efficiency.
In fact, mergers and acquisitions are well-suited events where corporate values are
tested over the time. The role of corporate governance has been explored on the
financial performance and valuation post-M&A as well as measurement of the
announcement effects of the acquiring firms (Carline et al. 2009; Gompers et al.
2003; Bris and Cabolis 2002; Swanstrom 2006; Malekzadeh et al. 1998; Bertrand
and Mullainathan 1998; Datta et al. 2001; Roll 1986; Shleifer and Vishny 1988;
Shivdasani 1993; Shleifer and Vishney 1986; Bris and Cabolis 2002; Rossi and
Volpin 2004; Rani et al. 2014; Aggarwal and Williamson 2006; Dahya et al. 2008).
This chapter describes the construction of broad corporate governance Index
(CGI) for the Indian public listed acquiring companies. This chapter has been
organized into four sections. Section 6.2 comprises of the research design used to
construct corporate governance index; this section is divided into Sects. 6.2.1, 6.2.2
and 6.2.3 explaining sample, survey design and limitations, respectively.
Section 6.3 discusses development of corporate governance index. Section 6.4
reveals corporate governance score of the respondent companies. This is followed
by concluding observations contained in Sect. 6.5.

6.2 Research Design and Respondents’ Profile

6.2.1 Sample

As described in Sects. 5.2.2 and 5.2.3, the registered office address of the com-
panies which made announcements of mergers and acquisitions was taken from
CMIE database Prowess. Names of the executive director, CFO, CS, and legal
heads were taken from the investor grievance section of the annual reports available
for the companies; where the contact could not be found from the website it was
checked in the contact information on the website of Bombay stock exchange.
Annual convention, summits and conferences organized by Confederation of Indian
Industries (CII) were also attended to meet possible respondents. A request for
appointment through e-mail was sent first and a follow up through personal call was
made through phone. The questionnaires were personally administered. The survey
was conducted in five rounds. First round was completed during the internship at
National Institute of Securities Markets (NISM), Mumbai, during October 2008–
December 2008. A second round was conducted for companies having corporate
6.2 Research Design and Respondents’ Profile 149

offices in Mumbai in February 2009. One hundred companies in National Capital

Region (NCR) and northern states were approached during June 2009–October
2009. Twenty Chennai-based companies were approached during May 2010. Final
round of the data collection was conducted during January 2016–February 2016 for
NCR-based and Bangalore-based companies and March 2016 for Kolkata and
Mumbai-based companies.
Twenty percent respondents replied through email at first instance for the personal
interview. Fourty percent responses were collected after two follow-up calls.
Thirty-five percent respondents agreed to meet after fifth follow-up call.
Five percent respondents agreed to meet in annual convention of CII at New Delhi
and Mumbai. A total of 750 companies were approached in four phases and 189
responded to the request. Response rate is 25.2 %.
To collect data related to corporate governance measures, annual reports of the
acquirers have been examined from website of companies, the brief profile section of
PROWESS 3.2 data base of CMIE, Capitaline data base, Website of Ministry of
Corporate Affairs and Security Exchange Board of India (SEBI) website and
Electronic Data Information Filing and Retrieval System (EDIFAR) website of SEBI.
Figure 6.1 depicts the frequency distribution of respondents. Out of the above
respondents, nearly two-third (65 %) are from manufacturing sector while one-forth
(26 %) are from services sector, (depicted in Fig. 6.2). The largest number of the
respondent acquirers in the manufacturing sector are in Pharmaceuticals (n = 31)
followed by Chemicals (n = 14), Iron & steel (n = 10) and so on. Respondents’
profile is described in Sect. 5.2.2.
To utilize the responses of the two groups for analysis, an independent samples
t-test is conducted (presented in Chap. 7). This is to determine if there is any
significant difference between the two groups in their corporate governance scores.

Sector-wise frequency distribution of respondent companies, 2003-2015

40
35
No. of respondents

30
25
20
15
10
5
0
Non Electrical…
Food Products…
IT-Software &…

Communication…

Crude Oil & Natural…

Non Metallic Mineral…
Media
FMCG
Textiles
Chemicals

Electricity
Real estate

Healthcare
Diversified
Automobile
Iron & Steel

Miscellaneous

Oil Drill/Allied
Pharmaceuticals

Mineral Products
Construction
Plastics & Rubbers

Hotel & Restaurant

Consumer Durables

Non Ferrous Metals

Transport Equipment
Logistics & Shipping

Pulp & Paper Products

Electrical Machinery

Sector

Fig. 6.1 Sector-wise frequency distribution of respondent companies, 2003–2015

150 6 Development of Corporate Governance Index

Fig. 6.2 The frequency 2.1% 3.2% 3.2%

3.2% 0
distribution of CEO/MD’s 5.3%
equity 0-1 per cent
43.9%
14.8% 1-5 per cent

5-10 per cent

24.3% 10-15 per cent

15-20 per cent

25-30 per cent

6.2.2 Survey Design

We have designed a survey questionnaire on the broader definition of corporate

governance. The questionnaire focused not only on the transparency and disclo-
sures but broader issues like management discipline and social recognition and
responsibility. The survey questionnaire has been divided into two parts. Part I of
the questionnaire contains questions related to the respondent’s profile; they were
asked to provide their current job title and the industry classification of their firm.
Part II of the questionnaire contains 67 questions.
The survey is based on the 67 broad attributes of corporate governance arranged
into following seven key sub-categories.
1. Management Discipline (MDIS)
2. Transparency (TRA)
3. Independence (IND)
4. Accountability (ACC)
5. Responsibility (RES)
6. Fairness (FAI)
7. Corporate Social Responsibility, Corporate Governance Initiatives, and
Recognition (CGR).
Corporate Governance Score (CGS) is based on the responses of the 67 issues
categorized under seven main aspects included in the questionnaire. The respon-
dents were asked to indicate the company’s practice on different level of scales;
these points have been later translated into numeric values as per the scale. The
questionnaire has been designed to give a numeric, presenting overall Corporate
Governance score, stated as a percentage. Corporate Governance Index (CGI) has
been constructed on the basis of total scores obtained for these attributes. A higher
corporate governance score indicates the good governance of the company. We are
not interested in disaggregated score in each category as the categories are prone to
be overlapping.
The questionnaire was validated by six practitioners (CEO Bombay Stock
Exchange, Former Director SEBI, Regional Director SEBI, Director NISM, CEO
Delhi Stock Exchange, and Director Confederation of Indian Industries (CII)) in the
area. The questionnaire was modified as suggested by them. For example, question
56 (Does the company have non-executive directors who are independent?) in the
6.2 Research Design and Respondents’ Profile 151

original questionnaire was replaced with (whether the office of the chairman and
chief executive officer is held by different persons?) The scale of Question 2(b), 5,
12, 13, 14, 16, 24, 25, and 33 was changed from binary to three and five point scale.
Questions 15 and 39 were changed to open-ended questions to get a genuine
response.
A company is required to make specified disclosures at the time of issue and
make continuous disclosures as long as its securities are listed on exchanges. The
standards for these disclosures, including the content, medium and time of dis-
closure, have been specified in the Companies Act, Disclosure and Investor
Protection Guidelines, Listing Agreement, Regulations relating to insider trading
and takeovers, etc. These disclosures are made through various documents such as
prospectus, quarterly statements, annual reports, etc., and are disseminated through
media, websites of the company and the exchanges, and through EDIFAR
(Electronic Data Information Filing and Retrieval) system maintained by the reg-
ulator. Extensive information was collected from these sources before meeting the
respondents. The respondents were cross-checked with the information available
from public domain.
CGS has been assigned a value of 1 to governance attribute if the company
meets minimally acceptable standard on that attribute and 0 otherwise in case of
binary scale. The answers to these questions are also cross-checked from the
information available in public domain as stated earlier. The scores are assigned in a
highly conservative manner, based on the response obtained in discussion with the
respondent. Primary data has been used to prepare a Corporate Governance Index
(CGI). There are several minimum accepted standards that are met by all companies
in the sample. These minimum standards are the mandatory requirements of SEBI
Clause 49 on Corporate Governance. Our questionnaire contains 18 such questions
and the minimum average score for such minimum accepted standards1 is 26.9 %
(this conforms to SEBI’s requirement). On the basis of these scores’, companies are
classified in four quartiles. Companies in top quartile are those that have a score
above 90 %. These are the companies which have gone beyond the mandatory
requirements and moved ahead in pursuit of excellence in corporate governance.
Companies in the bottom quartiles are those complying with the minimum
mandatory standards of corporate governance.

6.2.3 Limitations

The survey is not free from limitations. First, although, we have tried to capture as
much as information we could, yet the survey is not exhaustive, given the
multi-dimensional nature of corporate governance. Our survey represents a step
forward in expanding our understanding about the association between the

1
Calculated as ((mandatory requirement/total attributes) * 100) i.e. (18/67 * 100) = 26.9 %.
152 6 Development of Corporate Governance Index

corporate governance and the financial performance of the company. Second,

non-response bias is another issue. Third, we tried to collect information as much as
possible from public domain before meeting the respondents to elicit a genuine
response, but some subjectivity may be expected. Fourth, we derive our results
from the responses of the acquirer Indian companies, regulated under Indian Law.
We limit our discussion and analysis to Indian companies.

6.3 Development of Corporate Governance Index

Corporate governance is a mechanism by which the principles, values, procedures,

and policies of a company evolve and manifest. The essence of Corporate
Governance lies in maintaining transparency, accountability and integrity of man-
agement. Corporate governance is not merely a compliance philosophy; it is con-
tinuous drive towards excellence in building the company. We have designed the
questionnaire as per this broader definition of corporate governance.

6.3.1 Management Discipline (MDIS)

The first section of the survey questionnaire focuses on management discipline and
practices which align the interests of the shareholders with the management

6.3.2 Transparency (TRA)

Good corporate governance demands the companies to be fair and transparent in

their operations. This happens when the companies continuously disseminate
information to shareholders and other classes of stakeholders about the anticipation
and happening of all material developments as soon as possible. The questionnaire
examines the companies’ practices on the basis of 12 questions. Five of these
require responses on the basis of binary scale.

6.3.3 Independence (IND)

Board constitutes an important corporate governance mechanism. Independent

board is essential for sound Corporate governance. Representation of independent
directors on the board is one of the important governance mechanisms to provide
independent view on major corporate decisions, align shareholders’ interest with
management and control agency costs. Board and Board Committees like Audit
6.3 Development of Corporate Governance Index 153

Committee, Remuneration Committee, and Nomination Committee, thus, form the

key instruments for the quality of corporate governance. This section of the ques-
tionnaire scores the companies on the basis of board and board committee practices.

6.3.4 Accountability (ACC)

Accountability means the board is responsible and accountable to the company and
its various stakeholders. The board should be effective in supervising and moni-
toring the activities of management. The corporate governance framework of the
company should ensure the effective monitoring and accountability of the man-
agement by the board. This section of the survey rates the companies on the basis of
board monitoring. This section comprises 10 questions.

6.3.5 Responsibility (RES)

Responsibility means the board is responsible and accountable to the company and
its various stakeholders. The board should be effective in supervising and moni-
toring the activities of management. This section of the survey questionnaire rates
the company’s practices to address the situations of mismanagement by having
effective internal control mechanisms. This section comprises six questions.

6.3.6 Fairness (FAI)

The CG framework should ensure the fair treatment of all shareholders, including
minority shareholders. All the shareholders should have the access to effective
redressal for violation of their rights. This section comprises nine questions.

6.3.7 Corporate Governance Initiatives, Recognition,

and Corporate Social Responsibility (CGR)

This section rates the companies on the basis of their Corporate governance ini-
tiatives and recognition. This section comprises three questions. Table 6.1 sum-
marizes the aspects covered to rate companies on binary scale. The respondents are
asked to indicate the company’s practice on binary scale (1 for Yes and 0 for No).
These points are later translated into numeric values. Table 6.1 reveals that 54
questions pertaining to seven attributes of corporate governance have been rated on
binary scale.
154 6 Development of Corporate Governance Index

Table 6.1 Questions on binary scale

Sr. No. Que. No. Statement
Management discipline (MDIS)
1 2(a) Has the company or management publicly articulated principles of good
Governance that it is committed to maintain?
2 2(c) Does the company have a written code of conduct?
3 3 Is senior management incentivized to work towards a higher share price
for the company by giving them stock option plans, etc., or any part of
remuneration based on share prices?
4 6 Does the company have a policy on Employee Stock Option Plan
(ESOPs)?
5 7 Does management take into consideration cost of equity for investment
decisions?
6 8 Cost of equity capital in your firm is equivalent to
7 9 Cost of retained earnings in your company is equivalent to
8 10 Does management set targets related to Return on Assets (ROA)?
9 11 Does management set targets related to Return on Equity (ROE)?
10 42 Does the company’s annual report include a section devoted to the
company’s performance in implementing corporate governance
principles?
11 43 Has the company issued a “mission statement” that explicitly places a
priority on good corporate governance?
12 50 Does management stick to clearly defined core businesses?
13 51 Has management diversified business into an unrelated area during last
3 years?
Transparency (TRA)
14 44 Are the reports clear and informative?
15 45 Does the company have an English-language website where results and
other announcements are updated promptly?
16 46 Are accounts presented according to internationally accepted accounting
standards (IGAAP)?
17 47 Are accounts presented according to internationally accepted accounting
standards (IGAAP)?
18 59 Is the data of the company uploaded and upgraded on the website of
Electronic Data Information Filing and Retrieval (EDIFAR)
Independence (IND)
19 21 Are independent directors being appointed through nomination by other
board members?
20 22 Does the board include direct representatives of banks, financial/strategic
investor and other large creditors of the company?
21 52 Does the company have an audit committee?
22 53 Are the members having financial/accounting background?
23 54 Does the company have a remuneration committee?
24 55 Does the company have a nomination committee?
25 56 Whether the office of the chairman and chief executive officer is held by
different persons?
(continued)
6.3 Development of Corporate Governance Index 155

Table 6.1 (continued)

Sr. No. Que. No. Statement
26 57 Do independent and non-executive directors account for more than 50 %
of the board?
27 60 Does the company ensure that all independent directors attend at least one
training program on corporate governance?
28 63 Is the Chairman of the Audit Committee an Independent Director?
29 64 Is the Chairman of the Remuneration Committee an Independent
Director?
30 65 Is the Chairman of the Investors’ Grievance Committee an Independent
Director?
31 66 Is the Chairman of the Nomination Committee an Independent Director?
Accountability (ACC)
32 17 Does the company have an executive or management committee that
makes most of the executive decisions?
33 19 Are the statutory auditors of the company unrelated to the top
management of company?
34 23 Are there any foreign nationals on the Board who are seen as providing
added credibility to the Board’s independence?
35 26 Does the audit committee supervise internal audit and review accounting
procedures?
36 40 Is company listed on any Exchange in other Nation?
37 41 Does company follow Sarbanes Oxley Act (SOX)?
38 58 Are full board meetings held once in a quarter?
Responsibility (RES)
39 18 Are the board members and members of the executive/management
committee substantially different?
40 27 Are there mechanisms for actions of the executive/management
committee in the event of mismanagement?
41 28 Kindly state whether there have been any controversies/questions over
whether the share trading by Board members has been by and large fair,
fully transparent and well intentioned?
42 28 Kindly state if the company has a reporting system for share traded as per
insider trading regulations
43 30 Please state whether minority shareholders have ever approached any
court against the company in last 5 years
Fairness (FAI)
44 31 Kindly state whether there have been any controversies or questions
raised over any decisions by senior management in the past 5 years where
majority shareholders are believed to have gained at the expense of
minority shareholders?
45 32 Is all necessary information for General Meetings made available prior to
General Meetings?
46 34 Please State whether foreign institutional investors have a stake in the
company?
47 35 Please State whether domestic institutional investors have a stake in the
company?
(continued)
156 6 Development of Corporate Governance Index

Table 6.1 (continued)

Sr. No. Que. No. Statement
48 36 Is there a whistle–blower policy in your company?
49 38 Has the company appointed an Investor Relation Officer?
50 48 Do all equity holders have the right to call General Meetings?
51 49 Are voting methods easily accessible?
Corporate governance initiatives, recognition and corporate social responsibility (CGR)
52 1 Has the company been assessed for its Corporate Governance practices by
any external rating agency like CRISIL or ICRA, etc.
53 61 Has company won any award for Corporate Governance?
54 67 Has the company or management publicly articulated its corporate social
responsibility (CSR) practices?

For questions 2(a), if the company has issued a “mission statement” that
explicitly places a priority on good corporate governance, we have assigned a score
of 1 otherwise 0. If the companies have posted the code of contact on the website,
we have assigned a score of 1; otherwise 0. Stock options are offered to manage-
ment and others to align their interest with those of the shareholders. This gives an
incentive to behave in ways that are likely to enhance the company’s performance
and hence its stock price. If the company has a Stock Option policy, it is assigned a
score of 1; otherwise 0. The question numbers 7–11 focus on the management
practice to know the cost of capital before taking the investment decisions. This is
not only an aspect of good governance but also good management to assess the cost
of capital. The question numbers 50 and 51 focus on the management practices to
diversify business into non-core and unrelated areas.
The response for the question no. 14 was cross-checked with the responses from
the archives of Bombay Stock Exchange
For question no. 44, we checked the annual reports and considered “No” if
consolidated accounts are not presented; Directors remuneration is not disclosed or
if we could find any instance of any controversy in the public domain over the past
5 years that the results announced lacked disclosure.
For question number 45, we cross-checked the following information on the
website of the company before meeting the respondents: annual reports, quarterly
and half yearly results, news update, investor service. If all this information was
available, we assigned a score of 1; otherwise 0. For question no. 46 if the company
provides two or more sets of accounts in their annual reports, we considered it
meeting standards; otherwise not. For question number 47 respondents were
cross-checked if the company has changed accounting policies during last 5 years
and if that has raised any controversy. For question number 59, the website of
Electronic Data Information Filing and Retrieval (EDIFAR) was checked before
meeting the respondents.
For question 21, score of 1 is assigned if the company has a written policy to
induct the independent directors otherwise 0. If the board include direct represen-
tatives of banks, financial/strategic investor and other large creditors of the
6.3 Development of Corporate Governance Index 157

company the score is 0. If the company has appointed an investor relation officer the
score assigned is 1; otherwise 0. The information for the questions number 52–57
was collected from annual reports. Question number 60 is a non-mandatory
requirement of SEBI Clause 49. The information is given in the annual report of the
company. The information for this question was collected from annual reports.
For question 17, we checked the annual report and the website of the companies
if there is a management committee different from board. We rated the company
with a score 1; otherwise 0. A score of 1 is assigned if the company has a policy to
rotate the auditor for question 19.
Information was gathered from public domain like websites, background section
of the prowess database and the respondents were cross-questioned to get a clear
response. Besides, annual reports were also investigated to obtain the information.
To cross-check the response for the questions 26 and 58, the information was
obtained from the annual report. If the companies are listed on overseas exchange,
they are required to comply with an additional set of disclosures, rules and regu-
lations depending on the exchange concerned. For question 41, it is reasonable to
presume that firms, listed on a United States Exchange, should have a better cor-
porate governance ranking. Firms listed in US exchange are required to comply
with USGAAP accounting standards, which might improve transparency. Second,
these firms are subject to many SEC laws and regulations that protect shareholders.
For question 31, information was gathered from public domain and the profile
section of Prowess (3.2) CMIE database and the respondents were cross-questioned
to get a clear response.
If there is a stake by foreign institutional investors (FII)/domestic institutional
investors (DII) we have assigned a score of 1. If there is no stake of FIIs or DIIs, we
have assigned a score of 0 for questions 34 and 35.
For questions 48 and 49, according to Indian rules and regulations, all share-
holders have the right to participate and vote at general meetings. The Companies
Act encourages proxy voting by granting all shareholders the legal right to appoint
a proxy. Until recently, laws in India promoted the “one share, one vote” principle.
But a rule enacted in 2001 by the Ministry of Company Affairs, now permits Indian
companies to issue shares with multiple voting rights as long as such shares do not
exceed 25 % of share capital. Provisions for cumulative voting, particularly in the
election of directors, would be a means to foster stronger minority shareholder
protection. But Indian law does not have specific provisions for cumulative voting.
If a company makes a decision to adopt and disclose the level of corporate
governance rating by any external rating agency, it works as a signaling to
investors. Thus, market realizes the effort of the company to increase the level of
corporate governance. CRISIL, a leading credit rating agency in India and one of
the four largest agencies in the world, has developed a yardstick in the form of
‘Governance and Value Creation Rating (GVC)’ on eight point scale. ICRA is
another rating agency which is engaged in corporate governance rating (CGR) in
India. ICRA assigns CGR on a six point scale. If the company has taken an
initiative to be rated by any external rated agency and has disclosed the rating
publicly, it is assigned a score of 1 irrespective of the level of rating obtained.
158 6 Development of Corporate Governance Index

If the company has won any award for Corporate Governance, it is assigned a
score of 1; otherwise 0. If the company or management publicly articulated its
corporate social responsibility (CSR) practices, it is assigned a score of 1; otherwise
0. The annual report of the company has been used to cross-check the corporate
social responsibility (CSR) practices.
Table 6.2 presents the questions rated on three point scale. For question 16 and
33 the companies are rated as
Always: 1,
Sometimes: 0.5,
Never: 0.
The response for the question 25 is rated as
Comprehensive Review: 1,
Partial Review: 0.5,
No Review: 0.
Table 6.3 presents the questions rated on five point scale.
For question number 2(b) the companies are rated for application of principles of
good governance as
No Priority: 0,
Lowest Priority: 0.25,
Low Priority: 0.5,
Priority: 0.75,
Top Priority: 1.
The response for question 5 is rated as
No comment: 0
Consolidated: 0.25
Consolidated + Performance: 0.5
Consolidated + Performance + Net Profit: 0.75
Consolidated + Performance + Net Profit + Share Price (Stock options): 1
The responses of questions numbers 12–14 are rated as
Always: 1,
Mostly: 0.75,

Table 6.2 Questions on three point scale

Sr. No. Que. No. Statement
Transparency (TRA)
1 16 Does the company consistently disclose major and market-sensitive
information punctually?
2 33 Whether senior management ensures that right market/price sensitive
information is timely disclosed?
Accountability (ACC)
3 25 Does the audit committee conduct a detailed review of the work of
auditors?
6.3 Development of Corporate Governance Index 159

Table 6.3 Questions on five point scale

Sr. No. Que. No. Statement
Management discipline (MDIS)
1 2(b) Application of these principles is given:
2 5 In your company, the compensation for the top executive(s) is based
on
Transparency (TRA)
3 12 Does the company publish its full year results within 3 months of the
end of the financial year?
4 13 Does the company send half-yearly reports to each household of
shareholders at the end of the half-year?
5 14 Does the company publish/announce quarterly reports within 1 month
of the end of the quarter?
Accountability (ACC)
6 24 What is the normal time lag between notice of the board meeting (sent
along with agenda) and actual board meetings?

Occasionally: 0.5,
Sometimes: 0.25,
Never: 0.
Question 13 is a non-mandatory requirement of SEBI-Clause 49. We have
cross-checked the responses from the information available in the annual reports of
the company. It was checked from the annual reports and the Capitaline database
that companies have not changed their annual year during last 5 years. If a company
has changed the financial year once in last 5 years, it is assigned a score of 0.75. If
the companies have changed twice, then they are assigned a score of 0.5.
For question 24, the response is rated as
1 day: 0,
2 days: 0.25,
3 days: 0.5,
1 week: 0.75,
More than 1 week: 1
I Table 6.4, for question 39, if the Investor relation officer reports to a board
member or the chairman of shareholders grievance committee or audit committee,
we have assigned a score of 1; if he reports to chief executive officer, we have
assigned a score of 0.
Question 4 is related to equity-holding of CEO. Figure 6.2 reveals the frequency
distribution of equity-holding of CEO of respondent companies.
Question 37 is related to board size of respondent companies. The frequency
distribution of board size is shown in Fig. 6.3. The average board size of the
respondent companies is 9.1. The average board size is higher than the optimal
board size of six or eight directors as suggested by Jensen (1993).
160 6 Development of Corporate Governance Index

Table 6.4 Factual open-ended questions

Sr. No. Que. No. Statement
Management discipline (MDIS)
1 4 Please state the percentage of equity holding of CEO/MD in the
company’s equity?
Transparency (TRA)
2 15 How much time, in general, management takes between the Board
meeting to accept results for a period (quarterly/half-yearly/annual)
and the public announcement of the results?
Accountability (ACC)
3 20 Who recommends to the board the appointment of the auditors?
Responsibility (RES)
4 37 How many members are on the Board? (Please specify)
Fairness (FAI)
5 39 To whom investor relation officer reports?

Board size of the respondent companies

37
40
32
No of companies

30
20
18 18
20 15 16
12
10 4 5 5
3 3
1
0
4 5 6 7 8 9 10 11 12 13 14 15 16 20
Board size

Fig. 6.3 Distribution of board size of the respondent companies

6.4 Corporate Governance Score of Respondent

Companies

An equal-weighted index has been created on the basis of the score obtained in
seven different sections as in Eq. (6.4.1)
P15 P13 P11 P10 P10 P5 P3
j¼1 MDIS þ j¼1 IND þ j¼1 TRA þ j¼1 ACC þ j¼1 FAI þ j¼1 RES þ j¼1 CGR
CGS ¼
67
ð6:4:1Þ

Table 6.5 presents the corporate governance score of the respondent companies.
Average corporate governance score of the respondent companies is 71.96.
6.4 Corporate Governance Score of Respondent Companies 161

Table 6.5 Corporate Company Year of Corporate governance

governance index of code M&A score
respondent companies
1 2008 98.5
2 2008 98.5
3 2009 98.5
4 2006 97
5 2004 94.2
6 2007 94
7 2008 94
8 2008 91
9 2008 91
10 2006 89.6
11 2008 89.6
12 2008 89.2
13 2008 89.2
14 2008 88.1
15 2015 88.1
16 2007 86.9
17 2015 86.9
18 2005 86.6
19 2007 86.6
20 2007 86.6
21 2007 86.6
22 2010 86.6
23 2013 86.6
24 2014 86.6
25 2007 86.2
26 2008 85.8
27 2013 85.8
28 2014 85.8
29 2007 85.4
30 2013 85.4
31 2008 84.7
32 2008 84
33 2007 83.6
34 2007 83.6
35 2008 83.2
36 2007 82.8
37 2007 82.8
38 2004 82.1
39 2006 82.1
40 2012 82.1
(continued)
162 6 Development of Corporate Governance Index

Table 6.5 (continued) Company Year of Corporate governance

code M&A score
41 2008 81.7
42 2008 81.7
43 2006 81.3
44 2007 81.3
45 2008 81.3
46 2011 81.3
47 2007 81
48 2006 80.2
49 2007 80.2
50 2008 79.9
51 2005 79.5
52 2005 79.5
53 2005 79.5
54 2011 79.5
55 2007 78.7
56 2007 78.7
57 2006 78.4
58 2008 78.4
59 2009 78.4
60 2006 78
61 2006 78
62 2008 78
63 2012 78
64 2003 77.6
65 2004 77.6
66 2004 77.6
67 2004 77.6
68 2004 77.6
69 2008 77.6
70 2008 77.6
71 2008 77.6
72 2011 77.6
73 2006 77.2
74 2003 76.9
75 2003 76.9
76 2004 76.9
77 2008 76.9
78 2006 76.1
79 2007 76.1
80 2006 75.7
(continued)
6.4 Corporate Governance Score of Respondent Companies 163

Table 6.5 (continued) Company Year of Corporate governance

code M&A score
81 2007 75.7
82 2007 75.4
83 2007 75
84 2005 74.6
85 2005 74.6
86 2005 74.6
87 2006 74.6
88 2005 74.3
89 2006 74.3
90 2008 74.3
91 2008 74.3
92 2003 73.9
93 2006 73.9
94 2011 73.9
95 2007 73.5
96 2007 73.5
97 2007 73.5
98 2003 73.1
99 2008 72.8
100 2007 72.4
101 2007 72.4
102 2010 72.4
103 2005 72
104 2007 72
105 2007 72
106 2008 72
107 2003 71.3
108 2006 71.3
109 2007 71.3
110 2006 70.9
111 2007 70.9
112 2007 70.9
113 2007 70.9
114 2007 70.9
115 2008 70.9
116 2010 70.9
117 2003 70.5
118 2006 70.5
119 2006 69.8
120 2004 69.4
(continued)
164 6 Development of Corporate Governance Index

Table 6.5 (continued) Company Year of Corporate governance

code M&A score
121 2007 69.4
122 2007 69
123 2007 69
124 2007 68.7
125 2008 68.7
126 2009 68.7
127 2009 68.7
128 2007 67.9
129 2007 67.5
130 2005 67.2
131 2006 67.2
132 2009 67.2
133 2007 66.8
134 2009 66.4
135 2006 66
136 2008 66
137 2004 65.7
138 2005 65.7
139 2007 65.7
140 2008 65.4
141 2008 64.9
142 2007 64.2
143 2008 64.2
144 2004 63.4
145 2006 63.4
146 2007 63.4
147 2008 63.1
148 2007 62.7
149 2007 62.7
150 2003 62.3
151 2006 62.3
152 2007 61.6
153 2006 60.8
154 2007 60.1
155 2008 60.1
156 2008 59.3
157 2008 59
158 2003 58.6
159 2008 58.2
160 2003 57.8
(continued)
6.5 Concluding Observations 165

Table 6.5 (continued) Company Year of Corporate governance

code M&A score
161 2005 57.8
162 2005 57.8
163 2006 57.8
164 2004 57.5
165 2007 57.5
166 2007 56.7
167 2007 56.3
168 2008 55.2
169 2003 54.9
170 2006 54.9
171 2007 54.9
172 2003 54.5
173 2005 54.1
174 2006 53.7
175 2006 53.4
176 2007 52.2
177 2007 50.4
178 2008 48.1
179 2007 47
180 2004 46.3
181 2008 46.3
182 2005 44.8
183 2008 44.8
184 2008 44
185 2004 43.7
186 2008 42.9
187 2006 39.9
188 2007 37.7
189 2003 30.6
Average score 71.96

6.5 Concluding Observations

An attempt has been made to develop a corporate governance index. For the pur-
pose of this study, corporate governance standards, as prevailing and in practice are
assessed in respect of 189 companies. Information for the study was collected
through a wide range of sources which included the annual reports and corporate
governance reports of the respective companies. Practice of corporate governance
has progressed in a big way in Indian companies as revealed by their average score.
166 6 Development of Corporate Governance Index

There are several companies which made proactive initiatives in introducing good
governance norms and standards even before these became mandatory. The scores
obtained are used for further analysis in Chap. 7.

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Chapter 7
Impact of Corporate Governance Score
on Abnormal Returns and Financial
Performance

Abstract The present chapter provides the empirical evidence on relationship

between corporate governance score and M&A performance in Indian context. The
role of corporate governance has been explored on the measurement of the an-
nouncement effects on the acquiring firms. The empirical findings indicate that
companies with high corporate governance score have positive abnormal returns in
the short-term, better financial performance, and higher valuations post-M&A,
while companies with lower corporate governance score have lower financial
performance and lower valuations post-M&A.

Keywords Financial performance Valuation Price to book ratio Price-earnings


ratio Agency theory

7.1 Introduction

Corporate governance aims at resolving conflicts of interest between managers and

shareholders; between large shareholders and minority shareholders, and thus
mitigates agency costs. Financial transparency, operational transparency and
information disclosure are extremely important elements of corporate governance.
Firms with poor corporate governance practices are usually associated with a low
level of financial and operational transparency, and low quality of information
disclosure, which implies great information asymmetry. Agency theory suggests
that firms with better corporate governance standards perform better because of
lower agency costs and more effective monitoring mechanisms. Botosan (1997)
noted less information asymmetry between shareholders and managers due to better
corporate governance practices. Lang and Lundholm (1999) observed lower
information risk associated with a higher level of transparency and higher quality of
disclosure. The market for corporate control is an important corporate governance
mechanism. An important question in this regard is how corporate governance
practices of acquirer firms directly influence performance outcomes of acquisitions
decisions.

© Springer Science+Business Media Singapore 2016 169

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6_7
170 7 Impact of Corporate Governance Score on Abnormal Returns …

While corporate governance has received more attention in recent years, the role
that such governance plays in merger and acquisition strategy has not attracted such
attention particularly in India. Much of the recent academic attention on corporate
governance has been focused on corporate accounting scandals and their preven-
tion. Corporate governance and merger strategy, however, has not been the focus.
The important question of whether good corporate governance leads to higher stock
returns on the announcement of M&A and consequently to higher firm valuation
and better financial performance has not received attention.
The question deserves attention for several reasons. Mergers and acquisitions
serve as an important instrument of corporate governance to increase corporate
efficiency. The primary objective of the chapter is to investigate the relationship
between corporate governance score and performance of acquiring firms in
short-term as well as long-term.
The present chapter investigates the impact of corporate governance score on the
abnormal returns. Further, association between corporate governance score and the
financial performance of the sample acquiring firms post-merger and acquisition
have been examined.
The chapter has been organized into five sections. Section 7.2 presents the
analysis of corporate governance score of the respondent companies; this section is
divided into Sects. 7.2.1 and 7.2.2 explaining the frequency distribution of cor-
porate governance score and group-wise t-test respectively. Impact of corporate
governance score on short-term abnormal returns has been presented in Sect. 7.3.
The discussion on association between corporate governance score and post-M&A
performance is delineated in Sect. 7.4; this section is divided into Sects. 7.4.1 and
7.4.2 describing the impact of corporate governance score on financial performance
and valuation respectively. Section 7.5 presents the concluding observations.

7.2 Analysis of Corporate Governance Score

Corporate governance index (CGI) is constructed on the basis of total scores

obtained for 67 attributes of corporate governance covered in questionnaire.
Corporate governance score has been calculated for each attribute individually and
total score has been used to rank the companies. Minimum accepted standards have
been met by all companies in the sample. These minimum standards are the
mandatory requirements of SEBI Clause 49 on Corporate Governance. Our ques-
tionnaire contains 18 such questions and the minimum average score for such
minimum accepted standards1 is 26.9 % (this conforms to SEBI’s requirement).

1
Calculated as ((mandatory requirement/total attributes) * 100) i.e. ((18/67) * 100) = 26.9 %.
7.2 Analysis of Corporate Governance Score 171

Table 7.1 Year-wise Frequency distribution of corporate governance score, 2003–2015

Year Mean CG Minimum CG Maximum CG Number of respondent
score score score companies
2003 64.53 30.6 77.6 13
2004 69.97 43.7 94.2 13
2005 69.51 44.8 86.6 15
2006 70.65 39.9 97 28
2007 70.24 37.7 94 54
2008 73.45 42.9 98.5 44
2009 74.65 66.4 98.5 6
2010 76.63 70.5 86.6 3
2011 78.08 73.9 81.3 4
2012 80.05 78 82.1 2
2013 85.93 85.4 86.6 3
2014 85.93 85.4 86.6 2
2015 87.5 86.9 88.1 2
Total 71.96 30.6 98.5 189

7.2.1 Distribution of Corporate Governance Score

A survey of 189 companies was conducted to construct a corporate governance

index. We then classify companies, using quartiles based on their corporate gov-
ernance score, into four governance portfolios. Mean average score for the sample
is 71.96 %.
Table 7.1 shows the distribution of survey-based corporate governance score for
189 Indian public-listed firms. It is evident that mean corporate governance score
has increased from 64.53 in 2003 to 87.5 in 2015. The minimum as well as
maximum score has also shown improvement over time. It appears from the rele-
vant data that Indian corporates have learned and become conscious about the
importance of good corporate governance over time. Moreover, the minimum
mandatory requirements have also graduated and have become stringent over the
period 2003–2015.
Table 7.2 presents quartile-wise mean corporate governance score of respondent
companies. Companies in upper quartile (Q4) have score above 80 %. These are the
companies which have gone beyond the mandatory requirements and moved ahead
in pursuit of excellence in corporate governance. Companies in the lower quartile
(Q1) are the companies complying with the minimum mandatory standards of
corporate governance. Table shows that nearly 25 % companies in the sample had
scores below 54.6 %. Mean average score for the sample is 71.96 %.
172 7 Impact of Corporate Governance Score on Abnormal Returns …

Table 7.2 Mean corporate governance score of respondent companies, Quartile-wise

Quartile Mean corporate governance score (CGS) Number of companies
Upper quartile (Q4) 81 47 (24.9 %)
Q3 77 47 (24.9 %)
Q2 69.7 47 (24.9 %)
Lower quartile (Q1) 54.6 48 (25.3 %)
Sample 71.96 189 (100 %)

Table 7.3 Sector-wise frequency distribution of corporate governance score, 2003–2015

Sector Mean CG Minimum CG Maximum Number of respondent
score score CG score companies
Manufacturing 70.98 30.6 98.5 128
Services 74.01 42.9 98.5 61
Total 71.96 30.6 98.5 189

7.2.2 Group-Wise Independent Samples t-Test

7.2.2.1 Independent Samples t-Test for Manufacturing Sector

and Service Sector Groups

The respondents have been divided into two groups based on the industry they
belong to, manufacturing and services. Table 7.3 reveals the sector-wise distribu-
tion of corporate governance score of the respondent companies. It is obvious from
the relevant data that companies in service sector have better corporate governance
score. It appears that companies in service sector are conscious for their corporate
governance practices and put their corporate governance structures in place.
An independent samples t-test has been conducted to observe if there is a sig-
nificant difference between the corporate governance score of these groups.
Table 7.4 reports the findings of the independent samples t-test. The results illus-
trate that firms in service sector vis-à-vis manufacturing sector are more conscious
for governance; however, the difference in corporate governance score is not sig-
nificant (p-value = 0.129 > 0.05).

Table 7.4 Independent samples t-test statistics of corporate governance score on manufacturing
and services sector
Mean CGR for services Mean CGR for manufacturing Mean t-value Significance
group (N = 61) group (N = 121) difference level
74.01 70.98 3.03 1.52 0.129
7.3 Impact of Corporate Governance Score … 173

7.3 Impact of Corporate Governance Score

on Short-Term Abnormal Returns

If the corporate governance structure is effective, the managers are less likely to
pursue those mergers and acquisitions which result in shareholders’ wealth
reduction. This leads to the first hypothesis
There is positive relationship between corporate governance score and share-
holders’ wealth due to announcements of mergers and acquisitions.
Table 7.5 summarizes the results of short-term event study of the respondent
companies. The relevant data contained in the Table shows that respondent com-
panies earn 1.35 % average abnormal returns on the announcement day; the returns
are significant. Precision-weighted CAAR is 1.29 % and median abnormal return is
0.96 %. It is evident from the Table that highest CAAR (2.77 %) is observed during
5 days window (−5, +5); almost 60 % respondent companies earn positive
abnormal returns. Moreover, the returns are significant.
Figure 7.1 exhibits the average abnormal returns of the respondent companies
during event window (–20, 20). It is obvious from the graph that share prices jump
up to 1 % on the announcement day. Figure 7.2 displays the cumulative average
abnormal returns of the respondent companies during event window (−20, 20). It is
evident from the graph that share prices start rising 5 days before event (−5), shoot
up to almost 5 % on day 3, and start falling (afterwards).
Table 7.6 presents the quartile-wise CAAR of the respondent companies. The
respondent companies have been classified, using quartiles based on their corporate
governance score, into four governance portfolios. It is evident from the Table that
average abnormal return on the announcement day for the respondent companies is
1.35 %, while the companies in upper quartile (Q4) have positive average abnormal
return of 6.21 % which is significantly (p-value = 0 < 0.01) higher than the

Table 7.5 Summary statistics of event study abnormal returns to the respondent companies
Event window (0, 0) (−1, + 1) (−2, + 2) (−5, + 5)
CAAR (%) 1.35 1.78 2.35 2.77
PWCAAR (%) 1.29 1.59 1.95 2.27
Median (%) 0.96 1.27 1.67 2.48
Positive (%) 66.2 59.3 64 59.3
CDA t 5.105b 3.882b 3.974b 3.152b
b
CSS t 4.831 4.072b 4.463b 3.896b
b
SCS Z 4.767 3.606b 3.814b 3.384b
b
GSign Z 5.778 3.878b 5.193b 3.878b
b
Rank Z 5.703 3.972b 3.973b 3.296b
b
Jackknife Z 5.046 3.624b 3.740b 3.217b
a, b
Denote significance at 5 and 1 % respectively
174 7 Impact of Corporate Governance Score on Abnormal Returns …

Average abnormal return to the respondent companies

1.50%

1.00%

0.50%
Return

0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20
-0.50%

-1.00%
Event window (days)

Fig. 7.1 Average abnormal returns to the respondent companies over event window (−20, +20)

Cumulative average abnormal return to the respondent companies

6.00%
5.00%
4.00%
Return

3.00%
2.00%
1.00%
0.00%
-20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20

Event window(days)

Fig. 7.2 Cumulative average abnormal returns to the shareholders of respondent companies over
event window (−20, +20)

Table 7.6 Cumulative average abnormal returns to the shareholders of respondent companies
Quartile corporate governance (0, 0) (−1, + 1) (−2, + 2) (−5, + 5)
ranking (%) (%) (%) (%)
Upper quartile (Q4) 6.21 5.06 5.47 5.35
Q3 1.78 2.25 2.38 3.15
Q2 −1.85 0.66 1.17 1.91
Lower quartile (Q1) −0.69 −0.80 0.43 0.64
Mean 1.35 1.78 2.35 2.77
7.3 Impact of Corporate Governance Score … 175

Table 7.7 Independent samples t-test for difference of mean CAR [Upper quartile (Q4), Lower
quartile (Q1)]
Mean CAR (Q4) Mean CAR (Q1) Mean difference t-value Significance
(%) (%) (%) value
(0, 0) 6.21 −0.69 6.91 4.99b 0.000
(−1, + 1) 5.06 −0.80 5.86 3.67b 0.000
(−2, + 2) 5.47 0.43 5.04 2.52b 0.013
(−5, + 5) 5.35 0.64 11.9 2.59a 0.011
a, b
Denote significance at 5 and 1 % respectively

abnormal return of companies in lower quartile (Q1). Companies in the lower

quartile (Q1) have negative average abnormal return (−0.69 %).
Table 7.7 depicts that a significant mean difference of 5.9 % (p-value = 0 <
0.01), 5 % (p-value = 0 < 0.01), and 11.9 % (p-value = 0.011 < 0.05) respec-
tively, between CAAR of companies in upper quartile (Q4) and lower quartile (Q1)
has also been observed for event window of 3 days (−1, 1), 5 days (−2, 2), and
11 days (−5, 5).
On the basis of empirical results, it is reasonable to conclude that there is a
positive association between corporate governance score and shareholders’ wealth
due to announcements of mergers and acquisitions. Companies with better corpo-
rate governance create higher shareholders wealth in short-term. It is reasonable to
conclude that the stock market responds positive to the acquisitions by
better-governed companies.

7.4 Impact of Corporate Governance Score on Post-M&A

Performance

If better corporate governance is related to better firm performance, better-governed

firms should perform better than not so well governed firms. This section conducts a
cross-section comparison of the performance of firms with corporate governance
score in upper quartiles (Q4) with the firms in lower quartiles (Q1).

7.4.1 Impact of Corporate Governance Score on Post-M&A

Financial Performance

Financial performance has been measured in terms of the important profitability

ratios which measure how efficiently financial resources are deployed by the
management. The study tests the following hypotheses to measure the impact of
corporate governance on financial performance.
176 7 Impact of Corporate Governance Score on Abnormal Returns …

Firms with better overall corporate governance have better financial perfor-
mance, i.e., the financial performance of the companies with higher corporate
governance score is higher than the financial performance of the companies with
lower corporate governance score.
The financial performance has been judged on the basis of profitability ratios
related to investments, namely, capital employed and equity funds. Accordingly,
the following two ratios have been computed for 5 years (t + 1, t + 2, t + 3, t + 4,
t + 5) subsequent to mergers and acquisitions:
• ROCE (return on capital employed) and
• ROE (return on equity funds).
Return on the basis of sales has been computed in terms of net profit margin
(NPM). Actual economic gains from assets are captured by operating cash flows.
The change in acquisition-related performance of the acquirer is examined by
comparing operating performance before and after the acquisition. For this purpose,
operating cash flow profit ratio (OCFR) based on sales has also been calculated.
Table 7.8 depicts the results of post-M&A ratios of the respondent companies. It
is evident from the relevant data that mean return on the capital employed of the
respondent companies 1 year post-M&A is 21.1 % while the companies in upper
quartile (Q4) have an mean return of 26.2 % which is significantly higher than the
mean ROCE of companies in lower quartile (Q1). Companies in the lower quartile
(Q1) have mean ROCE of 21.1 %. Mean return on capital employed of companies
in upper quartile (Q4) is 33.1, 28.3, 30.9, and 28.2 for 2 years, 3 years, 4 years, and
5 years, respectively. Mean return on capital employed of companies in lower
quartile (Q1) is 21.5, 15.6, 17.7, and 17.4 for 2 years, 3 years, 4 years, and 5 years,
respectively.
Mean ROE of the respondent companies one year post-M&A has been observed
to be 17.4 % whereas the ROE for the upper quartile companies (Q4) is 26.2 % but
in the lower quartile (Q1) ROE is 15.1 %. Mean return on equity funds of com-
panies in upper quartile (Q4) is 23.9, 18.6, 18.8, and 20.4 for 2 years, 3 years, 4
years, and 5 years, respectively. Mean ROE of respondent companies in lower
quartile (Q1) is 10.4, 12.1, 11.2, and 11.4 for 2 years, 3 years, 4 years, and 5 years,
respectively.
The relevant data contained in Table 7.8 reveals that mean net profit margin
(NPM) of the respondent companies 1 year post-M&A is 11.8 % while the com-
panies in upper quartile (Q4) have a mean NPM of 17.2 % which is significantly
higher than the mean NPM of companies in lower quartile (Q1). Companies in the
lower quartile (Q1) have mean NPM of 8.4 %. Mean NPM of companies in upper
quartile (Q4) is 16.3, 13.1, 16.8, and 13.5 for 2 years, 3 years, 4 years, and 5 years,
respectively. Mean NPM of companies in lower quartile (Q1) is 9.2, 8.4, 7.6, and
8.6 for 2 years, 3 years, 4 years, and 5 years, respectively.
7.4 Impact of Corporate Governance Score on Post-M&A Performance 177

Table 7.8 Corporate governance ranking and financial performance post-M&A of the respondent
companies, Quartile-wise
Quartile corporate governance ranking ROCE ROE NPM OCFR
A: One year post-M&A (t + 1) N = 188
Upper quartile (Q4) 26.2 24.5 17.2 19.1
Q3 24.8 17.2 11.4 15.8
Q2 18.1 13.5 10.1 14.7
Lower quartile (Q1) 15.1 14.4 8.4 12.2
Mean 21.1 17.4 11.8 15.5
B: Two years post-M&A (t + 2) N = 180
Upper quartile (Q4) 33.1 23.9 16.3 25.9
Q3 27.2 16.3 13.2 20.4
Q2 25.9 13.8 10.1 20.2
Lower quartile (Q1) 21.5 10.4 9.2 11.7
Mean 24.6 16.1 12.2 19.5
C: Three years post-M&A (t + 3) N = 176
Upper quartile (Q4) 28.3 18.6 13.1 25.7
Q3 22.9 17.5 12.9 20.2
Q2 19.6 16.4 9.7 19.8
Lower quartile (Q1) 15.6 12.1 8.4 11.2
Mean 21.6 16.1 11.4 19.2
D: Four years post-M&A (t + 4) N = 156
Upper quartile (Q4) 30.9 18.8 16.8 20.5
Q3 31.9 16.1 11.1 16.1
Q2 21.2 14.2 10.7 14.5
Lower quartile (Q1) 17.7 11.2 7.6 9.7
Mean 23.7 15.1 11.6 15.2
E: Five years post-M&A (t + 5) N = 148
Upper quartile (Q4) 28.2 20.4 13.5 22.6
Q3 24.4 14.9 12.9 14.6
Q2 20.4 12.1 9.2 13.6
Lower quartile (Q1) 17.4 11.4 8.6 10.3
Mean 22.5 14.7 11.1 15.2

Mean OCFR of the respondent companies is 15.5, 19.5, 19.2, 15.2, and 15.2 for
1 year, 2 years, 3 years, 4 years, and 5 years, respectively. Mean OCFR of com-
panies in upper quartile (Q4) is 19.1, 25.9, 25.7, 20.5, and 22.6 for 1 year, 2 years, 3
years, 4 years, and 5 years respectively. Mean ROE of respondent companies in
lower quartile (Q1) is 12.2, 11.7, 11.2, 9.7 and 10.3 for years, 1 year, 2 year, 3
years, 4 years, and 5 years, respectively.
To test the hypothesis H1, i.e., the financial performance of the companies with
higher corporate governance score is higher than the financial performance of the
178 7 Impact of Corporate Governance Score on Abnormal Returns …

Table 7.9 Independent sample t-test statistic for profitability ratios [Upper quartile (Q4), Lower
quartile (Q1)]
Year Mean ratio Mean ratio Mean difference t-value Significance
Post-M&A (Q4) (Q1) (%) value
A: ROCE
t+1 26.2 % 15.1 % 11.1 5.50b 0.000
(N = 47) (N = 47)
t+2 33.1 % 17.8 % 15.3 6.67b 0.000
(N = 45) (N = 45)
t+3 28.3 % 15.6 % 12.7 5.06b 0.000
(N = 43) (N = 43)
t+4 30.9 % 17.7 % 13.2 2.63b 0.010
(N = 39) (N = 39)
t+5 28.2 % 17.4 % 10.9 4.16b 0.000
(N = 37) (N = 37)
B: ROE
t+1 24.5 % 14.4 % 10.1 4.14b 0.000
(N = 47) (N = 47)
t+2 23.9 % 10.4 % 13.5 3.30b 0.001
(N = 45) (N = 45)
t+3 18.6 % 12.1 % 6.46 3.02b 0.003
(N = 43) (N = 43)
t+4 18.8 % 11.2 % 7.6 3.0b 0.004
(N = 39) (N = 39)
t+5 20.4 % 11.4 % 8.95 5.6b 0.000
(N = 37) (N = 37)
a, b
Denote significance at 5 and 1 % respectively

companies with lower corporate governance score. We have conducted t-test for the
difference of mean for ROCE, ROE and NPM and OCFR for upper quartile (Q4)
and lower quartile (Q1).
Table 7.9 reveals the results of profitability ratios (ROCE and ROE) and
Table 7.10 tabulates the results of performance ratios (NPM and OCFR). It is
evident from relevant data that companies in upper quartile (Q4) have 11.1, 15.3,
12.7, 13.2, and 10.9 % higher ROCE 1 year post-M&A, 2 years post-M&A, 3 years
post M&A, 4 years post-M&A, and 5 years post-M&A, respectively; moreover, the
difference is statistically significant at 1 %.
Panel B of Table 7.9 depicts that the companies with higher corporate gover-
nance score earn better return on equity funds. The higher returns are in the range of
10.1–13.5 % as is evident from the difference in ROE of companies in upper
quartiles (Q4) and lower quartile (Q1). The difference is statistically significant at
1 % (p-value = 0 < 0.01) and (p-value = 0.001 < 0.01) 1 year and 2 years
post-M&A respectively.
Such findings lead to conclusion that the null hypothesis of no difference
between the profitability of companies with different corporate governance score is
7.4 Impact of Corporate Governance Score on Post-M&A Performance 179

Table 7.10 Independent sample t-test statistic for performance ratios [Upper quartile (Q4), Lower
quartile (Q1)]
Year Mean ratio Mean ratio Mean t-value Significance
Post-M&A (Q4) (Q1) difference (%) value
A: NPM
t+1 17.2 % 8.4 % 8.8 5.73b 0.000
(N = 47) (N = 47)
t+2 16.3 % 9.2 % 7.1 3.49b 0.001
(N = 45) (N = 45)
t+3 13.1 % 8.38 % 4.7 4.35b 0.00
(N = 44) (N = 44)
t+4 16.8 % 7.6 % 9.2 2.1a 0.040
(N = 39) (N = 39)
t+5 13.5 % 8.6 % 4.8 2.5a 0.015
(N = 37) (N = 37)
B: OCFR
t+1 19.1 % 12.2 % 6.95 2.84b 0.005
(N = 47) (N = 47)
t+2 25.9 % 11.7 % 14.2 3.49b 0.001
(N = 45) (N = 45)
t+3 25.7 % (44) 11.2 % (44) 14.5 5.79b 0.000
t+4 20.5 % 9.7 % 10.8 3.67b 0.000
(N = 39) (N = 39)
t+5 22.6 % 10.3 % 12.5 3.21b 0.002
(N = 37) (N = 37)
a, b
Denote significance at 5 and 1 % respectively

rejected. It may be, therefore, concluded that companies with better overall cor-
porate governance have better profitable ratios.
Table 7.10 illustrates the results of t-test for the difference of mean for perfor-
mance ratios. It is evident from relevant data that companies in upper quartile(Q4)
have 8.8, 7.1, 4.7, 9.2, and 4.8 % higher NPM 1 year post-M&A, 2 years
post-M&A, 3 years post M&A, 4 years post-M&A, and 5 years post-M&A,
respectively; moreover, the difference is statistically significant.
Panel B of Table 7.10 depicts that the companies with higher corporate gover-
nance score earn better operating cash flow ratios. The higher returns are in the
range of 6.95–14.5 % as is evident from the difference in OCFR of companies in
upper quartile (Q4) and lower quartile (Q1). The difference is statistically significant
at 1 % (p-value = 0.005 < 0.01), (p-value = 0.001 < 0.01), (p-value = 0 < 0.01),
(p-value = 0 < 0.01), and (p-value = 0.002 < 0.01) 1 year, 2 years, 3 years, 4
years, and 5 years post-M&A, respectively.
Such findings lead to conclusion that the null hypothesis of no difference
between the performances of companies with different corporate governance score
is rejected. It may be, therefore, concluded that companies with better overall
corporate governance have better performance ratios.
180 7 Impact of Corporate Governance Score on Abnormal Returns …

7.4.2 Impact of Corporate Governance Score on Post-M&A

Valuation

To test the relationship between corporate governance score and financial valuation,
price to book ratio (PB) and price-earnings ratio (PE) have been computed. It is
hypothesized that firms with better overall corporate governance have higher firm
value, i.e., the financial valuation of the companies with higher corporate gover-
nance score is higher than the financial valuation of the companies with lower
corporate governance score.
Table 7.11 illustrates mean and the quartile-wise PB and PE ratio for the four
governance profile respondent companies. The relevant data contained in the

Table 7.11 Corporate Quartile corporate governance ranking PB PE

governance ranking and firm
valuation post-M&A of A: One year post-M&A (t + 1) N = 188
respondent companies, Upper quartile (Q4) 10.3 26.21
quartile-wise Q3 3.9 19.35
Q2 2.84 14.78
Lower quartile (Q1) 1.87 11.16
Mean 4.71 17.84
B: Two years post-M&A (t + 2) N = 180
Upper quartile (Q4) 8.35 28.67
Q3 2.19 19.05
Q2 1.69 13.36
Lower quartile (Q1) 1.32 11.80
Mean 3.39 18.22
C: Three years post-M&A (t + 3) N = 176
Upper quartile (Q4) 8.52 25.07
Q3 2.89 14.85
Q2 2.06 12.29
Lower quartile (Q1) 1.46 11.03
Mean 3.7 15.76
D: Four years post-M&A (t + 4) N = 156
Upper quartile (Q4) 8.98 26.15
Q3 3.75 16.52
Q2 2.23 11.44
Lower quartile (Q1) 1.66 7.08
Mean 4.26 15.29
E: Five years post-M&A (t + 5) N = 148
Upper quartile (Q4) 6.63 31.87
Q3 2.03 18.85
Q2 0.96 12.09
Lower quartile (Q1) 0.43 7.37
Mean 2.51 17.54
7.4 Impact of Corporate Governance Score on Post-M&A Performance 181

Table depicts that mean PB ratio of the respondent companies 1 year post-M&A is
4.71 % while the companies in upper quartile (Q4) have mean PB ratio of 10.3 %
which is significantly higher than the mean PB ratio of companies in lower quartile
(Q1). Companies in the lower quartile (Q1) have mean PB ratio of 1.87 %. Mean PB
ratio of companies in upper quartile (Q4) is 8.35, 8.52, 8.98, and 6.63 for 2 years, 3
years, 4 years, and 5 years, respectively. Mean PB ratio of companies in lower
quartile (Q1) is 1.32, 1.46, 1.66, and 0.43 for 2 years, 3 years, 4 years, and 5 years,
respectively.
Mean PE ratio of the respondent companies 1 year post-M&A has been observed
to be 17.84 % whereas the PE ratio for the companies in upper quartile (Q4) is
26.21 % but in the lower quartile (Q1) PE ratio is 11.16 %. Mean PE ratio of
companies in upper quartile (Q4) is 28.67, 25.07, 26.15, and 31.87 for 2 years, 3
years, 4 years, and 5 years, respectively. Mean PE ratio of respondent companies in
lower quartile (Q1) is 11.8, 11.03, 7.08 and 7.37 for 2 years, 3 years, 4 years, and 5
years, respectively.
Table 7.12 presents the results of the independent t-test to compare the mean
post-M&A PB and PE ratios of sample companies in upper quartile (Q4) and lower
quartile (Q1). It is evident from relevant data that companies in upper quartile (Q4)
have 8.38, 7.03, 7.06, 7.31, and 6.2 % higher PB ratio 1 year post-M&A, 2 years
post-M&A, 3 years post M&A, 4 years post-M&A, and 5 years post-M&A,
respectively; moreover, the difference is statistically significant.
Panel B of Table 7.12 depicts that the companies with higher corporate gover-
nance score are valued more by market as revealed by their PE ratios. The higher
valuations are in the range of 14.04–24.4 % as evident from the difference in PE
ratios of companies in upper quartile (Q4) and lower quartile (Q1). The difference is
statistically significant at 1 % (p-value = 0<0.01), (p-value = 0.001 < 0.01),

Table 7.12 Independent sample t-test statistic for valuation ratios [Upper quartile (Q4), Lower
quartile (Q1)]
Year Mean ratio Mean ratio Mean t-value Significance
Post-M&A (Q4) (Q1) difference value
A: PB
t+1 10.25 (N = 47) 1.87 (N = 47) 8.38 8.57b 0.000
t+2 8.35 (N = 45) 1.32 (N = 45) 7.03 6.75b 0.000
t+3 8.52 (N = 43) 1.46 (N = 43) 7.06 7.95b 0.000
t+4 8.97 (N = 39) 1.66 (N = 39) 7.31 8.61b 0.000
t+5 6.63 (N = 37) 0.43 (N = 37) 6.2 6.25b 0.000
B: PE
t+1 26.21 (N = 47) 11.16 (N = 47) 15.05 5.57b 0.000
t+2 28.67 (N = 45) 11.80 (N = 45) 16.87 3.55b 0.001
t+3 25.07 (N = 43) 11.03 (N = 43) 14.04 2.96b 0.004
t+4 26.15 (N = 39) 7.08 (N = 39) 19.04 2.96b 0.007
t+5 31.87 (N = 37) 7.37 (N = 37) 24.4 3.5b 0.001
a, b
Denote significance at 5 % and 1 % respectively
182 7 Impact of Corporate Governance Score on Abnormal Returns …

(p-value = 0.004 < 0.01), (p-value = 007 < 0.01), and (p-value = 0.001 < 0.01) 1
year, 2 years, 3 years, 4 years, and 5 years post-M&A, respectively. These results
indicate that the companies with better corporate governance score are valued
higher than the companies with lower corporate governance score.

7.5 Concluding Observations

The present chapter examines the impact of corporate governance practices of the
acquirers on short-term abnormal returns and long-term financial performance.
The results are revealing. The empirical findings show that companies with high
corporate governance score have positive abnormal returns in the short-term, better
financial performance and higher valuations post-M&A, while companies with
lower corporate governance score have lower financial performance and lower
valuations post-M&A. The results are consistent with La Porta et al. (2002) that
firms with better corporate governance enjoy higher valuation.
These findings have important implications. For investors, the findings imply
that, as far as agency costs are concerned, investments in companies with better
corporate governance score are more profitable. For corporate managers, the results
imply that the management should be aware of the need for efficient corporate
governance structure and mechanism to control agency problems. Better gover-
nance and disclosure practices increase investor confidence which, in turn, have
positive influence on valuation. Companies with good governance are likely to be
valued higher. For policy makers, the findings that firm performance is significantly
influenced by effective corporate governance could serve to justify regulatory
measures and actions towards enforcing healthy corporate governance regime and
initiatives to encourage corporates to adopt and adhere to these measures.

References

Botosan, C. (1997). Disclosure level and the cost of equity capital. Accounting Review, 72(3),
323–349.
La Porta, R., Lopaz-de-Silanes, F., Schleifer, A., & Vishny, R. (2000). Investor protection and
corporate governance. Journal of Financial Economics, 58(2), 3–27.
Lang, M., & Lundholm, R. (1999). Corporate disclosure policy and analysts behavior. Accounting
Review, 71(4), 467–493.
Chapter 8
Summary and Conclusions

Abstract The objective of this chapter is to provide a brief summary of the

research findings contained in this book. The findings are related to the assessment
of short-term and long-term performance of the acquirers who have adopted the
strategy of M&A during the chosen time span of the study. Based on the findings of
the study, certain recommendations have been made for investors, corporate
managers, and policy makers.

Keywords Financial performance Abnormal returns Corporate governance




Return on equity Corporate governance index Acquisitions

8.1 Introduction

Performance of mergers and acquisitions is like puzzles in finance that researchers

have been trying to solve. The present study is also an effort in the same direction. It
has been conducted to capture management’s views, market reaction, financial and
operating performance, pertaining to mergers and acquisitions in the Indian context.
This chapter presents a summary of major findings, recommendations, and
contributions of the study. The study attempts to evaluate the impact of mergers and
acquisitions on the returns in short-term as well as long-term. For the purpose,
well-established research techniques, namely, event study methodology and two
experimental designs viz. ‘before- and-after design’ and ‘after-only design’ have
been used. The ratio analysis, a well-accepted tool to measure the financial per-
formance, has been employed to analyze the data. Statistical tools such as paired t-
test and independent t-test are also used for testing various hypotheses and drawing
inferences. Besides these techniques, two surveys have also been conducted for
top-level Indian corporate managers of the organizations that adopted the strategy
of M&A during the chosen time span of the study. The surveys aim to gauge the
managerial views about the corporate governance practices and the motives of
mergers and acquisitions. The findings of the surveys have been corroborated with
the secondary data analysis.

© Springer Science+Business Media Singapore 2016 183

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6_8
184 8 Summary and Conclusions

The rest of the chapter is divided into five sections. Section 8.2 presents the
major empirical findings, summarized objective-wise. Based on the findings of the
study, certain recommendations have been made in Sect. 8.3. This section is
divided into two Sects. 8.3.1 and 8.3.2 providing a set of recommendations for
investors and corporate managers respectively. Major contributions of the study
have been reported in Sect. 8.4. The chapter concludes with Sect. 8.5.

8.2 Major Findings of the Research

The major findings have been summarized objective-wise in the following

subsections.

8.2.1 Findings Related to Short-term Abnormal Returns

of M&A

Objective 1: To measure the effect of the announcement of mergers and acquisi-

tions on stock returns of acquiring firms by
1:1 Ascertaining the magnitude and the direction of the abnormal returns for the
entire sample.
• Market starts reacting prior to the announcement. The moment the an-
nouncement information becomes public, investors start reacting and the
stock price jumps high, providing positive abnormal returns to the inves-
tors. This reaction clearly indicates that investors perceive synergies in
mergers and acquisitions and they appear to be beneficial for them.
“EARLIER HE SELLS, MORE HE GAINS” is the major finding of
short-term abnormal returns.
1:2 Conducting analysis of the abnormal returns for subsamples on the basis of:
(i) Domestic and cross-border M&A.
(ii) Method of payment (cash, stock).
(iii) Form of target firm acquired (listed, unlisted).
(iv) Status of target firm (remains wholly owned subsidiary, absorbed with
the operations of the acquirer).
(v) Stake of acquisitions (partial/majority control, complete control).
(vi) Origin of target firm (developed market, emerging market).
8.2 Major Findings of the Research 185

• Cross-border as well as domestic acquisitions have created value for share-

holders of the acquiring company on the announcement. The results indicate that
value creation is higher for cross-border acquisitions vis-a-vis domestic
acquisitions.
• The acquisitions, financed with cash, experience higher returns than the
acquisitions financed with stock. This could be a signal in favor of “asymmetric
information hypothesis and free cash flow hypothesis”. “ISSUANCE
OF STOCK IS NOT GOOD NEWS” as per the findings.
• The acquirers of unlisted target firms experience higher returns than the
acquirers of listed target firms.
• The acquirer earns when target remains as a wholly owned subsidiary (WOS). In
contrast, the acquirer shareholder loses when the target firm is absorbed with the
operations of the acquiring firm.
• The acquisitions of targets from non-US developed market outperform the
return from the acquisition of US targets.

8.2.2 Findings Related to Management Views on Motives

for M&A

Objective 2: To gain insight into managerial views about motives and sources of
synergies of M&A.
• Survey findings reveal that the primary motive of mergers in India during the
period of study has been to take advantage of synergies.
• Operating economies, increased market share and financial economies (lower
risk leading to lower cost of capital) have been indicated in order of importance
as the desired synergies to be gained through corporate mergers and acquisitions
in India

8.2.3 Findings Related to Financial Performance of M&A

Objective 3: To measure the magnitude and the direction of change in the financial
performance of the acquiring firms post-M&A.
• M&A appear to have been financially beneficial for the acquiring companies.
The findings suggest that profitability of acquiring firms has improved during
post-M&A phase.
• Better management of liquidity position during the post-M&A period has also
been observed.
• M&A has no impact on the leverage of acquiring firms before and after M&A.
186 8 Summary and Conclusions

• Operating profit margin based on sales have improved post-M&A. The signif-
icantly higher post-M&A operating margin indicates that the acquirers appear to
have generated higher operating profit per unit net sales, post-M&A.
• The better operating margin seems to be due to the lower costs as a result of
economies of scale. Negative t-values identified by paired samples t-test on
expense ratios also corroborate this finding.
• The efficiency of utilization of assets does not appear to have improved as
revealed by total assets turnover ratio post-M&A.

8.2.4 Findings Related to Corporate Governance Score

Objective 4: To gain insight into corporate governance practices of acquirers by

developing a corporate governance index.
• Practice of corporate governance has progressed in a big way in Indian com-
panies as revealed by their average score. There are several companies which
made proactive initiatives in introducing good governance norms and standards
even before these became mandatory.
• Companies in the lower quartiles are those complying with the minimum
mandatory standards of corporate governance.
• Companies in service sector vis-à-vis manufacturing sector have better corporate
governance score. It implies that companies in service sector are more conscious
for their corporate governance practices and put their corporate governance
structures in place.
• Mean corporate governance score has improved over time.

8.2.5 Findings Related to Impact of Corporate Governance

Score

Objective 5: To ascertain the impact of corporate governance on stock returns due

to the announcement of mergers and acquisitions and financial performance.
• There is a positive association between corporate governance score and share-
holders’ wealth due to announcements of mergers and acquisitions. Companies
with better corporate governance create higher shareholders’ wealth in
short-term.
• Companies having higher corporate governance score show better financial
performance on the basis of all measures of rate of return.
8.2 Major Findings of the Research 187

• Companies with higher corporate governance score show better valuations.

• Companies with higher rank of corporate governance index are good performers
(manifested in their better profitability ratios). Their post-M&A better financial
performance and valuation shows that well-governed companies bring positive
synergies from their M&A activities which is recognized by market, as evi-
denced by higher valuation ratios

8.3 Recommendations from the Study

Based on the concluding observations and notable findings of the research, the
following recommendations are made for the investors and the corporate managers.

8.3.1 Recommendations for Investors

Based on the notable findings and the concluding observations of the present
research study, it has been noticed that an investor can gain substantial returns, if
he/she makes the right moves when acquirers’ decisions on M&A are announced.
The following recommendations/guidelines have been made for the investors.
• “EARLIER HE SELLS MORE HE GAINS” and “ISSUANCE OF STOCK
IS NOT GOOD NEWS” are the major recommendations.
• The results show that positive abnormal returns can be earned during the pre-
announcement window due to the information about the board meeting as well
as agenda item communicated to the exchange. An investor can gain substantial
returns, if he/she purchases the share on the day the news of board meeting
(announcing the deal) comes to the market and sells them one day after the
announcement.
• An investor can also earn substantial returns if the shares of the acquiring
company are purchased two days prior to the announcement day and sold two
days after the announcement day.
• The announcement of cross-border acquisitions provides much higher returns
vis-a-vis domestic acquisitions. In addition, the cumulative abnormal returns in
the case of cross-border acquisitions are relatively more while they are tem-
porary in the case of domestic acquisitions.
• The announcement of complete acquisitions of target firm as a wholly owned
subsidiary provides much higher returns than that for partial/majority control
acquisitions. In addition, the cumulative abnormal returns in the case of
188 8 Summary and Conclusions

complete acquisitions are relatively more permanent while they are temporary in
the case of partial/majority control acquisitions.
• The announcement of acquisitions, financed with cash payment, provides sub-
stantial returns.
• As far as agency costs are concerned, investments in companies with better
corporate governance score are more profitable.

8.3.2 Recommendations for Corporate Managers

The findings of this study have certain implications for the corporate managers and
policy makers as well. They have been presented as follows.
• The findings and examples we present here indicate that managers can consider
cross-border as well as domestic acquisitions as an option to strengthen their
competitiveness since the effects of these announcements appear to be a good
indicator of longer term success. The study suggests that the Indian managers
could adopt mergers and acquisitions as effective strategy for corporate growth.
• The findings also have a message for the managers about stock versus cash as
the mode. Issuance of shares is not as good as payment in cash as shown in
market reaction to acquisitions financed with stocks.
• Third, implication for management is that the shareholders of acquiring firms
earn substantial return when the target firm is acquired as a subsidiary. The
management may acquire the target firm as a subsidiary and may absorb it with
its own operations later on. The advantages of acquiring complete control of a
firm arise from assets owned and capacity to acquire complimentary assets.
• For corporate managers, the results imply that the management should be aware
of the need for efficient corporate governance structure and mechanism to
control information asymmetry. Better governance and disclosure practices
increase investor confidence which, in turn, has positive influence on valuation.
Companies with good governance are likely to be valued more.

8.3.3 Recommendations for Policy Makers

• The findings that firm performance is significantly influenced by effective cor-

porate governance could serve to justify regulatory measures and efforts for
better corporate governance.
8.4 Contribution of the Study 189

8.4 Contribution of the Study

The contributions made by the study are as follows:

• The study contributes to the literature on performance of mergers and acquisi-
tions in short-term as well as long-term.
• The research includes a detailed study of corporate governance practices of
acquires. It adds to the limited literature on corporate governance practices of
acquiring firms by developing a corporate governance index. This study uses a
well-established method to develop comprehensive corporate governance index
of acquirers. The results establish an association between corporate governance
and performance of acquiring firms. Moreover, it uses well established and
comprehensive approaches to analyze the long-term financial performance of
acquirers in order to corroborate the findings from the primary data.
• The findings of this study have certain implications for the shareholders/
investors, stakeholders, corporate managers, and policy makers as well. The
findings that firm performance is significantly influenced by effective corporate
governance could serve to justify regulatory measures and initiatives to
encourage corporates to adopt and adhere to these measures.
• On a methodological level, the present study has demonstrated use of the seven
major significance tests to check the robustness of average abnormal returns and
cumulative average abnormal returns. The use of seven main test statistics for
assessing significance levels of average abnormal return and cumulative average
abnormal return has proved to be useful, since these test statistics take into
account effects of event-induced variance and offer, therefore, an alternative
evaluation of significance.

8.5 Concluding Observations

The positive returns observed on announcement and during pre-event window are
in sync with the expectations of the Indian managers to realize synergies. Perhaps,
this may be due to the reason that companies acquire another company for strategic
reasons so as to exploit economies of scale and scope, and leverage available
resources and capabilities, thus creating more scope for value creation. Mergers and
acquisitions provide an opportunity to the acquiring company to combine and
judiciously utilize intangible resources of both the companies on a broader scale. It
seems Indian companies have managed to develop their acquisition capabilities
over time. The market responds positively if the acquisition is considered
value-adding to the existing product portfolio of the acquiring company. Indian
firms use cross-border acquisitions for strategic assets-seeking in order to facilitate
organizational transformation of the firms. Moreover, access to developed markets
for products, resources, and capabilities enable Indian firms to leapfrog to the global
190 8 Summary and Conclusions

league and, thus, create greater value than what could be achieved by acquiring a
domestic firm.
Further, better governance and disclosure practices increase investor confidence
which, in turn, has positive influence on valuation. Companies with good gover-
nance are likely to be valued more. The management should be aware of the need
for efficient corporate governance structure and mechanism to control information
asymmetry.

References

Rani, N., Yadav, S. S., & Jain, P. K. (2013a). The impact of domestic acquisitions on acquirer
shareholders’ wealth in India. Global Journal of Flexible Management System, 13(4),
179–193.
Rani, N., Yadav, S. S., & Jain, P. K. (2013b). Du Pont analysis of post M&A operating
performance of Indian acquiring firms. International Journal of Economics and Finance, 5(8),
65–73.
Rani, N., Yadav, S. S., & Jain, P. K. (2014). Impact of corporate governance score on abnormal
returns and financial performance of mergers and acquisitions. Decision, 41(4), 371–398.
Appendix A
Respondent Companies in Survey

Sr. No. Company name

1 20 Microns Ltd.
2 3I Infotech Ltd.
3 A B B Ltd.
4 A C C Ltd.
5 Aban Offshore Ltd.
6 Abbott India Ltd.
7 Accentia Technologies Ltd.
8 Aditya Birla Nuvo Ltd.
9 Aftek Ltd.
10 Alchemist Ltd.
11 Alembic Ltd.
12 Allsec Technologies Ltd.
13 Alok Industries Ltd.
14 Anant Raj Industries Ltd.
15 Ansal Properties & Infrastructure Ltd.
16 Apollo Tyres Ltd.
17 Asahi India Glass Ltd.
18 Ashok Leyland Ltd.
19 Asian Paints Ltd.
20 Associated Alcohols
21 Aurionpro Solutions Ltd.
22 Aurobindo Pharma Ltd.
23 Axis-I T & T Ltd.
24 Bajaj Electricals Ltd.
25 Bajaj Hindusthan Ltd.
26 Ballarpur Industries Ltd.
27 Balrampur Chini Mills Ltd.
28 Batliboi Ltd.
(continued)

© Springer Science+Business Media Singapore 2016 191

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6
192 Appendix A: Respondent Companies in Survey

(continued)
Sr. No. Company name
29 Bayer Cropscience Ltd.
30 Bharat Forge Ltd.
31 Bharat Heavy Electricals Ltd.
32 Bharti Airtel Ltd.
33 Bhuwalka Steel Industries Ltd.
34 Bilcare Ltd.
35 Biocon Ltd.
36 Bliss Gvs Pharma Ltd.
37 Bombay Rayon Fashions Ltd.
38 Brigade Enterprises Ltd.
39 Cable Corpn. Of India Ltd.
40 Cadila Healthcare Ltd.
41 California Software Co Ltd.
42 Ceat Ltd.
43 Chowgule Steamships Ltd.
44 Ciba India Ltd. [Merged]
45 Clariant Chemicals (India) Ltd.
46 Colgate-Palmolive (India) Ltd.
47 Control Print Ltd.
48 Core Education & Technologies Ltd.
49 Coromandel International Ltd.
50 Cranes Software Intl. Ltd.
51 Crisil Ltd.
52 Crompton Greaves Ltd.
53 Cyber Media (India) Ltd.
54 D C M Shriram Consolidated Ltd.
55 Dabur India Ltd.
56 Datamatics Global Services Ltd.
57 Deepak Fertilisers & Petrochemicals Corpn. Ltd.
58 Dolphin Offshore Enterprises (India) Ltd.
59 Dr. Reddy’S Laboratories Ltd.
60 E I D-Parry (India) Ltd.
61 EdServ Softsystems Ltd.
62 Educomp Solutions Ltd.
63 Elder Pharmaceuticals Ltd.
64 Escorts Ltd.
65 Essar Steel Ltd.
66 Essel Propack Ltd.
67 Exide Industries Ltd.
68 Firstsource Solutions Ltd.
(continued)
Appendix A: Respondent Companies in Survey 193

(continued)
Sr. No. Company name
69 Forbes & Co. Ltd.
70 Fortis Healthcare Ltd.
71 Fulford (India) Ltd.
72 Future Retail Ltd.
73 G T L Ltd.
74 Gateway Distriparks Ltd.
75 Geometric Ltd.
76 Gitanjali Gems Ltd.
77 Glaxosmithkline Pharmaceuticals Ltd.
78 Glenmark Pharmaceuticals Ltd.
79 Glodyne Technoserve Ltd.
80 Godrej Consumer Products Ltd.
81 Grasim Industries Ltd.
82 Great Eastern Shipping Co. Ltd.
83 Greaves Cotton Ltd.
84 Greenply Industries Ltd.
85 GV Films Ltd.
86 H C L Technologies Ltd.
87 Havells India Ltd.
88 Hercules Hoists Ltd.
89 Hexaware Technologies Ltd.
90 Hindalco Industries Ltd.
91 Hinduja Ventures Ltd.
92 Hindustan Unilever Ltd.
93 Hitech Plast Ltd.
94 HOV Services Ltd
95 I T C Ltd.
96 Idream Film Infrastructure Co. Ltd.
97 Indian Hotels Co. Ltd.
98 Infosys Ltd.
99 J C T Ltd.
100 J S W Ispat Steel Ltd.
101 J S W Steel Ltd.
102 Jaiprakash Associates Ltd.
103 Jindal Drilling & Inds. Ltd.
104 Jindal Poly Films Ltd.
105 Jubilant Life Sciences Ltd.
106 Jyothy Laboratories Ltd.
107 K S B Pumps Ltd.
108 Kale Consultants Ltd.
(continued)
194 Appendix A: Respondent Companies in Survey

(continued)
Sr. No. Company name
109 Kamat Hotels (India) Ltd.
110 Kohinoor Broadcasting Corpn. Ltd.
111 Larsen & Toubro Ltd.
112 Lupin Ltd.
113 Maharashtra Seamless Ltd.
114 Mahindra & Mahindra Ltd.
115 Mahindra Forgings Ltd.
116 Mahindra Ugine Steel Co. Ltd.
117 Manugraph India Ltd.
118 Marico Ltd.
119 Marksans Pharma Ltd.
120 Maruti Suzuki India Ltd.
121 Mastek Ltd.
122 Maxwell Industries Ltd.
123 Moser Baer India Ltd.
124 Motherson Sumi Systems Ltd.
125 N I I T Technologies Ltd.
126 Navneet Publications (India) Ltd.
127 Oil & Natural Gas Corpn. Ltd.
128 Omaxe Ltd.
129 Opto Circuits(India)Ltd.
130 Paramount Communications Ltd.
131 Patel Integrated Logistics Ltd.
132 Patni Computer Systems Ltd.
133 Pfizer Ltd.
134 Pidilite Industries Ltd.
135 Pioneer Embroideries Ltd.
136 Piramal Healthcare Ltd.
137 Plethico Pharmaceuticals Ltd.
138 Polaris Software Lab Ltd.
139 Premier Energy & Infrastructure Ltd.
140 Pricol Ltd.
141 Prime Focus Ltd.
142 Punj Lloyd Ltd.
143 Punjab Chemicals & Crop Protection Ltd.
144 R P G Cables Ltd.
145 R Systems International Ltd.
146 Rajesh Exports Ltd.
147 Rallis India Ltd.
148 Ranbaxy Laboratories Ltd.
(continued)
Appendix A: Respondent Companies in Survey 195

(continued)
Sr. No. Company name
149 Reliance Communications Ltd.
150 Reliance Industries Ltd.
151 Rolta India Ltd.
152 Ruchi Soya Inds. Ltd.
153 Ruttonsha Intl Rectifier Ltd.
154 Saksoft Ltd.
155 Shilpa Medicare Ltd.
156 Shree Renuka Sugars Ltd.
157 Siel Ltd.
158 Siemens Ltd.
159 Silverline Technologies Ltd.
160 Spentex Industries Ltd.
161 SQL Star International Ltd.
162 Standard Industries Ltd.
163 Sterlite Industries (India) Ltd.
164 Sun Pharmaceutical Inds. Ltd.
165 Sundram Fasteners Ltd.
166 Supreme Industries Ltd.
167 Suzlon Energy Ltd.
168 Tata Chemicals Ltd.
169 Tata Communications Ltd.
170 Tata Consultancy Services Ltd.
171 Tata Global Beverage Ltd.
172 Tata Motors Ltd.
173 Tata Power Co. Ltd.
174 Tata Steel Ltd.
175 Technocraft Industries(India)
176 Thermax Ltd.
177 Thomas Cook (India) Ltd.
178 Tilaknagar Industries Ltd.
179 Tips Industries Ltd.
180 Tricom India Ltd.
181 Triton Corp Ltd.
182 United Phosphorus Ltd.
183 V I P Industries Ltd.
184 Videocon Industries Ltd.
185 Voltas Ltd.
186 Wanbury Ltd.
187 West Coast Paper Mills Ltd.
188 Wipro Ltd.
189 Wockhardt Ltd.
Appendix B
Sample Companies in Event Study
(Cross-Border Complete Acquisitions)

© Springer Science+Business Media Singapore 2016 197

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6
Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
198

code date type method

1 500024 Assam Co. Ltd. Duncan Macneill Natural Resources Ltd. 14-Jun-06 Unlisted Cash Germany
2 500092 CRISIL Ltd. EconoMatters Ltd. 17-Dec-03 Unlisted Cash UK
500092 CRISIL Ltd. Coalition Development Ltd. 1-Jun-12 Unlisted Cash UK
3 500093 Crompton Greaves Ltd. Microsol Holdings Ltd. 28-May-07 Unlisted Cash Ireland
4 500093 Crompton Greaves Ltd. Societe Nouvelle De Maintenance 2-Jun-08 Unlisted Cash France
Transformateurs/Sonomatra
5 500093 Crompton Greaves Ltd. M S E Power Systems Inc. 15-Sep-08 Unlisted Cash USA
6 500124 Dr. Reddy’s Laboratories Trigenesis Therapeutics In 6-May-04 Unlisted Cash USA
Ltd.
7 500124 Dr. Reddy’s Laboratories Betapharm Arzneimittel GmbH 6-Mar-06 Unlisted Cash Germany
Ltd.
8 500135 Essel Propack Ltd. Arista Tubes 5-Aug-04 Unlisted Cash UK
9 500135 Essel Propack Ltd. Telcon Packaging 12-Apr-05 Unlisted Cash UK
10 500160 G T L Ltd. Genesis Consultancy Ltd. 17-Oct-06 Unlisted Cash UK
11 500160 G T L Ltd. Ada Cellworks Sdn. Bhd. 15-Nov-07 Unlisted Cash Malaysia
12 500171 G H C L Ltd. ROSEBYS 31-Jul-06 Unlisted Cash UK
13 500171 G H C L Ltd. BEST MANUFACTURING 12-Feb-07 Unlisted Cash USA
14 500184 Himadri Chemicals & Inds. Team Paramount Ltd. 26-Sep-06 Unlisted Cash HongKong
Ltd.
15 500189 Hinduja Ventures Ltd. Source One Communications Inc. 1-Oct-04 Unlisted Cash USA
16 500189 Hinduja Ventures Ltd. AFFINA 9-Jan-07 Unlisted Cash USA
17 500209 Infosys Technologies Ltd. Expert Information Services Pty Ltd. 18-Dec-03 Unlisted Cash Australia
18 500209 Infosys Technologies Ltd. Mainstream Computing Pty Ltd. 1-Apr-08 Unlisted Cash Australia
19 500209 Infosys Technologies Ltd. McCamish Systems LLC 12-Nov-09 Priv. UNKNOWN United States
20 500209 Infosys Ltd. Lodestone Management 10-Sep-12 Priv. CASHO Switzerland
Appendix B: Sample Companies in Event Study …

(continued)
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
21 500209 Infosys Ltd. Panaya Inc. 16-Feb-15 Priv. CASHO United States
22 500219 Jain Irrigation Systems Ltd. Chapin Watermatics 3-May-06 Unlisted Cash USA
23 500219 Jain Irrigation Systems Ltd. Aquarius Brands In 15-Feb-07 Listed Cash USA
24 500227 Jindal Poly Films Ltd. Rexor 23-Sep-03 Unlisted Cash France
25 500241 Kirloskar Brothers Ltd. SyncroFlo Inc. 5-Mar-14 Priv. Cash United States
26 500257 Lupin Ltd. Hormosan Pharma Gmbh 30-Jul-08 Unlisted Cash Germany
27 500257 Lupin Ltd. Laboratorios Grin SA de CV 27-Mar-14 Priv. Cash Mexico
28 500257 Lupin Ltd. GAVIS Pharms LLC,Novel Labs 23-Jul-15 Priv. Cash USA
29 500302 Piramal Healthcare Ltd. Avecia Pharmaceuticals 27-Oct-05 Unlisted Cash UK
30 500302 Piramal Healthcare Ltd. Minrad International Inc. 22-Dec-08 Unlisted Cash USA
31 500303 Aditya Birla Nuvo Ltd. Minacs Worldwide Inc. 26-Jun-06 Public CASHO Canada
Appendix B: Sample Companies in Event Study …

32 500303 Aditya Birla Nuvo Ltd. Compass BPO Ltd. 10-Mar-10 Priv. Cash UK
33 500304 N I I T Ltd. Element K 27-Jul-06 Unlisted Cash USA
34 500308 Nirma Ltd. Searles Valley Minerals Co 27-Nov-07 Unlisted Cash USA
35 500325 Reliance Industries Ltd. Trevira GmbH 24-Jun-04 Unlisted Cash Germany
36 500331 Pidilite Industries Ltd. Pulvitec do Brasil Industria 4-Jul-07 Unlisted Cash Brazil
37 500339 Rain Commodities Ltd. RCUSA 3-Mar-06 Listed Cash USA
38 500359 Ranbaxy Laboratories RPG Aventis 13-Dec-03 Unlisted Cash France
39 500359 Ranbaxy Laboratories Mundogen Farma SA 18-Jul-06 Unlisted Cash Spain
40 500359 Ranbaxy Laboratories Terapia SA 28-Mar-06 Unlisted Cash Romania
41 500359 Ranbaxy Laboratories Be-Tabs Pharmaceuticals Ltd. 8-May-07 Unlisted Cash South Africa
42 500366 Rolta India Ltd. Piocon Technologies Inc. 29-Dec-08 Unlisted Cash USA
(continued)
199
(continued)
200

Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
43 500366 Rolta India Ltd. WhittmanHart Consulting 29-Jul-08 Unlisted Cash USA
44 500376 Satyam Computer Services Bridge Strategy Group 21-Jan-08 Unlisted Cash USA
Ltd.
45 500403 Sundram Fasteners Ltd. Peiner Unformtechnik Gmbh, 10-Nov-05 Unlisted Cash Germany
46 500403 Sundram Fasteners Ltd. P U T Grundstucks Gmbh 2-Aug-07 Unlisted Cash Germany
47 500420 Torrent Pharmaceuticals Ltd. Heumann Pharma GmbH & Co 27-Jun-05 Unlisted Cash Germany
48 500440 Hindalco Industries Ltd. Straits (Nifty) Pty. Ltd. 25-Jan-03 Unlisted Cash Australia
49 500440 Hindalco Industries Ltd. Novelis Inc. 12-Feb-07 Listed Cash USA
50 500464 Ucal Fuel Systems Ltd. AMTEC Precision Products, Inc, 2-Apr-05 Unlisted Cash USA
(AMTEC)
51 500470 Tata Steel Ltd. NatSteel Ltd. 16-Aug-04 Unlisted Cash Singapore
52 500470 Tata Steel Ltd. Corus Group PLC 17-Oct-06 Listed Cash UK
53 500483 Tata Communications Ltd. Tyco Global Network 1-Nov-04 Listed Cash USA
54 500483 Tata Communications Ltd. Teleglobe Intl Hldg Ltd. 25-Jul-05 Listed Cash Bermuda
55 500493 Bharat Forge Ltd. Carl Dan Peddinghus Gmbh 22-Nov-03 Unlisted Cash Germany
56 500493 Bharat Forge Ltd. CDP Aluminiumtechnik GmbH & Co 11-Dec-04 Unlisted Cash Germany
57 500493 Bharat Forge Ltd. Federal Forge Inc. 29-Jun-05 Unlisted Cash USA
58 500493 Bharat Forge Ltd. Imatra Kilsta AB 22-Sep-05 Unlisted Cash Sweden
59 500510 Larsen & Toubro Ltd. Thalest Ltd. 4-Apr-12 Priv. CASHO United
Kingdom
60 500520 Mahindra & Mahindra Ltd. Tractorul UTB SA 16-Sep-05 Govt Cash Romania
61 500520 Mahindra & Mahindra Ltd. G R Grafica Ricerca Design S R L 8-Jan-08 Unlisted Cash Itlay
62 500550 Siemens Ltd. Morgan Construction Company 2-Jan-08 Unlisted Cash USA
(continued)
Appendix B: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
63 500570 Tata Motors Ltd. Daewoo Commercial Vehicle Co 5-Nov-03 Unlisted Cash South Korea
64 500570 Tata Motors Ltd. Hispano Carrocera SA 25-Feb-05 Listed Cash, call Spain
option
65 500570 Tata Motors Ltd. Cedis Mechanical Engg. Gmbh 12-Jan-06 Unlisted Cash Germany
66 500570 Tata Motors Ltd. Jaguar Cars Ltd. 26-Mar-08 Unlisted Cash UK
500570 Tata Motors Ltd. Land Rover 26-Mar-08 Unlisted Cash UK
67 500770 Tata Chemicals Ltd. General Chemical Indl. Products Inc. 31-Jan-08 Unlisted Cash USA
68 500770 Tata Chemicals Ltd. Cheshire Salt Holdings Ltd. 20-Dec-10 Priv. Cash United
Kingdom
69 500800 Tata Tea Ltd. Good Earth Teas 13-Oct-05 Unlisted Cash USA
70 500800 Tata Tea Ltd. JEMCA 2-May-06 Unlisted Cash UK
71 500820 Asian Paints Ltd. Taubmans, Fiji 11-Sep-03 Unlisted Cash Fiji
Appendix B: Sample Companies in Event Study …

72 500850 Indian Hotels Co. Ltd. Campton Place Hotel,CA 3-Apr-07 Unlisted Cash USA
73 500875 I T C Ltd. Technico Pty Ltd. 17-Aug-07 Unlisted Cash Australia
74 500877 Apollo Tyres Ltd. Dunlop Tyres International Ltd. 30-Jan-06 Unlisted Cash South Africa
75 500900 Sterlite Industries (India) Asarco L L C 2-Jun-08 Unlisted Cash USA
Ltd.
76 502742 Sintex Industries Ltd. Nief Plastics SA 30-Oct-07 Unlisted Cash France
77 502742 Sintex Industries Ltd. Nero Plastics 3-Dec-07 Unlisted Cash USA
78 503806 S R F Ltd. Thai Baroda Inds. Ltd. 27-May-08 Unlisted Cash Thailand
79 503806 S R F Ltd. Industex Holdings (Pty) Ltd. (IH) 15-Jul-08 Unlisted Cash South Africa
80 504067 Zensar Technologies Ltd. PSI Holding Group Inc. 22-Nov-10 Priv. CASHO United States
(continued)
201
(continued)
202

Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
81 505200 Eicher Motors Ltd. Design Intent Engineering Inc. 30-Jun-05 Unlisted Cash USA
82 505200 Eicher Motors Ltd. Hoff & Associates 25-Apr-07 Unlisted Cash USA
83 505255 G M M Pfaudler Ltd. Mavag A G 24-Dec-07 Unlisted Cash Switzerland
84 505324 Manugraph India Ltd. Dauphin Graphic Machines Inc. 7-Nov-06 Unlisted Cash USA
85 505854 TRF Ltd. HR Intl Crushing & Screening 22-Mar-10 Priv. CASHO United
Kingdom
86 506618 Punjab Chemicals & Crop Pevobel N.V. and Gevobel N.V 27-Aug-07 Unlisted Cash Netherland
Protection Ltd.
87 507315 Sakthi Sugars Ltd. INTERMET Europe GmbH & Co 30-Apr-07 Unlisted Cash Germany
88 507315 Sakthi Sugars Ltd. Arvika Gjuteri AB 22-Feb-08 Unlisted Cash Sweden
89 507315 Sakthi Sugars Ltd. Sakthi Auto Mauritius Ltd. 31-Mar-11 Priv. Cash Mauritius
90 507685 Wipro Ltd. NewLogic Technologies AG 19-Dec-05 Unlisted Cash Austria
91 507685 Wipro Ltd. cMango Inc. 20-Feb-06 Unlisted Cash USA
92 507685 Wipro Ltd. Quantech Global Services Ltd. 15-May-06 Unlisted Cash USA
93 507685 Wipro Ltd. Hydrauto Group AB 28-Sep-06 Unlisted Cash Sweden
94 507685 Wipro Ltd. OKI Techno Centre Singapore Pte Ltd. 28-Sep-07 Unlisted Cash Singapore
95 507685 Wipro Ltd. Opus Capital Markets 2-Dec-13 Priv. CASHO United States
96 508976 Spanco Ltd. Great IT Pte Ltd. 5-Feb-08 Unlisted Cash Singapore
97 509472 Cravatex Ltd. BB(UK) Ltd. 10-Mar-11 Priv. Cash United
Kingdom
98 509480 Berger Paints India Ltd. Bolix SA 29-Apr-08 Unlisted Cash Poland
99 509550 Gammon India Ltd. Sofinter SpA 10-Sep-08 Priv. CASHO Italy
100 511389 Videocon Industries Ltd. Encana Brasil Petroleo Limitada (EBPL) 13-Sep-07 Unlisted Cash Brasil
(continued)
Appendix B: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
101 511658 Nettlinx Ltd. Nettlinx Inc. 28-Jan-06 Unlisted Cash USA
102 511658 Nettlinx Ltd. Host Department, L L C 3-Sep-07 Unlisted Cash USA
103 511658 Nettlinx Ltd. Anchor Systems Pty. Ltd. 14-May-08 Unlisted Cash Australia
104 512070 United Phosphorus Ltd. AG Value, Inc. 5-Nov-04 Unlisted Cash USA
105 512070 United Phosphorus Ltd. REPOSO S.A.I.C 31-Oct-05 Unlisted Cash Argentina
106 512070 United Phosphorus Ltd. Advanta Netherlands Holdings B V 14-Feb-06 Unlisted Cash Netherland
107 512070 United Phosphorus Ltd. Cropserve 9-Aug-06 Unlisted Cash South Africa
108 512070 United Phosphorus Ltd. Evofarms Group of Cos 18-Feb-08 Unlisted Cash Colombia
109 512093 Cranes Software Intl. Ltd. Engineering Mechanics Research 23-May-05 Unlisted Cash USA
Corporation (EMRC)
110 512093 Cranes Software Intl. Ltd. Analytix Systems Pvt. Ltd. 27-Jul-06 Unlisted Cash, ESOP USA
Appendix B: Sample Companies in Event Study …

111 512093 Cranes Software Intl. Ltd. Engineering Technology Associates In 7-Jan-08 Unlisted Cash USA
112 512093 Cranes Software Intl. Ltd. Cubeware GmbH 24-Jul-08 Unlisted Cash, stock Germany
113 512579 Gujarat N R E Coke Ltd. Gujarat N R E Resources NL 31-Aug-07 Listed Stock Australia
114 514043 Himatsingka Seide Ltd. DWI Holdings Inc. 19-Oct-07 Unlisted Cash USA
115 517195 O R G Informatics Ltd. D G I T Solutions Pte. Ltd. 3-Jan-07 Unlisted Cash Singapore
116 517334 Motherson Sumi Systems Empire Rubber 15-May-07 Unlisted Cash Australia
Ltd.
117 517344 Mindteck (India) Ltd. ISS Consultants Inc. 3-Apr-06 Unlisted Cash USA
118 517344 Mindteck (India) Ltd. Primetech Solutions Inc. 2-Apr-08 Unlisted Stock USA
119 517354 Havells India Ltd. Greek Electrical Company 4-Oct-05 Unlisted Cash Greece
120 517354 Havells India Ltd. SLI Sylvania 13-Mar-07 Unlisted Cash Netherland
(continued)
203
(continued)
204

Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
121 517518 Lloyd Electric & Luvata Czech S R O 14-May-08 Unlisted Cash Czech
Engineering Ltd. Republic
122 520077 Amtek Auto Ltd. Ketlon Ltd. 7-Nov-07 Unlisted Cash UK
123 520086 Sical Logistics Ltd. Bergen Offshore Logistics Pte 27-Sep-06 Unlisted Cash Singapore
124 521082 Spentex Industries Ltd. Tashkent To’yetpa Tekstil LLC 27-Jul-06 Govt. Cash Uzbekistan
125 521082 Spentex Industries Ltd. Schoeller Litvinov ks 3-Jul-07 Unlisted Cash Czech
Republic
126 522004 Batliboi Ltd. Quickmill Inc. 26-Mar-07 Unlisted Cash Canada
127 522295 Control Print Ltd. Liberty Chemicals(Pvt) Ltd. 8-Apr-11 Priv. Cash Sri Lanka
128 523204 Aban Offshore Ltd. Rowan Texas 5-Sep-05 Unlisted Cash USA
129 523204 Aban Offshore Ltd. West Africa Drilling N.V 4-Feb-06 Unlisted Cash Netherland
130 523283 Superhouse Leathers Ltd. Linea De Seguridad SL 20-Sep-12 Priv. Cash Spain
131 523704 Mastek Ltd. Systems Task Group Intl Ltd. 10-Mar-08 Unlisted Cash, future USA
cash earn
132 523820 Neo Corp Intl. Ltd. Europlast Ltd. 26-Jun-08 Unlisted Cash UK
133 524404 Marksans Pharma Ltd. Hale Group 31-Dec-07 Unlisted Cash UK
134 524404 Marksans Pharma Ltd. Relonchem Ltd. 28-Aug-08 Unlisted Cash UK
135 524404 Marksans Pharma Ltd. Time-Cap Labs Inc. 30-Jun-15 Priv. Cash United States
136 524715 Sun Pharmaceutical Chattem Chemicals Inc. 27-Nov-08 Unlisted Cash USA
Industries Ltd.
137 524794 Matrix Laboratories Ltd. Docpharma NV, 19-Jun-05 Listed Cash Belgium
138 524804 Aurobindo Pharma Ltd. Milpharm Ltd. 10-Feb-06 Unlisted Cash UK
139 524804 Aurobindo Pharma Ltd. Pharmacin International B.V. 29-Dec-06 Unlisted Cash Netherland
140 524804 Aurobindo Pharma Ltd. TAD Italy IP 24-Mar-08 Unlisted Cash Itlay
(continued)
Appendix B: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
141 526137 Shetron Ltd. Shetron Sobemi Europe N.V. 14-Nov-07 Unlisted Cash Belgium
142 526299 MphasiS BFL Ltd. Princeton Consulting Ltd. 14-Feb-05 Priv. CASHO United
Kingdom
143 526407 Ritesh Industries Ltd. Catalina Bay Inc. 27-Jun-07 Unlisted Cash USA
144 526433 A S M Technologies Ltd. Enterprise Software Resources (ESR) 29-Nov-07 Unlisted Cash USA
145 526797 Greenply Industries Ltd. GIL Intercontinental Pte Ltd. 28-Jul-06 Priv. Cash Singapore
146 526853 Bilcare Ltd. ProClinical Inc. 15-Jul-05 Unlisted Cash USA
147 526853 Bilcare Ltd. DHP Ltd. 19-Sep-06 Unlisted Cash UK
148 526853 Bilcare Ltd. Singular ID Pte Ltd. 4-Jan-08 Priv. Cash Singapore
149 530007 JK Tyres & Industries Ltd. Compania Hulera Tornel SA 11-Apr-08 Priv. CASHO Mexico
150 530019 Jubilant Organosys Ltd. Target Research Associates Inc. 5-Oct-05 Unlisted Cash USA
Appendix B: Sample Companies in Event Study …

151 530019 Jubilant Organosys Ltd. Hollisterstier Laboratories L L C 25-Apr-07 Unlisted Cash USA
152 530549 Shilpa Medicare Ltd. Loba Feinchemie 31-Mar-08 Unlisted Cash Austria
153 530555 Paramount Communications AEI Cables Ltd. 4-Sep-07 Listed Cash UK
Ltd.
154 530703 Info-Drive Software Ltd. Bhari Information Technologies SDN 13-Sep-07 Unlisted Cash Malaysia
BHD (BITECH)
155 531131 Mascon Global Ltd. ebusinessware Inc. 15-May-08 Unlisted Cash USA
156 531500 Rajesh Exports Ltd. Valcambi Gold Refineries Hldg 2-Jul-15 Private CASHO Switzerland
157 531642 Marico Ltd. Enaleni Pharmaceuticals Consumer 31-Oct-07 Unlisted Cash USA
Division (Pty) Ltd.
158 531675 Tricom India Ltd. Tricom Document Management Inc. 23-Jul-04 Priv. Cash United States
159 531816 Panoramic Universal Ltd. Future Travels 24-Dec-07 Unlisted Cash USA
(continued)
205
(continued)
206

Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
160 531816 IT Hospitality Inc. Holiday Inn Hotel,Hudson,Ohio 31-Oct-05 Priv. Cash United States
161 531847 Asian Star Co Ltd. Inter Gems DMCC 28-Apr-08 Unlisted Cash Dubai
162 531897 Accentia Technologies Ltd. GSR Systems Inc. 2-Jul-07 Unlisted Cash, stock USA
531897 Accentia Technologies Ltd. GSR Physicians Billing Service 2-Jul-07 Unlisted Cash, stock USA
163 532129 Hexaware Technologies Ltd. Focus Frame Inc. 7-Nov-06 Unlisted Cash USA
164 532133 IFGL Refractories Ltd. Monocon Intl Refractories Ltd. 5-Aug-05 Listed Cash UK
164 532249 SQL Star International Ltd. TalentFuse Inc. 17-Apr-07 Priv. Cash United States
165 532254 Polaris Software Lab Ltd. Seec Inc. 30-Sep-08 Unlisted Cash USA
166 532268 Kale Consultants Ltd. Zero Octa UK Ltd. 7-Aug-07 Unlisted Cash UK
167 532281 H C L Technologies Ltd. Capital Stream Inc. 20-Feb-08 Unlisted Cash USA
168 532281 H C L Technologies Ltd. Control Point Solutions, Inc. 25-Aug-08 Unlisted Cash USA
169 532282 Amtek India Ltd. Sigma Cast Group Ltd. 7-Feb-05 Unlisted Cash UK
170 532283 Kaashyap Technologies Ltd. Logistics Solutions Inc. 4-Jul-07 Unlisted Cash USA
171 532296 Glenmark Pharmaceuticals Laboratorios Klinger 2-Apr-04 Unlisted Cash Brazil
Ltd.
172 532300 Wockhardt Ltd. C P Pharmaceuticals Ltd. 8-Jul-03 Unlisted Cash UK
173 532300 Wockhardt Ltd. Pinewood Laboratories Ltd. 3-Oct-06 Unlisted Cash Ireland
174 532300 Wockhardt Ltd. Negma Lerads SAS 3-May-07 Unlisted Cash France
175 532301 Tata Coffee Ltd. Eight’O Clock Coffee Holdings Inc. 25-Jun-06 Unlisted Cash USA
176 532311 Amex Information Siacom 22-Dec-03 Unlisted Stock UK
Technologies
(continued)
Appendix B: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
177 532312 Geometric Ltd. TekSoft Inc. 4-Jan-05 Unlisted Cash USA
178 532318 Gemini Communication Ltd. Point Red Tech 14-Jun-06 Unlisted Cash USA
179 532321 Cadila Healthcare Ltd. Quimica e Farmaceutica Nikkho do 25-Jun-07 Unlisted Cash Brazil
Brasil Ltd.
180 532321 Cadila Healthcare Ltd. Laboratories Combix 30-May-08 Unlisted Cash Spain
181 532321 Cadila Healthcare Ltd. Etna Biotech Srl 11-Nov-08 Unlisted Cash Itlay
182 532321 Cadila Healthcare Ltd. Nippon Universal Pharm 20-Apr-07 Unlisted Cash Japan
183 532322 Elder Pharmaceuticals Ltd. Max Healthcare Ltd. 1-Jul-13 Priv. Cash less United
Kingdom
184 532341 Logix Microsystems Ltd. Prize Corp-ReckonUp Prod Line 2-Aug-07 Unlisted Cash USA
185 532347 Helios & Matheson Maruthi Info Tech Inc. 31-Aug-04 Unlisted Cash USA
Information Technology Ltd.
Appendix B: Sample Companies in Event Study …

186 532347 Helios & Matheson vMoksha Technologies Inc USA 12-Apr-05 Unlisted Cash USA
Information Technology Ltd.
187 532348 Subex Ltd. Alcatel’s Fraud Management Group 28-Jul-04 Unlisted Cash France
188 532348 Subex Ltd. Azure Solutions Ltd. 25-Apr-06 Unlisted Cash, stock UK
189 532348 Subex Ltd. Syndesis Ltd. 18-Jan-07 Unlisted Cash Canada
190 532368 L G S Global Ltd. Lanco Global Systems Inc. 14-Dec-05 Unlisted Stock USA
191 532372 Virinchi Technologies Ltd. KSoft Systems Inc. 27-Aug-05 Priv. Cash, United States
preferential
shares
(continued)
207
(continued)
208

Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
192 532386 California Software Co. Ltd. International Innovations Inc. 13-Nov-07 Unlisted Cash USA
193 532391 Opto Circuits (India) Ltd. Eurocor GmbH 20-Oct-05 Unlisted Cash Germany
194 532391 Opto Circuits (India) Ltd. Criticare Systems Inc. 25-Feb-08 Listed Cash USA
195 532391 Opto Circuits(India)Ltd. Cardiac Science 2-Dec-10 Listed Cash USA
196 532395 I T & T Ltd. Axis Inc. 19-Dec-03 Unlisted Cash USA
197 532400 K P I T Cummins Panex Consulting Inc. 25-Aug-03 Unlisted Cash, ESOP USA
Infosystems Ltd.
198 532407 Moschip Semiconductor Verasity Technologies Inc. 20-Mar-03 Listed Stock USA
Technology Ltd.
199 532411 Visesh Infotecnics Ltd. Opentech Thai Network 7-Nov-03 Priv. Cash Thailand
200 532424 Godrej Consumer Products Godrej Global Mid East F Z E 1-Oct-07 Unlisted Cash Sharjah
Ltd.
201 532424 Godrej Consumer Argencos SA 3-Jun-10 Priv. Cash Argentina
Products Ltd.
202 532432 United Spirits Ltd. Whyte & Mackay Group Plc. 16-May-07 Unlisted Cash UK
203 532440 M P S Ltd. Interactive Composition Corpn. 6-Mar-06 Unlisted Cash USA
204 532466 Oracle Financial Services SuperSolutions Corp 16-Dec-03 Unlisted Cash USA
Software Ltd.
205 532479 I S M T Ltd. Structo Hydraulics A B 5-Jun-07 Unlisted Cash Sweden
206 532517 Patni Computer Systems ZAiQ Technologies Inc. 29-Jun-06 Unlisted Cash USA
Ltd.
(continued)
Appendix B: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
207 532517 Patni Computer Cymbal Corp 12-Oct-04 Priv. Cash United States
Systems Ltd.
208 532517 Patni Computer Taratec Development Corp 23-Jul-07 Priv. CASHO United States
Systems Ltd.
209 532521 Four Soft Ltd. Comex Frontier Ltd. 27-May-05 Unlisted Cash Singapore
210 532521 Four Soft Ltd. Transaxiom Holding A/S 20-Dec-06 Unlisted Cash, stock Denmark
212 532526 Dishman Pharma & Chem CARBOGEN AMCIS AG 22-Aug-06 Unlisted Cash Switzerland
Ltd.
213 532526 Dishman Pharma & Chem Solvay Pharmaceuticals-Fine 8-Jul-07 Unlisted Cash Netherland
Ltd.
214 532526 Dishman Pharma & Chem Synprotec Ltd. 20-Apr-05 Priv. Cash United
Ltd. Kingdom
Appendix B: Sample Companies in Event Study …

215 532531 Strides Arcolab Ltd. Haw Par Healthcare 1-Sep-06 Unlisted Cash Singapore
216 532531 Strides Arcolab Ltd. Diaspa S P A 6-Aug-07 Unlisted Cash Itlay
217 532531 Strides Arcolab Ltd. Drug Houses of Australia(Asia) 1-Sep-06 Sub. CASHO Singapore
218 532540 Tata Consultancy Services Finl Network Svcs Pty Ltd. 20-Oct-05 Unlisted Cash Australia
Ltd.
219 532541 N I I T Technologies Ltd. Room Solutions Ltd. 8-May-06 Unlisted Cash UK
220 532541 N I I T Technologies Ltd. Softec Gmbh 28-Feb-08 Listed Cash Germany
221 532607 Ontrack Systems Ltd. Intellisys Technology LLC 17-May-06 Unlisted Stock USA
222 532607 Ontrack Systems Ltd. I Q Technologies LLC 1-Aug-08 Unlisted Cash USA
223 532628 3I Infotech Ltd. Regulus Group L L C 29-Apr-08 Unlisted Cash USA
224 532643 Shree Ganesh Forgings Ltd. Hertecant NV (OutoKumpu group) 9-Apr-07 Unlisted Cash Belgium
(continued)
209
(continued)
210

Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
225 532663 Sasken Communication Botnia Hightech Oy 26-Jul-06 Priv. CASHO Finland
226 532667 Suzlon Energy Ltd. Eve Holding NV 17-Mar-06 Priv. CASHO Belgium
227 532668 AurionPro Solutions Ltd. SENA Systems Inc, USA 4-Mar-08 Unlisted Stock USA
228 532672 Glodyne Technoserve Ltd. Links Group International Inc. 29-Mar-07 Unlisted Cash USA
229 532672 Glodyne Technoserve Ltd. Front Office Technologies Inc. 31-Oct-07 Unlisted Cash USA
230 532694 Bartronics India Ltd. Proximities Inc. 29-Jan-08 Unlisted Cash USA
231 532715 Gitanjali Gems Ltd. Rogers Ltd. Inc. 20-Nov-07 Unlisted Cash USA
232 532715 Gitanjali Gems Ltd. Crown aim Ltd. 5-Dec-11 Priv. Cash Hongkong
233 532715 Gitanjali Gems Ltd. Japan Jewel K K 5-Mar-12 Priv. Cash Japan
234 532735 R Systems International Ltd. Sento Europe 28-Dec-07 Unlisted Cash France
235 532735 R Systems International Ltd. Computaris International Ltd. 13-Dec-10 Priv. CASHO United
Kingdom
236 532735 R Systems International Ltd. WebConverse, Inc. 24-Aug-06 Unlisted Cash USA
237 532735 R Systems International Ltd. IBIZCS Group Pte. Limited, Singapore 1-May-15 Priv. Cash Singapore
238 532748 Prime Focus Ltd. Post Logic Studios 28-Nov-07 Unlisted Cash USA
Prime Focus Ltd. Frantic Films Corp-Visual 28-Nov-07 Unlisted Cash USA
239 532749 Allcargo Global Logistics FCL Marine Agencies, Rotterdam 18-Dec-13 Unlisted Cash Netherlands
Ltd.
240 532749 Allcargo Global Logistics Econocaribe Consolidators Inc. 27-Sep-13 Priv. Cash United States
Ltd.
(continued)
Appendix B: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
241 532749 Allcargo Global Logistics China Consolidation Services Shipping 25-Oct-10 Unlisted Cash Singapore
Ltd. Ltd. and Ningbo Star Express Shipping
Co. Ltd.
242 532761 Hov Services Ltd. Lason Inc. 26-Feb-07 Sub. Cash United States
243 532761 HOV Services Ltd. SOURCECORP Inc. 14-Mar-11 Sub. Stock United States
244 532783 LT Foods Ltd. Kusha Inc. 24-Dec-07 Priv. cash United States
245 532791 Pyramid Saimira Theatre FunAsia 30-Oct-07 Priv. Cash United States
Ltd.
246 532801 Cambridge Tech Ent Ltd. Comcreation Inc. 28-May-07 Priv. CASHO United States
247 532801 Cambridge Tech Ent Ltd. Reilly & Associates Inc. 19-Jul-07 Priv. Cash United States
248 532808 Pearl Global Industries FX Imports Ltd. 6-Dec-07 Priv. Cash United
Limited Kingdom
Appendix B: Sample Companies in Event Study …

249 532832 Indiabulls Real Estate Ltd. Dev Property Development PLC 28-Feb-08 Listed Stock UK
250 532834 Camlin Fine Chemicals Ltd. Borregaard Italia 16-Dec-10 Unlisted Cash Italy
251 532835 ICRA Ltd. Sapphire International Inc. 20-Mar-09 Sub. Cash United States
252 532856 Time Technoplast Ltd. Gulf Powerbeat WLL 27-Dec-07 Priv. Cash Bahrain
253 532866 Quintegra Solutions Ltd. PA Corp 3-Dec-07 Priv. CASHO United States
254 532927 eClerx Invesments Ltd. Agilyst Inc. 12-Apr-12 Priv. CASHO United States
255 532927 eClerx Services Ltd. CLX Europe SpA 31-Mar-15 Priv. Cash Italy
256 532967 Kiri Holding Singapore Pvt DyStar Textilfarben GmbH 4-Feb-10 Sub. Cash Germany
Ltd.
(continued)
211
(continued)
212

Sr. No. BSE Acquirer name Target name Announcement Target Payment Country
code date type method
257 590041 Kavveri Telecom Products DCI Digital Communications Ltd. 25-Apr-07 Unlisted Cash Canada
Ltd.
258 590041 Kavveri Telecom Products Spotwave Wireless Inc. 17-Jan-08 Unlisted Cash Canada
Ltd.
259 590051 Saksoft Ltd. Acuma Group Ltd. 3-Oct-06 Priv. CASHO United
Kingdom
260 590051 Saksoft Inc. Electronic Data Professionals 1-Jan-13 Priv. Cash United States
Appendix B: Sample Companies in Event Study …
Appendix C
Sample Companies in Event Study
(Cross-Border Partial/Majority Control
Acquisitions)

© Springer Science+Business Media Singapore 2016 213

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6
Sr. BSE Acquirer name Target name Announcement Stake Target Payment Country
214

No. code Date acquired type method

1 500024 Assam Co(India)Ltd. Austin Exploration Ltd. 15-May-06 51 Unlisted Cash Australia
2 500096 Dabur India Ltd. African Consumer Care Ltd. 24-Jul-04 90 Unlisted Cash Nigeria
3 500102 Ballarpur Industries Ltd. Sabah Forest Industries (SFI) 5-Jun-06 97.8 Unlisted Cash Malaysia
Sdn Bhd,
4 500135 Essel Propack Ltd. Medical Engineering & 5-Sep-08 74 Unlisted Cash USA
Design
5 500171 G H C L Ltd. S. C. Bega Upsom S.A 7-Dec-05 65 Unlisted Cash Romania
6 500179 HCL Infosystems Ltd. NTS Group 8-Jul-10 60 Priv. cash Utd Arab
Em
7 500189 Hinduja Ventures Ltd. Customer Contact Centre (c3) 30-Oct-03 51 Unlisted Cash Philippines
8 500219 Jain Irrigation Systems Ltd. Thomas Machines SA 20-Nov-06 69.75 Unlisted Cash Switzerland
9 500219 Jain Irrigation Systems Ltd. Cascade Specialties Inc. 3-Mar-08 51 Unlisted Cash USA
10 500257 Lupin Ltd. Pharma Dynamics 18-Sep-08 60 Unlisted Cash South
Africa
11 500257 Lupin Ltd. Multicare Pharm Philippines 26-Mar-09 51 Priv. Cash Philippines
12 500331 Pidilite Industries Ltd. Chemson Asia Pte Ltd. 27-Jan-05 75 Unlisted Cash Singapore
13 500331 Pidilite Industries Ltd. Bamco(Thailand)Co Ltd. 1-Mar-06 75 Unlisted Cash Thailand
14 500425 Ambuja Cements Ltd. Dang Cement Industries Pvt 6-Jun-11 85 Priv. Cash Nepal
Ltd.
15 500470 Tata Steel Ltd. Millennium Steel PCL 15-Dec-05 62.89 Listed Cash Thailand
16 500520 Mahindra & Mahindra Ltd. Bristlecone Inc. 9-Feb-04 51 Listed Cash USA
17 500520 Mahindra & Mahindra Ltd. Stokes Forgings Ltd. 4-Jan-06 98.76 Unlisted Cash UK
18 500520 Mahindra & Mahindra Ltd. JECO Holding AG 28-Sep-06 67.9 Unlisted Cash Germany
19 500520 Mahindra & Mahindra Ltd. Schoeneweiss & Co GmbH 22-Dec-06 90.47 Unlisted Cash Germany
20 500570 Tata Motors Ltd. Miljobil Grenland AS 14-Oct-08 50.3 Unlisted Cash UK
(continued)
Appendix C: Sample Companies in Event Study …
(continued)
Sr. BSE Acquirer name Target name Announcement Stake Target Payment Country
No. code Date acquired type method
21 500770 Tata Chemicals Ltd. Brunner Mond Group Ltd. 24-Nov-05 63.7 Listed Cash UK
22 500800 Tata Global Beverage Ltd. Suntyco Holding Limited 26-Mar-09 51 Priv. Cash Cyprus
(formerly Tata Tea)
23 500900 Sterlite Industries (India) Ltd. Konkola Copper Mines pl 20-Aug-04 51 Unlisted Cash Zambia
24 502742 Sintex Industries Ltd. Wausaukee Composites Inc. 1-Jun-07 81 Unlisted Cash USA
25 502742 Sintex Industries Ltd. GEIGER technik GmbH 31-Jul-08 90 Unlisted Cash Germany
26 505854 T R F Ltd. York Transport Equipment 23-Jul-07 51 Unlisted Cash Singapore
(Asia) Pte Ltd.
27 506480 IDL Industries Limited Gulf Oil Yantai Co Ltd. 21-Apr-05 51 Unlisted Cash China
28 513375 Carborundum Universal Ltd. OAO Volzhsky Abrasive 7-Sep-07 84 Listed Cash Russia
Works
29 514043 Himatsingka Seide Ltd. Giuseppe Bellora SpA 29-Jan-07 70 Unlisted Cash Itlay
Appendix C: Sample Companies in Event Study …

30 514043 Himatsingka Seide Ltd. Divatex Home Fashions Inc. 3-Jul-07 80 Unlisted Cash USA
31 514162 Welspun India Ltd. CHT Holdings Ltd. 3-Jul-06 85 Unlisted Cash UK
32 514162 Welspun India Ltd. Sorema - Tapates e Cortinas 19-Dec-07 76 Unlisted Cash Portugal
de Banho, SA
33 517140 Moser Baer India Ltd. Koninklijke Philips 6-Feb-07 81 Unlisted Cash Netherland
Electronics NV
34 520077 Amtek Auto Ltd. GWK Group Ltd. 16-Mar-04 85 Unlisted Cash UK
35 520077 Amtek Auto Ltd. Zelter GmbH 5-Jul-05 70 Unlisted Cash Germany
36 521070 Alok Industries Ltd. Mileta A S 26-Sep-06 60 Unlisted Cash Czech
Republic
37 522004 Batliboi Ltd. AESA Air Engineering SA 20-Jun-07 70 Unlisted Cash France
38 523236 Shrenuj & Company Ltd. Simon Golub & Sons Inc. 8-May-07 84.6 Unlisted Cash USA
(continued)
215
(continued)
216

Sr. BSE Acquirer name Target name Announcement Stake Target Payment Country
No. code Date acquired type method
39 523704 Mastek Ltd. Vector Insurance Services 16-Jul-07 90 Unlisted Cash USA
LLC
40 524404 Marksans Pharma Ltd. Nova Pharmaceuticals 2-Mar-06 60 Unlisted Cash Australia
Australasia Pty. Ltd.
41 524715 Sun Pharmaceutical Industries Caraco Pharmaceutical 3-Feb-04 60 Listed Cash USA
Ltd. Laboratories Ltd.
42 524715 Sun Pharmaceutical Industries Taro Pharmaceutical 21-May-07 51 Listed Cash Israel
Ltd.
43 524735 Hikal Ltd. Marsing & Co Ltd. A/S 6-Sep-04 50.1 Priv. Cash Denmark
44 524816 Natco Pharma Ltd. Nicks Drugs 31-Jan-06 65 Priv. Cash United
States
45 526015 Kemrock Industries & Exports Top Glass Spa. 11-Feb-08 51 Unlisted Cash Itlay
Ltd.
46 526109 Pricol Ltd. Melling do Brasil 12-Dec-14 99.99 Priv. Cash Brazil
Componentes
47 526881 Financial Technologies (India) IC X Platform (Pty.) Ltd. 10-Apr-08 90 Unlisted Cash South
Ltd. Africa
48 530019 Jubilant Organosys Ltd. Trinity Laboratories, Inc. 1-Jul-05 Unlisted Cash USA
49 530079 Faze Three Ltd. Pana Textil Gmbh 13-Nov-07 76 Unlisted Cash Germany
50 530239 Suven Pharmaceuticals Synthon Chiragenics Corp 20-May-03 51 Unlisted Cash USA
51 530703 Info-Drive Software Ltd. Technoprism Inc. 25-Aug-08 51 Unlisted Cash USA
52 530707 Aftek Infosys Ltd. V-Soft Inc. 29-Aug-05 51 Unlisted Cash USA
53 531642 Marico Ltd. Sundari LLC 26-Feb-03 70.5 Unlisted Cash USA
54 531897 Accentia Technologies Ltd. Oak Technologies Inc. 1-Apr-08 51 Unlisted Cash USA
(continued)
Appendix C: Sample Companies in Event Study …
(continued)
Sr. BSE Acquirer name Target name Announcement Stake Target Payment Country
No. code Date acquired type method
55 532221 Sonata Software Ltd. TUI InfoTec GmbH 27-Sep-06 51 Listed Cash Germany
56 532281 H C L Technologies Ltd. Aalayance Inc. 17-Dec-04 51 Unlisted Cash USA
57 532296 Glenmark Pharmaceuticals Ltd. Medicamenta A.S 26-Mar-07 90 Unlisted Cash Czech
Republic
58 532296 Glenmark Pharmaceuticals Ltd. Servycal SA 26-Oct-05 51 Sub. Cash Argentina
59 532341 Logix Microsystems Ltd. AOA Izmo LLC USA 5-Jan-08 51 Priv. Stock, United
cash States
60 532347 Helios & Matheson Information The A Consulting Team Inc., 3-Apr-06 51 Listed Cash USA
Technology Ltd. NY
61 532386 California Software Co. Ltd. CODEX Co. Ltd. 28-Jul-06 66 Unlisted Cash Japan
62 532408 Megasoft Ltd. Boston Communications 11-Jul-07 51 Listed Cash USA
Group Inc.
Appendix C: Sample Companies in Event Study …

63 532424 Godrej Consumer Products Ltd. Darling Group Holdings 1-Jun-11 51 Priv. Cash Nigeria
64 532424 Godrej Consumer Products Ltd. Frika Hair (Pty) Ltd. 6-Jan-15 60 Priv. Cash South
Africa
65 532466 Oracle Financial Services Castek Software Inc. 19-Aug-05 51 Unlisted Cash Canada
Software Ltd.
66 532523 Biocon Ltd. AxiCorp GmbH 11-Feb-08 70 Unlisted Cash Germany
67 532526 Dishman Pharma & Chem Ltd. I03S Ltd. (IO3S) 19-Dec-05 51 Listed Cash, Switzerland
option
68 532531 Strides Arcolab Ltd. Biopharma 1-Jun-05 60 Unlisted Cash Venezuela
69 532540 Tata Consultancy Services Ltd. TKS-Teknosoft SA 31-Oct-06 75 Unlisted Cash Switzerland
70 532605 JBM Auto Ltd. ThyssenKrupp JBM Pvt Ltd. 17-Apr-09 73.89 Priv. Cash UK
71 532656 Facor Alloys Ltd. Dillenburg Bergen NH Realty 5-Mar-13 51 Priv. CASHO Netherlands
BV
217

(continued)
(continued)
218

Sr. BSE Acquirer name Target name Announcement Stake Target Payment Country
No. code Date acquired type method
72 532668 AurionPro Solutions Ltd. E2E Infotech Ltd. 25-Apr-07 51 Sub. Stock United
Kingdom
73 532678 Bombay Rayon Fashions Ltd. DPJ Clothing Ltd. 23-Feb-07 70 Unlisted Cash UK
74 532696 Educomp Solutions Ltd. Savicca Inc. 18-Sep-07 70.05 Unlisted Cash Canada
75 532696 Educomp Solutions Ltd. Learning.com 20-May-08 51 Unlisted Cash USA
76 532715 Gitanjali Gems Ltd. Tri-Star Worldwide Inc. 14-Feb-07 70 Priv. Cash United
States
77 532715 Gitanjali Gems Ltd. Giantti Italia S.R.L. 28-Dec-10 90 Priv. Cash Itlay
78 532715 Gitanjali Gems Ltd. Diamlink Inc. (Diamlink) 13-Jul-09 51 Priv. Cash USA
New York
79 532739 Plethico Pharmaceuticals Ltd. Natrol Inc. 19-Nov-07 51 Listed Cash USA
80 532790 Tanla Solutions Ltd. Openbit Oy 5-Jun-08 85 Priv. CASHO Finland
81 532804 Technocraft Industries(India) Swift Engineering Inc. 15-Apr-13 59 Priv. Cash Canada
82 532808 Pearl Global Industries Limited Simple Approach Ltd. 14-Jan-08 78 Unlisted Cash Hongkong
83 532875 Allied Digital Services Ltd. EnPointe Global Services Llc 9-July-08 80.5 Listed Cash, USA
stock
84 532887 Sujana Towers Ltd. Telesuprecon Ltd. 18-Jun-08 51 Priv. Cash Mauritius
85 533022 20 Microns Ltd. 20 Microns SDN BHD 17-Mar-09 99.9 Priv. Cash Malaysia
86 533412 Aanjaneya Lifecare Ltd. Eros Pharmachem Pte Ltd. 12-Mar-12 90 Priv. Cash Singapore
87 533482 Readymade Steel India Ltd. KH Foges Pte Ltd. 28-Mar-12 90 Priv. Cash Singapore
Appendix C: Sample Companies in Event Study …
Appendix D
Sample Companies in Event Study
(Domestic Complete Acquisitions)

© Springer Science+Business Media Singapore 2016 219

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6
 220

Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
1 500002 A B B Ltd. Raman Boards Ltd. 21-Dec-06 Unlisted Cash
2 500003 Aegis Logistics Ltd. Konkan Storage Systems (Kochi) Pvt. 26-Mar-07 Unlisted Cash
Ltd.
3 500009 Ambalal Sarabhai Enterprises Suvik Hi-Tek Pvt Ltd. 17-Sep-08 Unlisted Cash
Ltd.
4 500024 Assam Co(India)Ltd. Duncan Macneill Power 18-Dec-10 Priv. OTHER
5 500032 Bajaj Hindusthan Ltd. Parashar Sugars Pvt Ltd. 8-Jun-05 Priv. Cash
6 500067 Blue Star Ltd. Naseer Electricals Pvt. Ltd. 5-Dec-07 Unlisted Cash
7 500086 Exide Industries Ltd. Caldyne Automatics Ltd. 20-Jul-07 Unlisted Cash
8 500092 Crisil Ltd. Irevna Research Services Ltd. 20-Oct-04 Unlisted Cash
9 500096 Dabur India Ltd. Balsara Home Products Limited 28-Jan-05 Listed Cash
500096 Dabur India Ltd. Besta Cosmetics Ltd. 28-Jan-05 Listed Cash
10 500103 Bharat Heavy Electricals Ltd. Bharat Heavy Plate and Vessels Ltd. 12-May-08 Public Sector Cash
Undertaking
11 500125 E I D-Parry (India) Ltd. Parry Nutraceuticals Ltd. 19-Jul-06 Unlisted Cash
12 500135 Essel Propack Ltd. Packaging India Pvt. Ltd. 30-Aug-06 Unlisted Cash
13 500179 H C L Infosystems Ltd. Natural Technologies Pvt Ltd. (NTPL) 5-May-08 Unlisted Cash
14 500193 Hotel Leelaventure Ltd. Kovalam Hotels Ltd. 22-Jul-05 unlisted Cash
15 500239 KG Denim Ltd. Trigger Apparels Ltd. 30-Jan-06 Priv. Cash
16 500241 Kirloskar Brothers Ltd. ABAN Constructions Pvt Ltd. 29-Sep-06 Unlisted Cash
17 500241 Kirloskar Brothers Ltd. Gondwana Engineers Ltd. 10-Sep-07 Unlisted Cash
18 500250 LG Balkrishnan & Bros Ltd. Apten Forgings Pvt Ltd. 3-Jul-03 Priv. cash
19 500250 LG Balakrishnan & Bros Ltd. LGB Textiles Ltd. 20-Nov-04 Priv. cash
20 500257 Lupin Ltd. Lupin Herbal Pvt 13-Aug-04 Unlisted Cash
(continued)
Appendix D: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
21 500257 Lupin Ltd. Rubamin Laboratories Ltd. 27-09-07 Unlisted Cash
22 500300 Grasim Industries Ltd. Harish Cement Ltd. 7-Sep-06 Unlisted Cash
23 500302 Piramal Healthcare Ltd. Health Line Pvt. Ltd. 22-Jan-08 Unlisted Cash
24 500303 Aditya Birla Nuvo Ltd. TransWorks Information Services Pvt 21-Jun-03 Unlisted Cash
25 500329 Pentamedia Graphics Ltd. Intelivision Ltd. 25-Aug-03 Unlisted Stock
26 500339 Rain Commodities Ltd. Rain Calcining Ltd. 20-Mar-07 Public SHARES
27 500350 Rajasthan Spinning & Mordi Textiles & Processors 21-Mar-05 Priv. SHARES
Weaving
28 500354 Rajshree Sugars & Chemicals Trident Sugars Ltd. 21-Apr-06 Listed Cash
Ltd.
29 500368 Ruchi Soya Inds. Ltd. Aneja Solvex Ltd. 7-Jan-04 Unlisted Cash
30 500400 Tata Power Co. Ltd. Duncans North Hydro Power Company 16-Dec-03 Unlisted Cash
Appendix D: Sample Companies in Event Study …

Ltd.
31 500413 Thomas Cook (India) Ltd. Travel Corporation (India) Ltd. 1-Dec-06 Unlisted Cash
32 500470 Tata Steel Ltd. Rawmet Ferrous Inds. Pvt. Ltd. 16-Jan-07 Unlisted Cash
33 500470 Tata Steel Ltd. Indian Steel & Wire Products Ltd. 23-Dec-03 Unlisted Cash
34 500483 Tata Communications Ltd. DishnetDSL Ltd-Broadband Bus 19-Mar-03 Unlisted Cash
35 500483 Tata Communications Ltd. Direct Internet Ltd. 8-May-06 Unlisted Cash
500483 Tata Communications Ltd. Primus Telecommunications India Ltd. 8-May-06 Unlisted Cash
(PTIL)
500483 Tata Communications Ltd. Tata Power Broadband Co Ltd. 5-Sep-06 Unlisted Cash
500510 Larsen & Toubro Ltd. Spectrum Infotech Pvt. Ltd. 3-Feb-06 Unlisted Cash
38 500520 Mahindra & Mahindra Ltd. Plexion Technologies (India) Ltd. 12-Dec-05 Unlisted Cash
(Plexion)
(continued)
221
(continued)
222

Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
39 500550 Siemens Ltd. Siemens Building Technologies Pvt. Ltd. 20-Feb-03 Unlisted Cash
40 500550 Siemens Ltd. Siemens Public Communication 15-Feb-05 Unlisted Cash
Networks Pvt. Ltd.
41 500645 Deepak Fertilisers & Smartchem Technologies Ltd. 24-Oct-03 Listed Cash
Petrochemicals Corpn. Ltd.
42 500730 Nocil Ltd. Sushripada Plastics Pvt. Ltd. 22-Feb-07 Unlisted Cash
43 500780 Zuari Industries Ltd. Anil Kumar M N Developers Pvt 26-Dec-07 Priv. OTHER
44 501425 Bombay Burmah Trdg. Corpn. Electromags Automotive Products Pvt. 15-Dec-06 Unlisted Cash
Ltd. Ltd.
45 501833 Chowgule Steamships Ltd. Dockyard Pvt Ltd. 17-Oct-06 Unlisted Cash
46 502937 Kesoram Industries Ltd. Assam Cotton Mills Ltd. 16-Sep-06 Unlisted Cash
47 503015 Modern India Ltd. Modern India Realty & Infrastructures 2-Jul-07 Unlisted Cash
Ltd.
48 503100 Phoenix Mills Ltd. Big Apple Real Estate Pvt. Ltd. 1-Apr-08 Private Cash
49 503205 Shree Ram Mills Ltd. Raghuveer Urban Infrastructure 18-Mar-09 Priv. OTHER
50 503205 Shree Ram Urban Shree Ram Realinfra Ventures 26-Mar-10 Sub. OTHER
Infrastructure
51 503699 Geodesic Ltd. Picopeta Simputers Pvt. Ltd. 24-Nov-05 Unlisted Cash
52 504067 Zensar Technologies Ltd. OBT Global Pvt Ltd. 13-Dec-05 Priv. Cash
53 505872 WPIL Ltd. Mody Industries(FC)Pvt Ltd. 28-Mar-13 Priv. cash
54 506142 Vyapar Industries Ltd. Escoteric Reality Pvt Ltd. 7-Jul-08 Priv. cash
55 506186 Galaxy Entertainment Corpn. Ceezee Foods Private Ltd. 7-May-04 Unlisted Cash
Ltd.
56 506197 Bliss G V S Pharma Ltd. G V S Laboratories Pvt. Ltd. 15-Feb-07 Unlisted Cash
(continued)
Appendix D: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
57 506390 Clariant Chemicals (India) Ltd. Chemtreat Composites India Pvt. Ltd. 14-Feb-06 Unlisted Cash
58 506390 Clariant Chemicals (India) Ltd. Plastichemix Industries 16-Dec-13 Priv. Cash
59 506559 Siemens Healthcare Dade Behring Diagnostics India Pvt. Ltd. 31-Jul-07 Unlisted Cash
Diagnostics Ltd.
60 506618 Punjab Chemicals & Crop IA & IC Chem Pvt Ltd. 27-Feb-06 Priv. Cash
Protection Ltd.
61 507205 Tilaknagar Industries Ltd. Punjab Expo Breveries Pvt Ltd. 4-Oct-11 Priv. Cash
62 507685 Wipro Ltd. Citi Technology Services 23-Dec-08 Unlisted Cash
63 507856 Uniproducts(India)Ltd. HP Pelzer India Pvt Ltd. 27-Jan-03 Private Cash
64 508869 Apollo Hospitals Enterprise Samudra Healthcare Enterprises Ltd. 4-Nov-05 Unlisted Cash
Ltd.
65 508869 Apollo Hospitals Enterprise Nova Specialty Surgery Pvt Ltd. 6-Jan-15 Sub. CASHO
Appendix D: Sample Companies in Event Study …

Ltd.
66 509557 Garware-Wall Ropes Ltd. Garware Envi Svcs Pvt Ltd. 9-Apr-08 Priv. Cash
67 511525 PAN India Corp Ltd. Shalani Dhoop Pvt Ltd. 21-Nov-08 Priv. Cash
68 511658 Nettlinx Ltd. Nettlinx Realty Pvt Ltd. 27-Oct-06 Unlisted Cash
69 512070 United Phosphorus Ltd. S W A L Corporation Ltd. 29-Jun-05 Unlisted Cash
70 512093 Cranes Software Intl. Ltd. Tilak Autotech Pvt. Ltd. 19-Jun-07 Unlisted Cash
71 512233 Jaybharat Textiles & Real Real Time Properties Ltd. 2-Mar-07 Unlisted Cash
Estate Ltd.
72 512267 Media Matrix Worldwide Ltd. Proximus Knowledge & Techn Services 22-Oct-07 Unlisted Cash
Pvt. Ltd.
73 512529 Sequent Scientific Ltd. Elixir Chemicals Pvt. Ltd. 20-Apr-06 Unlisted Cash
74 513121 Oricon Enterprises Ltd. U S L Auto Services Ltd. 3-May-06 Unlisted Cash
(continued)
223
(continued)
224

Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
75 513333 Bhuwalka Steel Industries Ltd. Benaka Sponge Iron Pvt Ltd. 26-Feb-08 Priv. CASHO
76 513349 Ajmera Realty & Infra India Jolly Brothers Pvt. Ltd. 31-Oct-06 Unlisted Cash
Ltd.
77 513414 Sujana Metal Products Ltd. Glade steels, Sree Ganga Steels 30-May-08 Unlisted Cash
78 513536 Lesha Energy Resources Ltd. Gorlas Oil & Gas Pvt Ltd. 19-Mar-09 Priv. SHARES
79 513583 S B & T International Ltd. Mimansa Jewellery Pvt. Ltd. 13-Oct-05 Unlisted Preferential issues
80 514043 Himatsingka Seide Ltd. A B C Trading Pvt. Ltd. 28-Jan-03 Unlisted Cash
81 514300 Pioneer Embroideries Ltd. Mas Embroideries Pvt. Ltd. 3-Apr-06 Unlisted Cash
82 515055 Anant Raj Industries Ltd. Jubilant Software Service 3-Sep-10 Priv. Cash
83 515055 Anant Raj Industries Ltd. Aakarshak Realators Pvt Ltd. 13-Oct-10 Priv. Cash
84 516022 Star Paper Mills Ltd. Pallmall Edusystems & Medicare 6-Sep-07 Unlisted Cash
Services Pvt. Ltd.
85 517035 Ruttonsha Intl Rectifier Ltd. Orient Semiconductors Pvt Ltd. 19-Jan-08 Priv. P Shares
86 517546 Alfa Transformers Ltd. PHOENIX SURGICARE PVT LTD. 11-Nov-08 Unlisted Cash
87 517973 DMC International Ltd. Vsoft Services Pvt Ltd. 16-Mar-10 Priv. SHARES+Cash
88 518091 Anjani Portland Cement Ltd. Hitech Print Systems Ltd. 4-Aug-07 Priv. Cash
89 519602 Kellton Tech Solutions Ltd. Skan Dbydx Software Pvt Ltd. 27-Dec-12 Priv. Cash
90 521194 SIL Investments Ltd. Sutlej Textiles & Industries 22-Aug-05 Sub. Shares
91 522207 Rasandik Engineering Inds. Rasandik Auto Components Pvt. Ltd. 30-Jul-06 Unlisted Cash
India Ltd.
92 522261 Dolphin Offshore Enterprises Procyon Offshore Services Ltd. 27-Jun-06 Unlisted Cash
(India) Ltd.
93 523277 GV Films Ltd. Thangam Theatre 15-May-06 Priv. Cash
(continued)
Appendix D: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
94 523323 Kovai Medical Center & Idhayam Hospitals Erode Ltd. 21-Mar-07 Unlisted Cash
Hospital Ltd.
95 523387 Triton Corp Ltd. Maple Esolutions Ltd. 26-Dec-06 Unlisted Cash
96 523574 Future Retail Ltd. Officedge India Pvt Ltd. 16-Jan-07 Priv. Cash
97 523628 Poddar Developers Ltd. Gopi Resorts Pvt. Ltd. 21-Feb-07 Unlisted Cash
98 523704 Mastek Ltd. Keystone Solutions Pvt Ltd. 5-Sep-09 Priv. Cash
99 524388 Crazy Infotech Ltd. Animantz Creative Animators Pvt. Ltd. 8-Sep-08 Unlisted Cash, preferential
shares
100 524610 Rathi Graphic Technologies Rathi Rajasthan Steel Mills Ltd. 24-Sep-07 Unlisted Cash
Ltd.
101 524669 Hester Biosciences Ltd. Gujarat Agrofarm Ltd. 20-Nov-14 Priv. Cash
102 524715 Sun Pharmaceutical Inds Ltd. Ranbaxy Laboratories Ltd. 7-Apr-14 Public SHARES
Appendix D: Sample Companies in Event Study …

103 526025 Globus Power Generation Ltd. Globus Solar Power Pvt Ltd. 15-Sep-15 Priv. Cash
104 526217 Hi-Tech Plast Containers Ltd. Plastic & Precision Machinefabrik Ltd. 10-Mar-03 Priv. Cash
105 526409 Kalpena Industries Ltd. Bavaria Associates Pvt. Ltd. 3-Dec-07 Unlisted Cash
106 526409 Kalpena Industries Ltd. Kalpana Plastics Pvt Ltd. 23-Mar-05 Private Stock
107 526610 Vans Information Ltd. Inhouse Creations Pvt Ltd. 27-Jan-06 Priv. Combination
(Shares, PS, Cash)
108 526723 RDB Industries Ltd. RDB Realty & Infrastructure 8-Apr-09 Public Cash
109 526829 Confidence Petroleum India Agwan Coach Pvt. Ltd. 13-Mar-08 Unlisted Cash
Ltd.
110 526871 Intec Capital Ltd. Amulet Technologies Pvt Ltd. 12-Mar-12 Priv. Cash
111 526917 CHD Developers Ltd. Delight Spirits Pvt Ltd. 1-Oct-13 Priv. Cash
112 530049 JJ Exporters Ltd. Pooja Creations Ltd. 14-Jun-05 Unlisted Stock
(continued)
225
(continued)
226

Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
113 530091 Zyden Gentec Ltd. Sree Venkateshwara Medichem 8-Aug-05 Priv. Cash
114 530139 Kreon Finnancial Services Ltd. Krios Media Venture Pvt Ltd. 26-Dec-12 Priv. Cash
115 530407 Epic Energy Ltd. Sathian Sun Power Systems 16-Jul-08 Priv. OTHER
116 530773 I V R C L Infrastructures & Alkor Petroo Ltd. 12-Nov-07 Unlisted Cash
Projects Ltd.
117 530977 Shri Keshav Cements & Infra Katwa Construction Co. Ltd. 16-Aug-07 Unlisted Cash
Ltd.
118 531241 Linc Pen & Plastics Ltd. Shree Writing Aids Pvt Ltd. 7-Apr-08 Priv. Stock
119 531269 K L G Systel Ltd. First Power Utilities Distribution Ltd. 23-Feb-04 Unlisted Cash
120 531366 Kohinoor Broadcasting Corpn. Tagore Theatres Ltd. 7-Jan-08 Unlisted Cash
Ltd.
121 531404 Zicom Electronic Security Zicom Global Security Pvt Ltd. 2-Jul-07 Unlisted Stock
Systems Ltd.
122 531508 Eveready Industries (India) BPL Soft Energy Systems Ltd. 19-Sep-05 Unlisted Cash
Ltd.
123 531544 Vertex Spinning Ltd. Green Cottage & Resorts Ltd. 12-Dec-06 Unlisted Cash
124 531590 Bilpower Ltd. Tarapur Transformers Pvt. Ltd. 29-Nov-06 Unlisted Cash
125 531615 Era E-Zone India Ltd. Era Buildwell(India)Ltd. 27-Mar-09 Priv. Cash
126 531816 Panoramic Universal Ltd. Rishi Garden Resort Pvt Ltd. 26-Mar-08 Priv. OTHER
127 531897 Accentia Technologies Ltd. Asscent Infoserve Pvt Ltd. 26-Mar-07 Priv. Convertibles
128 531898 Sanguine Media Ltd. Godavari Ads Pvt. Ltd. 12-Sep-06 Unlisted Cash, stock
129 531898 Sanguine Media Ltd. Rohinie Media 24-Nov-06 Priv. Cash
130 532175 Infotech Enterprises Ltd. Tele Atlas India Pvt. Ltd. 24-Mar-05 Unlisted Cash, stock
131 532175 Infotech Enterprises Ltd. T T M (India) Pvt. Ltd. 8-Sep-08 Unlisted Cash
(continued)
Appendix D: Sample Companies in Event Study …
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
132 532184 Ciba India Ltd. Diamond Dye Chem 18-Aug-03 Unlisted Cash
133 532219 Energy Development Co Ltd. Dhanashree Power Projects Ltd. 20-May-09 Priv. Cash
134 532254 Polaris Software Lab Ltd. SFL Properties Pvt Ltd. 2-Dec-10 Priv. Cash
135 532268 Kale Consultants Ltd. Cognosys Software Private Limited/Kale 23-Oct-03 Unlisted Cash
Etravel Technologies Ltd.
136 532287 Entegra Ltd. PSC Engineers Pvt Ltd. 19-Dec-07 Unlisted Cash
137 532300 Wockhardt Ltd. Dumex India Pvt. Ltd. 30-Jun-06 Unlisted Cash
137 532307 Melstar Info Tech Ltd. Melstar Fashions Pvt Ltd. 28-Mar-06 Priv. Stock
137 532307 Melstar Info Tech Ltd. iDV Tech Solutions Pvt Ltd. 23-Dec-15 Private Cash
137 532355 Telephoto Entertainments Ltd. AGS Properties Development 3-Mar-06 Unlisted Cash
137 532375 Tips Industries Limited Tips Films Ltd. 23-Nov-05 Sub. OTHER
Appendix D: Sample Companies in Event Study …

137 532385 Aztecsoft Ltd. Disha Technologies (India) Ltd. 20-Sep-04 Unlisted Cash, stock
137 532386 California Software Co Ltd. Webspectrum Software Ltd. 22-Dec-04 Priv. Cash
137 532391 Opto Circuits (India) Ltd. M/s Altron Industries (Pvt) Ltd. 17-Jan-06 Unlisted Cash
138 532391 Opto Circuits (India) Ltd. Devon Innovations Pvt. Ltd. 24-Apr-07 Unlisted Cash
532391 Opto Circuits (India) Ltd. Ormed Medical Technology Ltd. 24-Apr-07 Unlisted Cash
139 532391 Opto Circuits(India)Ltd. NS Remedies Pvt Ltd. 5-Apr-10 Priv. CASHO
140 532400 K P I T Cummins Infosystems CG-Smith Software Pvt Ltd. 6-Mar-06 Unlisted Cash
Ltd.
141 532414 IKF Software.com Ltd. Netwatch Digital Solutions Pvt Ltd, 30-Jun-08 Unlisted Cash
142 532424 Godrej Consumer Products Naturesse Consumer Care Prod 3-Dec-10 Priv. Cash
Ltd.
143 532440 M P S Ltd. Charon Tech Pvt Ltd. 8-Jun-05 Unlisted Cash
(continued)
227
(continued)
228

Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
144 532466 Oracle Financial Services I-Flex Processing Services Ltd. 12-Apr-06 Unlisted Cash
Software Ltd.
145 532497 Radico Khaitan Ltd. M/s Anab-e-Shahi Wines & Distilleries 5-Apr-04 Priv. Cash
Pvt Ltd.
146 532531 Strides Arcolab Ltd. Grandix Pharmaceuticals Ltd. 10-Apr-07 Priv. UNKNOWN
147 532532 Jaypee Fertilizers & Indus Ltd. Duncans Fertiliser Industries 17-Jun-10 Unlisted Cash
148 532540 Tata Consultancy Services Ltd. T C S E-Serve Ltd. 8-Oct-08 Unlisted Cash
149 532612 Indoco Remedies Ltd. La Nova Chem (India) Pvt. Ltd. 4-Jul-07 Unlisted Cash
150 532612 Indoco Remedies Ltd. Shree Herbal Technologies Ltd. 29-Jan-08 Unlisted Cash
151 532617 Jet Airways (India) Ltd. Jet Lite (India) Ltd. 12-Apr-07 Unlisted Cash
152 532628 3I Infotech Ltd. G 4 Software Technologies (I) Ltd. 5-Sep-06 Unlisted Cash
153 532633 Allsec Technologies Ltd. B2K Corp Pvt Ltd. 12-Dec-05 Priv. Cash
154 532644 JK Cement Ltd. Jaykaycem Ltd. 29-Jul-06 Priv. Cash
155 532670 Shree Renuka Sugars Ltd. Godavari Biofuel Pvt. Ltd. 23-Jul-08 Unlisted Cash
Shree Renuka Sugars Ltd. Ratnaprabha Sugars Ltd. 23-Jul-08 Unlisted Cash
156 532682 A B G Shipyard Ltd. Vipul Shipyard 24-May-07 Unlisted Cash
157 532689 PVR Ltd. DT Cinemas 9-Jun-15 Unlisted Cash
158 532699 Royal Orchid Hotels Ltd. Hotel Royal Orchid Central 12-Nov-07 Priv. Cash
159 532705 Jagran Prakashan Ltd. Suvi Info Management Pvt Ltd. 2-Apr-12 Priv. Cash
160 532706 Inox Leisure Ltd. Calcutta Cine Private Limited 24-Jun-06 Priv. Stock
161 532706 Inox Leisure Ltd. Satyam Cineplexes Ltd. 31-Jul-14 Unlisted Cash
162 532706 Inox Leisure Ltd. Multiplex Cinema Theatre(3) 1-Sep-15 Priv. Cash
163 532708 G V K Power & Infrastructure G V K Aviation Pvt. Ltd. 21-Jun-07 Unlisted Cash
Ltd.
Appendix D: Sample Companies in Event Study …

(continued)
(continued)
Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
164 532708 G V K Power & Infrastructure G V K Energy Ltd. 9-May-08 Unlisted Cash
Ltd.
165 532708 GVK Power & Infrastructure GVK Infratech Pvt Ltd. 6-Jul-07 Priv. Cash
Ltd.
166 532715 Gitanjali Gems Ltd. Eureka Finstock Pvt. Ltd. 10-Jun-08 Unlisted Cash
Gitanjali Gems Ltd. Decent Securities & Finance Pvt. Ltd. 10-Jun-08 Unlisted Cash
167 532715 Gitanjali Gems Ltd. Desire Lifestyle Pvt Ltd. 25-Jul-06 Priv. Cash
168 532715 Gitanjali Gems Ltd. Brightest Circle Jewellery Pvt 7-Jan-08 Priv. Cash
169 532715 Gitanjali Gems Ltd. Renaissance Retail Venture Pvt 10-Mar-08 Priv. Cash
170 532715 Gitanjali Gems Ltd. B Vijay Ret Ventures Pvt Ltd. 24-Jul-08 Priv. Cash
171 532715 Gitanjali Gems Ltd. Nascent 12-Dec-12 Priv. Cash
172 532715 Gitanjali Gems Ltd. Alliance Jewelleries Pvt 6-Oct-09 Priv. Cash
Appendix D: Sample Companies in Event Study …

173 532715 Gitanjali Gems Ltd. N & J Finstocks Pvt Ltd. 17-Mar-11 Priv. Cash
174 532727 Adhunik Metaliks Ltd. Orissa Manganese & Minerals 9-Apr-07 Unlisted Cash
175 532749 Allcargo Global Logistics Ltd. Hindustan Cargo Ltd. 2-Jan-07 Unlisted Cash
176 532749 Allcargo Global Logistics Ltd. MHTC Logistics Private Limited 25-Feb-11 Unlisted Cash
177 532777 Info Edge (India) Ltd. MakeSense Technologies Pvt Ltd. 1-Mar-13 Priv. Cash
178 532786 Great Offshore Ltd. KEI-RSOS Maritime 2-Sep-08 Unlisted Cash
Great Offshore Ltd. Rajamahendri Shipping & Oilfield 2-Sep-08 Unlisted Cash
Services Ltd.
179 532830 Astral Poly Technik Ltd. Astral Biochem Pvt. Ltd. 22-Sep-08 Unlisted cash
180 532868 DLF Cyber City Developers Caraf Builders & Constructions 16-Dec-09 Priv. Stock
Ltd.
181 532876 Everonn Systems India Ltd. Toppers Tutorial Pvt Ltd. 11-Feb-08 Priv. Cash
(continued)
229
(continued)
230

Sr. No. BSE Acquirer name Target name Announcement Target type Payment method
code date
182 532880 Omaxe Ltd. Golden Peak Township Pvt. Ltd. 14-Oct-08 Unlisted cash
183 532880 Omaxe Ltd. Oasis Township Pvt Ltd. 27-Apr-09 Priv. Cash
184 532926 Jyothy Laboratories Ltd. Snoways 10-Mar-09 Priv. Cash
185 532926 Jyothy Laboratories Ltd. Diamond Fabcare Private Ltd. 22-Mar-11 Priv. Cash
186 532929 Brigade Enterprises Ltd. Brooke Bond REs Pvt Ltd. 23-Mar-15 Sub./Pvt Cash
187 533055 EdServ Softsystems Ltd. SmartLearn Telcomp Pvt Ltd. 2-Mar-10 Priv. Cash
188 533160 DB Realty Ltd. L&T Bombay Developers Pvt Ltd. 15-Sep-10 Priv. Cash
189 533168 Rossell India Ltd. Namsang Tea Estate 20-Apr-12 Priv. Cash
190 533168 Rossell India Ltd. Kharikatia Tea Estate 7-Dec-12 Priv. Cash
191 533260 Career Point Infra Ltd. Coupler Enterprises Pvt Ltd. 10-Jul-13 Priv. Cash
192 533309 Dalmia Bharat Ltd. Adhunik Cement Ltd. 28-Sep-12 Sub. UNKNOWN
193 533317 Omkar Speciality Chemicals Lasa Laboratory Pvt Ltd. 7-Apr-12 Unlisted Cash
Ltd.
193 590001 Chettinad Cement Corpn. Ltd. Valliammai Limes Pvt. Ltd. 17-Jan-06 Unlisted Cash
Chettinad Cement Corpn. Ltd. Alagappa Cements Pvt. Ltd. 17-Jan-06 Unlisted Cash
194 590034 Sharon Bio-Medicine Ltd. Stonewood Cem-Fab (India) Pvt. Ltd. 19-Oct-07 Unlisted cash
195 590051 Saksoft Ltd. Synetairos Technologies Ltd. 2-Jul-11 Unlisted Cash
Appendix D: Sample Companies in Event Study …
Appendix E
Sample Companies in Event Study
(Domestic Partial/ Majority Control
Acquisitions)

© Springer Science+Business Media Singapore 2016 231

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6
 232

Sr. No BSE Acquirer name Target name Announcement Stake Target Payment method
code date acquired type
1 500003 Aegis Logistics Ltd. Sealord Containers Ltd. 3-Mar-06 75 Listed Cash
2 500032 Bajaj Hindusthan Ltd. Pratappur Sugar and Industries Lt 30-Aug-05 55 Listed Cash
3 500084 CESC Ltd. Dhariwal Infrastructure Ltd. 28-Aug-09 51 Sub. UNKNOWN
4 500086 Exide Industries Ltd. Leadage Alloys India Ltd. 18-Jun-08 51 Unlisted Cash
5 500093 Crompton Greaves Ltd. Malanpur Captive Power Ltd. 2-Jun-06 59 Unlisted Cash
6 500096 Dabur India Ltd. Fem Care Pharma Ltd. 21-Nov-08 67.33 Listed Cash
7 500125 E I D-Parry (India) Ltd. East India Sugars Pvt Ltd. 29-Mar-04 95 Unlisted Cash
8 500125 E I D-Parry (India) Ltd. Phytoremedies Biolabs Pvt. Ltd. 14-Feb-08 51 Unlisted Cash
9 500201 India Glycols Ltd. Shakumbari Sugar & Allied Inds 16-Dec-07 96.56 Unlisted Cash
10 500233 Kajaria Ceramics Ltd. Soriso Ceramic Pvt Ltd. 25-Feb-11 51 Priv. CASHO
11 500251 Trent Ltd. Landmark Commercial Pvt. Ltd. 30-Aug-05 70 Unlisted Cash
12 500325 Reliance Industries Ltd. Network 18 Media & Investments 29-May-14 71.29 Public CASHO
13 500338 Prism Cement Ltd. Small Tiles Pvt Ltd. 22-Nov-11 50 Priv. OTHER
14 500350 Rajasthan Spinning & Jaipur Polyspin Ltd. 10-Nov-04 59.32 Public CASHO
Weaving
15 500370 Salora International Ltd. Jadoonet Ltd. 6-Mar-03 98.3 Unlisted Stock
16 500400 Tata Power Co. Ltd. Industrial Energy Pvt Ltd. 26-Feb-07 70 Unlisted Stock
17 500405 Supreme Petrochem Ltd. SHIN HO Petrochmicals(India) 20-Mar-06 55 Listed Cash
18 500410 Associated Cement Cos IDCOL Cement Ltd. 22-Dec-03 86.79 Unlisted Cash
Ltd.
19 500425 Ambuja Cements Ltd. Dirk India Pvt Ltd. 14-Sep-11 60 Sub. CASHO
20 500444 West Coast Paper Mills Rama Newsprint & Papers Ltd. 11-Sep-03 57.57 Listed Stock
Ltd.
21 500550 Siemens Ltd. Imetrex Technologies Ltd. 23-Apr-07 77 Unlisted Cash
(continued)
Appendix E: Sample Companies in Event Study …
(continued)
Sr. No BSE Acquirer name Target name Announcement Stake Target Payment method
code date acquired type
22 500575 Voltas Ltd. Rohini Industrial Electricals (P) Ltd. 12-Aug-08 51 Unlisted Cash
23 500780 Zuari Industries Ltd. Zuari Investments Ltd. 31-Mar-09 50 J.V. Cash
24 500830 Colgate-Palmolive C C Health Care Products Pvt. Ltd. 3-Apr-08 75 Unlisted Cash
(India) Ltd.
25 500875 I T C Ltd. Classic Infrastructure & Dvlp 7-Dec-15 87.06 Private CASHO
26 505368 Revathi Equipment Semac Pvt Ltd. 8-May-08 70 Private Cash
27 506197 Bliss Gvs Pharma Ltd. Kremoint Pharma Pvt Ltd. 28-Jun-12 70 Priv. Cash
28 506248 Amines & Plasticizers Aditya Internet Services Ltd. 16-May-06 51 Unlisted Cash
Ltd.
29 506395 Coromandel Ficom Organics Ltd. 16-Mar-06 51 Listed Cash
International Ltd.
30 506520 Jayshree Chemicals Ltd. East Coast Powers Ltd. 3-Apr-08 92.31 Unlisted Cash
Appendix E: Sample Companies in Event Study …

31 506618 Punjab Chemicals & Alpha Drug India Ltd. 24-Feb-03 51 Listed Cash
Pharmaceuticals Ltd.
32 506618 Punjab Chemicals & Parul Chemicals Ltd. 29-Aug-08 70 Priv. Cash
Crop Protection Ltd.
33 507526 Associated Alcohols Vedant Energy Pvt Ltd. 16-Apr-13 57.45 Priv. OTHER
34 507598 K L R F Ltd. Eltex Super Castings Ltd. 2-Dec-05 64.53 Unlisted Cash
35 512296 Bhagyanagar India Ltd. Solar Dynamics Pvt Ltd. 5-Jun-12 74 Priv. Cash
36 512493 Garnet International Ltd. Sukartik Clothing Pvt Ltd. 13-Sep-10 51 Priv. Cash
37 512634 Savera Industries Ltd. Elkhill Agrotech Pvt. Ltd. 28-Apr-06 85 Private Cash
38 513519 Pitti Laminations Ltd. Pitti Castings Pvt Ltd. 29-Jun-12 51 Priv. Cash
39 517530 Surana Telecom & Yellow Renewable Energy(P)Ltd. 5-Oct-11 60 Priv. Cash
Power Ltd.
(continued)
233
(continued)
234

Sr. No BSE Acquirer name Target name Announcement Stake Target Payment method
code date acquired type
40 519457 Virat Crane Industries Durga Dairy Ltd. 13-Nov-06 51 Priv. Cash
Ltd.
41 519532 Asian Tea & Exports Indong Tea Company Pvt Ltd. 17-Sep-14 63.37 Priv. Cash
Ltd.
42 520151 Shreyas Shipping & Haytrans (India) Ltd. 5-Sep-07 51 Unlisted Cash
Logistics Ltd.
43 521153 Pantaloon Industries Ltd. Indus-League Clothing Ltd. 26-Feb-05 68.29 Unlisted Cash
44 521180 Super Spinning Mills Elgi Building Products Ltd. 30-Mar-11 58.32 Priv. Cash
Ltd.
45 522059 Champagne Indage Ltd. Seabuckthorn Indage Ltd. 17-Jan-07 52.63 Unlisted Cash
46 523160 Morganite Crucible Diamond Crucible Co. Pvt. Ltd. 3-Apr-06 51 Private Cash
(India) Ltd.
47 523574 Pantaloon Retail(India) CIG Infrastructure Pvt Ltd. 28-Apr-06 51 Priv. Cash
Ltd.
48 526217 Hitech Plast Ltd. Mipak Polymers Ltd. 31-May-06 60 Unlisted Cash
49 526668 Kamat Hotels (India) Concept Hospitality Ltd. 5-Dec-07 60 Unlisted Cash
Ltd.
50 526707 Alchemist Ltd. Valiant Healthcare Ltd. 26-May-05 60 Priv. CASHO
51 530149 KSL & Industries Ltd. Reward Mercantile Co Pvt Ltd. 11-Jul-05 75 Priv. Cash
52 530323 Era Infra Engg. Ltd. Era E-Zone India Ltd. 3-Apr-06 51 Listed Cash
53 530461 Saboo Sodium Chloro Fortress Hotels & Resorts Pvt. Ltd. 27-Sep-07 75 Unlisted Cash
Ltd.
54 530627 Vipul Dye-Chem Ltd. Shree Ambika Naturals Pvt Ltd. 31-Mar-11 56 Priv. Cash
55 530773 I V R C L Infrastructures Hindustan Dorr-Oliver Ltd. 27-Apr-05 70 Listed Cash
& Projects Ltd.
Appendix E: Sample Companies in Event Study …

(continued)
(continued)
Sr. No BSE Acquirer name Target name Announcement Stake Target Payment method
code date acquired type
56 531269 K L G Systel Ltd. Atlantis Lab Pvt. Ltd. 27-Aug-07 51 Unlisted Cash
57 531349 Panacea Biotec Ltd. Umkal Medical Institute Pvt. Ltd. 4-Jul-08 75.2 Unlisted Cash
58 531374 Saag R R Infra Ltd. Techni Bharathi Ltd. 13-Feb-07 60 Unlisted Cash
59 531794 Seshachal Technologies Labcal Biometric Technologies 4-Dec-07 98.57 Priv. SHARES
Ltd.
60 531816 Panoramic Universal Sri Vatsa Hotels Pvt Ltd. 20-Oct-08 51 Unlisted Cash
Ltd.
61 531816 Panoramic Universal Hi-Flyers Travel Svcs Pvt Ltd. 12-Nov-07 51 Priv. OTHER
Ltd.
62 531897 Accentia Technologies Iridium Technologies (India) Pvt. 8-Mar-06 51 Unlisted Stock
Ltd. Ltd.
63 532051 Numeric Power Systems Amex Alloys Pvt Ltd. 6-Dec-10 92 Priv. Cash
Appendix E: Sample Companies in Event Study …

Ltd.
64 532081 K Sera Sera Productions Lemon Entertainment Ltd. 4-Dec-06 80 Unlisted Stock
Ltd.
65 532100 Indo-City Infotech Ltd. T A C Technosoft Pvt. Ltd. 2-Feb-05 51 Unlisted Cash
66 532175 Infotech Enterprises Ltd. Geospatial Integrated Solution Pvt. 15-May-07 74 Unlisted Cash
Ltd.
67 532219 Energy Development Co Ayyappa Hydro Power Ltd. 30-Oct-06 60 Priv. Cash
Ltd.
68 532299 Television Eighteen Infomedia 18 Ltd. 12-Dec-07 51 Listed Cash
India Ltd.
69 532318 Gemini Communication Veeras Infotek Pvt. Ltd. 16-Jun-08 51 Unlisted Cash
Ltd.
70 532338 Valuemart Info Tejas Infoscripts Pvt. Ltd. 29-Aug-05 74 Unlisted Cash
Technologies Ltd.
235

(continued)
(continued)
236

Sr. No BSE Acquirer name Target name Announcement Stake Target Payment method
code date acquired type
71 532338 Valuemart Info Datatalk Services (India) Pvt. Ltd. 28-Nov-07 74 Unlisted Cash
Technologies Ltd.
72 532338 Valuemart Info Tech HVO Technologies Ltd. 14-Oct-05 51 Priv. Cash
Ltd.
73 532345 Gati Ltd. Kausar India Ltd. 27-Aug-07 52.96 Listed Cash
74 532357 Mukta Arts Ltd. Coruscant Tec Pvt. Ltd. 19-Sep-08 51 Unlisted Cash
75 532357 Mukta Arts Ltd. Red Carpet Films Pvt Ltd. 29-Oct-07 50.01 Priv. OTHER
76 532374 Sterlite Technologies Sterlite Infrastructure Pvt. Ltd. 1-Oct-07 58.7 Unlisted Cash
Ltd.
77 532386 California Software Co. Ina Tech Infosolutions Pvt. Ltd. 14-Sep-06 51 Unlisted Cash
Ltd.
78 532386 California Software Co. Aspire Communications Pvt. Ltd. 22-May-07 58.76 Unlisted Cash
Ltd.
79 532399 Reliance Mediaworks Synergy Communications Pvt Ltd. 7-Sep-06 51 Unlisted Cash
Ltd.
80 532413 Cerebra Integrated Tech Geeta Monitors Pvt Ltd. 13-Jun-11 51 Priv. Cash
Ltd.
81 532440 M P S Ltd. Frank Brothers & Co. (Publishers) 21-Aug-07 80 Unlisted Cash
Ltd.
82 532454 Bharti Televentures Ltd. Hexacom India Limited 7-May-04 67.5 Unlisted optionally convertible
redeemable debentures
83 532466 Oracle Financial Flexcel International Pvt. Ltd. 4-Apr-08 60 Unlisted Cash
Services Software Ltd.
84 532475 Aptech Ltd. Synergetics Information Technology 12-Oct-06 70 Unlisted Cash
Services (India) Pvt. Ltd.
(continued)
Appendix E: Sample Companies in Event Study …
(continued)
Sr. No BSE Acquirer name Target name Announcement Stake Target Payment method
code date acquired type
85 532493 Astra Microwave Komoline Electronics Pvt Ltd. 26-Jul-06 70 Unlisted Cash
Products Ltd.
86 532494 Micro Technologies Databyte Svcs & Sys Pvt Ltd. 31-Jan-05 50 Unlisted Cash
(India) Ltd.
87 532531 Strides Arcolab Ltd. Medgene Pharm Pvt Ltd. 6-May-05 90 Priv. Cash
88 532626 Pondy Oxides & Lohia Metals Ltd. 16-Jun-08 51 Priv. Cash
Chemicals Ltd.
89 532628 3I Infotech Ltd. KNM Services Pvt Ltd. 29-May-07 60 Unlisted Cash
90 532628 3i Infotech Ltd. FinEng Solutions Pvt Ltd. 11-Jun-08 51 Priv. Cash
91 532629 Mcnally Bharat Engg. Sayaji Iron & Engineering Co. Ltd. 16-May-08 68.28 Listed Cash
Co. Ltd.
92 532640 Cyber Media India Ltd. CMP-CyberMedia LLC 4-Apr-08 50 Unlisted Cash
Appendix E: Sample Companies in Event Study …

93 532647 Provogue (India) Ltd. Sporting & Outdoor Ad-Agency Pvt. 23-Jan-08 51 Unlisted Cash
Ltd.
94 532670 Shree Renuka Sugars K B K Chem-Engineering Pvt. Ltd. 27-Jul-07 51 Unlisted Cash
Ltd.
95 532670 Shree Renuka Sugars Gokak Sugars Ltd. 23-Oct-08 80 Unlisted Cash
Ltd.
96 532683 AIA Engineering Ltd. DCPL Foundries Pvt Ltd. 14-Dec-10 70 Priv. CASHO
97 532689 PVR Ltd. Zea Maize Pvt Ltd. 21-Aug-15 70 Priv. CASHO
98 532696 Educomp Solutions Ltd. Authorgen Technologies Pvt. Ltd. 17-Aug-07 51 Unlisted Cash
99 532696 Educomp Solutions Ltd. ThreeBrix E-Svcs Pvt Ltd. 10-Apr-07 76 Unlisted Cash
100 532696 Educomp Solutions Ltd. A-Plus Education Solutions Pvt Ltd. 24-Jul-08 70 Priv. Cash
101 532696 Educomp Solutions Ltd. EuroKids International Ltd. 10-Sep-08 50 Priv. Cash
(continued)
237
(continued)
238

Sr. No BSE Acquirer name Target name Announcement Stake Target Payment method
code date acquired type
102 532699 Royal Orchid Hotels Maruti Comforts & Inn Pvt Ltd. 3-Apr-06 51 Priv. Cash
Ltd.
103 532699 Royal Orchid Hotels Cosmos Premises Ltd. 2-Apr-08 50 Priv. Cash
Ltd.
104 532715 Gitanjali Gems Ltd. Salasar Retail Ltd. 16-Dec-09 76 Priv. Cash
105 532715 Gitanjali Gems Ltd. MobileNXT Teleservices Pvt. Ltd. 1-Jul-09 70 Priv. Cash
106 532725 Solar Industries India Navbharat Coalfields Ltd. 12-Nov-07 74 Unlisted Cash
Ltd.
107 532787 Ess Dee Aluminium Ltd. India Foils Ltd. 19-Nov-08 90 Listed Cash
108 532791 Pyramid Saimira Theatre Dimples Cine Advg Pvt Ltd. 28-Nov-07 51 Priv. Cash
Ltd.
109 532804 Technocraft Industries Shreyan Infra & Power LLP 27-Mar-14 90 Priv. Cash
(India)
110 532832 Indiabulls Real Estate Piramyd Retail Ltd. 8-Dec-07 63.92 Listed CASHO
Ltd.
111 532834 Camlin Fine Chemicals Sangam Laboratories Pvt Ltd. 25-Feb-08 60 Unlisted Cash
Ltd.
112 532848 Delta Corp Ltd. Advani Pleasure Cruise Co 19-Jan-10 50.99 Sub. OTHER
113 532865 Meghmani Organics Ltd. Latasha Exports Ltd. 1-Aug-08 51 Priv. Cash
114 532875 Allied Digital Services Digicomp Complete Solutions 11-Apr-08 51.05 Priv. Cash
Ltd.
115 532920 Empee Distilleries Ltd. EDL Properties Pvt Ltd. 6-Aug-08 75 Priv. Cash
116 532931 Burnpur Cement Ltd. Burnpur Natural Resources 8-Aug-08 60 Priv. Cash
117 532945 Shriram EPC Ltd. Blackstone Group Technologies 28-Aug-08 55 Priv. Cash
(continued)
Appendix E: Sample Companies in Event Study …
(continued)
Sr. No BSE Acquirer name Target name Announcement Stake Target Payment method
code date acquired type
118 532946 Bang Overseas Ltd. A S Raiment Pvt Ltd. 4-Jul-12 99.99 Priv. Cash
119 533271 Ashoka Buildcon Ltd. Viva Infrastructure Pvt Ltd. 2-Apr-12 50 Priv. Cash
120 533282 Gravita India Ltd. KM Udyog Ltd. 4-Apr-11 60 Priv. Cash
121 533282 Gravita India Ltd. Metal Inc. 12-Jul-11 80 Priv. Cash
122 533309 Dalmia Bharat Ltd. Bokaro Jaypee Cement Ltd. 25-Mar-14 74 Unlisted CASHO
123 534742 Zuari Agro Chemicals Zuari Rotem Speciality 11-Dec-15 50.00 Private CASHO
Ltd.
124 590051 Saksoft Ltd. Threesixty Logica Testing Svcs Pvt 1-Jan-15 51 Priv. Cash
Ltd.
125 590120 Provestment Services Saab Travel & Tours Pvt Ltd. 10-Jan-13 86.03 Priv. OTHER
Ltd.
Appendix E: Sample Companies in Event Study …
239
Appendix F
Sample Companies in Event Study
(Target Firms Totally Absorbed With
the Acquirers’ Operations)

BSE Acquirer name Target name Announcement Target Payment

code date type method
1 500003 Aegis Logistics Tapi Finvest India 2-Sep-08 Priv. Stock
Ltd. Pvt Ltd.
2 500013 Ansal Properties Ansal Township & 15-Apr-06 Unlisted Stock
& Infrastructure Projects Ltd.
Ltd.
3 500032 Bajaj Hindusthan Phenil Food Pvt. 20-Sep-08 Unlisted Stock
Sugar & Ltd.
Industries
4 500038 Balrampur Chini Khalilabad Sugar 26-Sep-13 Priv. SHARES
Mills Ltd. Mills Ltd.
5 500039 Banco Products Ganga Investments 1-Sep-08 Priv. SHARES
(India)Ltd. Pvt Ltd.
6 500041 Bannari Amman Maheswara Sugar 27-Jun-07 Unlisted Cash
Sugars Ltd. Ltd.
7 500066 Blow Plast Ltd. VIP Industries Ltd. 9-Mar-06 Listed SHARES
8 500084 C E S C Ltd. Pathik Foods Pvt. 17-Apr-07 Unlisted Stock
Ltd.
9 500085 Chambal India Steamship Co. 16-Sep-04 Listed Stock
Fertilizers Ltd. Ltd.
10 500097 Dalmia Cement Eswar Cements Pvt 17-Sep-08 Priv. stock
(Bharat)Ltd. Ltd.
11 500165 Kansai Nerolac Polycoat Powders 24-Jan-06 Unlisted Stock
Paints Ltd. Ltd.
(continued)

© Springer Science+Business Media Singapore 2016 241

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6
242 Appendix F: Sample Companies in Event Study …

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
12 500219 Jain Irrigation Terra Agro 31-May-05 Unlisted Stock
Systems Ltd. Technologies Ltd.
13 500219 Jain Irrigation Orient Vegetexpo 4-Sep-06 Listed Stock
Systems Ltd. Ltd.
13 500219 Jain Irrigation Eurisko Agro Ltd. 4-Sep-06 Unlisted Stock
Systems Ltd.
14 500228 Jindal Jindal Iron Steel Co. 21-Oct-03 Listed Cash
Vijayanagar Ltd.
Steel Ltd.
500228 Jindal Euro Coke & 9-May-05 Unlisted Stock
Vijayanagar Energy Pvt. Ltd.
Steel Ltd.
500228 Jindal J S W Power Ltd. 9-May-05 Unlisted Stock
Vijayanagar
Steel Ltd.
500228 Jindal Euro Ikon Iron Steel 9-May-05 Unlisted Stock
Vijayanagar Pvt. Ltd.
Steel Ltd.
15 500279 Mirc Electronics Onida Savak Ltd. 6-Apr-05 Listed Stock
Ltd.
16 500279 Mirc Electronics Guviso Holdings 25-Jul-08 Priv. Stock
Ltd. Pvt Ltd.
17 500302 Piramal Canere Actives & 28-Jan-04 Unlisted Stock
Healthcare Ltd. Fine Chemicals Pvt.
Ltd.
18 500329 Pentamedia Pentasoft 15-Oct-08 Listed Stock
Graphics Ltd. Technologies Ltd.
19 500413 Thomas Cook L K P Forex Ltd. 30-Jun-06 Unlisted Stock
(India) Ltd.
20 500510 Larsen & Toubro Datar Switchgear 25-Aug-05 Listed Cash
Ltd. Ltd.
21 500660 Glaxosmithkline Burroughs 17-Mar-04 Listed Stock
Pharmaceuticals Wellcome (India)
Ltd. Ltd.
22 500680 Pfizer Ltd. Pharmacia 13-Jul-04 Listed Stock
Healthcare Ltd.
23 500770 Tata Chemicals Hind Lever 22-Jan-03 Listed Stock
Ltd. Chemicals Ltd.
24 500945 Value Industries Ranjangaon 2-Apr-07 Unlisted Cash
Ltd. Industries Pvt. Ltd.
(continued)
Appendix F: Sample Companies in Event Study … 243

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
25 502445 Rohit Pulp & Marathon Realty 30-Mar-07 Priv. Stock
Paper Mills Ltd. Ltd.
26 502465 Speciality Paper Reliable Paper 5-Jul-07 Unlisted Cash
Ltd. (India) Ltd.
502465 Speciality Paper Opel Paper Mill 5-Jul-07 Unlisted Cash
Ltd. Ltd.
502465 Speciality Paper Prime Industries 5-Jul-07 Unlisted Cash
Ltd.
27 503031 Morarjee Dawn Mills Co. 5-May-06 Listed Stock
Realties Ltd. Ltd.
28 503722 Banswara Syntex Banswara Textile 10-Dec-04 Listed Stock
Ltd. Mills Ltd.
29 503837 Shree Rajasthan Shree Rajasthan 31-Jul-06 Listed Stock
Syntex Ltd. Texchem Ltd.
30 504028 G E E Ltd. Ferroseal India Pvt. 30-Jan-08 Unlisted Cash
Ltd.
504028 G E E Ltd. Filarc Engineers 30-Jan-08 Unlisted Cash
Pvt. Ltd.
504028 G E E Ltd. Sagar Merchandise 30-Jan-08 Unlisted Cash
Pvt. Ltd.
31 504092 Indokem Ltd. Sovereign Trading 24-Dec-07 Unlisted Stock
Enterprises Ltd.
32 504212 Universal Cables Optic Fibre Goa 24-Jan-06 Unlisted Stock
Ltd. Ltd.
33 504614 Sarda Energy & Raipur Gases Pvt. 29-Sep-06 Unlisted Stock
Mineral Ltd. Ltd.
504614 Sarda Energy & Chhattisgarh 29-Sep-06 Unlisted Stock
Mineral Ltd. Electricity Co. Ltd.
34 505400 Texmaco Ltd. Evershine 14-Aug-07 Unlisted Stock
Merchants Pvt. Ltd.
35 506172 Sampada Debonair 14-Jan-05 Sub. OTHER
Chemicals Ltd. Publications Ltd.
36 506186 Galaxy Pan India 27-Oct-06 Unlisted Stock
Entertainment Restaurants Ltd.
Corpn. Ltd.
37 506401 Deepak Nitrite Aryan Pesticides 5-Jun-03 Listed Stock
38 506618 Punjab Alpha Drug India 12-May-05 Listed Stock
Chemicals & Ltd.
Crop Protection
Ltd.
(continued)
244 Appendix F: Sample Companies in Event Study …

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
39 506985 Twilight Litaka Care Unipac Pvt. 19-Sep-05 Unlisted Cash
Pharma Ltd. Ltd.
40 507794 Khaitan Chem & Mahadeo Fertilizers 13-Apr-06 Public Stock
Fertilizers Ltd. Ltd.
41 507796 Jhaveri Flexo Jhaveri Flexi 21-Jan-06 Unlisted Cash
India Ltd. Laminate Pvt. Ltd.
42 507880 V I P Industries Blow Plast Ltd. 9-Mar-06 Listed Stock
Ltd.
44 508996 Satra Properties OM Housing Co 24-Nov-06 Priv. Stock
India Ltd. Pvt Ltd.
45 509930 Supreme Siltap Chemicals 7-Feb-03 Listed Stock
Industries Ltd. Ltd.
46 511664 BGIL Films & Kriti 18-May-09 Priv. Stock
Technologies Communications
Ltd. Pvt Ltd.
47 511672 Scan Steels Ltd. Scan Steels Ltd. 12-Jul-10 Priv. Stock
48 511760 Kosian Ideal Systems 11-Mar-05 Priv. Stock/PF
Industries Ltd.
49 512087 Parijat Trading Multilayer Films 19-Mar-10 Priv. Stock
Ltd. Pvt Ltd.
50 512179 Sunteck Realty Satguru Corporate 25-Jan-07 Priv. Stock
Ltd. Services Pvt
51 512185 I O L Netcom Exatt Technologies 14-Apr-07 Unlisted Stock
Ltd. Pvt. Ltd.
52 512529 Visistha Trade & PI Drugs & 11-Sep-03 Priv. Stock
Finance Ltd. Pharmaceuticals
Ltd.
53 512587 Zodiac-Jrd-Mkj M K J Jewellery 6-Feb-08 Unlisted Stock
Ltd. Pvt. Ltd.
54 513121 Oricon Scientific Vaccum 23-May-05 Unlisted Stock
Enterprises Ltd. Coating Pvt. Ltd.
55 513349 Ajmera Realty & Anik Development 22-Jan-07 Unlisted Cash
Infra India Ltd. Corpn. Pvt. Ltd.
56 513446 Monnet Ispat & Mounteverest 16-Mar-10 Public SHARES
Energy Ltd. Trading & Invest
57 514034 J B F Industries Microsynth Fabrics 28-Mar-08 Unlisted Stock
Ltd. (India) Ltd.
66 514036 Loyal Textile Shri Chintamani 17-Sep-10 Priv. Stock
Mills Ltd. Textile Mills
67 514128 Konark Konark Silk Mills 30-Jul-07 Priv. SHARES
Synthetic Ltd. Pvt Ltd.
68 514162 Welspun India Glofame Cotspin 1-Nov-04 Unlisted Stock
Ltd. Industries Ltd.
69 515018 Regency Regma Ceramics 2-Apr-07 Unlisted Cash
Ceramics Ltd. Ltd.
(continued)
Appendix F: Sample Companies in Event Study … 245

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
70 515055 Anant Raj Inds. Jasmine Promoters 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Parkland Promoters 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Mayur Buildtech 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Greenwood 18-Jan-07 Unlisted Cash
Ltd. Promoters Pvt. Ltd.
515055 Anant Raj Inds. Rockfield Buildtech 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Anant Raj Exports 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Sunrise Buildtech 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Northland Estates 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Springdales Estates 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Anant Raj Agencies 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. West Land 18-Jan-07 Unlisted Cash
Ltd. Buildtech Pvt. Ltd.
515055 Anant Raj Inds. Victor Promoters 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Jasmine Promoters 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Parkland Promoters 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Mayur Buildtech 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
515055 Anant Raj Inds. Greenwood 18-Jan-07 Unlisted Cash
Ltd. Promoters Pvt. Ltd.
515055 Anant Raj Inds. Rockfield Buildtech 18-Jan-07 Unlisted Cash
Ltd. Pvt. Ltd.
71 516076 Ador Technopak J B Advani & Co 5-May-04 Priv. Cash
Ltd. Pvt Ltd.
72 517059 Salzer Salzer Cables Ltd. 29-Aug-08 Unlisted Cash
Electronics Ltd.
73 517496 Ricoh India Ltd. Gestetner (India) 24-Aug-04 Unlisted Stock
Ltd.
74 517556 SSI Ltd. P V P Ventures Pvt. 9-Jan-08 Unlisted Cash
Ltd.
75 517556 PVP Ventures Malaxmi Energy 16-Jun-08 Priv. Cash
Pvt Ltd. Ventures(India)
(continued)
246 Appendix F: Sample Companies in Event Study …

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
76 517565 Ashco Niulab Niulab Equipment 20-Nov-07 Unlisted Cash
Inds. Ltd. Co. Pvt. Ltd.
77 517973 DMC Vaults Swen Television 17-Jan-06 Priv. Shares
Ltd. Ltd.
78 518111 Swastik Roofing New Sahyadri 14-Mar-05 Priv. Shares
Ltd. Industries Ltd.
79 519003 Anil Modi Oil J P Management 17-Aug-05 Priv. Shares
Industries Ltd. Systems Pvt Ltd.
80 519383 Madhya Pradesh Anik Industries Pvt. 7-Oct-05 Unlisted Stock
Glychem Ltd.
81 519475 Chordia Food Agri Food Park 8-Mar-06 Unlisted Cash
Products Ltd. India Ltd.
82 520021 Omax Autos Ltd. Indital Tintoria Ltd. 15-Mar-03 Unlisted Stock
83 521046 Vanasthali Regal Weavers Pvt. 14-Mar-05 Unlisted Cash
Textile Inds. Ltd. Ltd.
84 521123 Pearl Global Ltd. Pearl Styles Ltd. 7-Feb-06 Unlisted Cash
85 522004 Batliboi Ltd. Batliboi SPM Pvt 17-Oct-06 Sub. Shares
Ltd.
86 522285 Jayaswal Neco Inertia Iron & Iron 19-Nov-08 Unlisted Stock
Inds. Ltd. & Steel Inds. Pvt.
Ltd.
87 523254 Casil Health Diacon and 18-Nov-04 Unlisted share
Products Ltd. Hospicon, Biosulin
Intern
88 523277 G V Films Ltd. One World Media 17-Feb-04 Listed Cash
Network
Infotainment Ltd.
89 523315 Purity Flexpack Vaikunth Packaging Confusion Unlisted Stock
Ltd. Ltd.
90 523371 Siel Ltd. Mawana sugarLtd. 11-Jan-07 Unlisted Cash
91 523385 Nilkamal Ltd. Nilkamal Crates & 21-Apr-07 Unlisted Stock
Bins Pvt. Ltd.
92 523385 Nilkamal Ltd. Stackwell 21-Apr-07 Unlisted Stock
Marketing Services
Pvt. Ltd.
93 523606 Sika Interplant Spaceciti Projects 13-Jun-06 Unlisted Stock
Systems Ltd. Pvt. Ltd.
94 523724 Vijay Shanthi High End Homes 21-Dec-09 Priv. Stock
Builders Ltd. Pvt Ltd.
95 523736 Dhunseri tea & Tezpore tea Co. Ltd. 28-Sep-07 Listed Stock
Inds. Ltd.
96 523736 Dhunseri tea & Uni Stock Pvt. Ltd. 31-Mar-08 Unlisted Stock
Inds. Ltd.
97 523890 D S Kulkarni Oyster Promoters & 9-Oct-07 Unlisted Stock
Developers Ltd. Developers Pvt.
Ltd.
(continued)
Appendix F: Sample Companies in Event Study … 247

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
98 524226 Gujarat Ambuja Jupiter Biotech Ltd. 25-Jul-03 Listed Cash
Exports Ltd.
99 524310 V B C Industries Bharat Alloys & 19-Jul-06 Listed Stock
Ltd. Energy Ltd.
100 524370 Bodal Chemicals Milestone Organics 14-Aug-07 Listed SHARES
Ltd. Ltd.
101 524689 Parenteral Drugs P F L Holdings Pvt. 5-Aug-08 Unlisted Cash
(India) Ltd. Ltd.
101 524689 Parenteral Drugs Goa Holdings 5-Aug-08 Unlisted Cash
(India) Ltd. (India) Pvt. Ltd.
102 524715 Sun Phlox 8-Feb-05 Unlisted Stock
Pharmaceutical Pharmaceuticals
Inds. Ltd. Ltd.
103 524742 Caplin Point Malind Laboratories 7-May-08 Priv. Stock
Laboratories Ltd. Pvt Ltd.
104 524794 Matrix Vera Laboratories 30-Mar-04 Listed Stock
Laboratories Ltd. Ltd.
104 524794 Matrix Medikon 30-Mar-04 Listed Stock
Laboratories Ltd. Laboratories Ltd.
104 524794 Matrix Fine Drugs & 30-Mar-04 Listed Stock
Laboratories Ltd. Chemicals Ltd.
105 524820 Panama Mobil Petrochem 31-Aug-07 Unlisted Stock
Petrochem Ltd. Pvt. Ltd.
106 526109 Pricol Ltd. Xenos Automotive 24-Jan-14 Unlisted Stock
Limited
107 526117 Shervani Tara Snacks & 20-Feb-06 Priv. Cash
Industrial Foods Pvt Ltd.
Syndicate
108 526263 Mold-Tek Teck-Men Tools 10-Jan-07 Unlisted Cash
Technologies Pvt. Ltd.
Ltd.
109 526299 Mphasis Ltd. E D S Electronic 26-Jul-06 Unlisted Stock
Data Systems India
Pvt. Ltd.
110 526371 National Mineral Sponge Iron(India) 13-Oct-06 Govt./ Cash
Development Unlisted
111 526538 Maximaa Good Living 3-Mar-08 Unlisted Stock
Systems Ltd. Shelters Pvt. Ltd.
526538 Maximaa Meera’S Land 3-Mar-08 Unlisted Stock
Systems Ltd. Developers Pvt.
Ltd.
526538 Maximaa Meera’S Real Estate 3-Mar-08 Unlisted Stock
Systems Ltd. Developers Pvt.
Ltd.
526538 Maximaa Mapara Furniture 3-Mar-08 Unlisted Stock
Systems Ltd. Pvt. Ltd.
(continued)
248 Appendix F: Sample Companies in Event Study …

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
112 526668 Kamat Hotels Himco (India) Ltd. 10-May-05 Unlisted Stock
(India) Ltd.
113 526707 Alchemist Ltd. Kaiser Hospital Ltd. 31-Aug-06 Unlisted Cash
114 526829 Confidence Khara Gas 13-Jun-07 Unlisted Stock
Petroleum India Equipments Pvt.
Ltd. Ltd.
526829 Confidence Maharashtra 13-Jun-07 Unlisted Stock
Petroleum India Cylinders Pvt. Ltd.
Ltd.
526829 Confidence Hans Gas 13-Jun-07 Unlisted Stock
Petroleum India Appliances Pvt. Ltd.
Ltd.
115 530163 Kerala Ayurveda Katra Healthcare 28-Apr-05 Unlisted Stock
Ltd. Pvt. Ltd.
116 530239 Suven Life Asian Clinical 6-Mar-06 Unlisted Stock
Sciences Ltd. Trails Pvt. Ltd.
117 530377 Nila Pearl Stock 25-Sep-09 Priv. Stock
Infrastructure Holdings Pvt Ltd.
Ltd.
118 530433 Shiva Fertilizers Parvati Fertilizers 21-Mar-06 Unlisted Cash
Ltd. Pvt. Ltd.
119 530435 Media Video Kool Auto Pvt. Ltd. 23-Dec-05 Unlisted Stock
Ltd.
530435 Media Video Shri Venkateshwara 23-Dec-05 Unlisted Stock
Ltd. Electronics Pvt. Ltd.
530435 Media Video Paradox Motors 23-Dec-05 Unlisted Stock
Ltd. Pvt. Ltd.
530435 Media Video Beech Tree 23-Dec-05 Unlisted Stock
Ltd. Buildcon Pvt. Ltd.
530435 Media Video Valerian Property 23-Dec-05 Unlisted Stock
Ltd. Developers Pvt.
Ltd.
530435 Media Video Acacia Buildwell 23-Dec-05 Unlisted Stock
Ltd. Pvt. Ltd.
120 530549 Shilpa Medicare Shilpa Organics Pvt 29-Aug-05 Private Stcok
Ltd. Ltd.
121 530611 Sturdy Industries Swati Storwel Pvt 1-Oct-07 Priv. Stock
Ltd. Ltd/ and M/s. Nu-
line Industries Pvt
Ltd.
122 530619 Asian CERC Regius Infotech Pvt. 22-Jan-08 Unlisted Stock
Information Ltd.
Technology
(continued)
Appendix F: Sample Companies in Event Study … 249

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
123 530707 Aftek Ltd. Elven Micro 11-Dec-06 Unlisted Stock
Circuits Pvt. Ltd.
530707 Aftek Ltd. Elven Micro 11-Dec-06 Unlisted Stock
Circuits Pvt. Ltd.
(EMPL)
530707 Aftek Ltd. C2Silicon Software 11-Dec-06 Unlisted Stock
Solutions Pvt. Ltd.
124 530723 Nucleus Nucleus Netsoft & 11-Jul-05 Priv. Stock
Securities Ltd. GIS(India)
125 530871 Chembond Shree Mahalasa 16-Jan-08 Unlisted Stock
Chemicals Ltd. Electronics Pvt. Ltd.
126 530889 Alka India Ltd. Janice Textiles Ltd. 28-Mar-04 Listed Cash
127 531153 Diligent Adithya Agro 11-Jan-13 Priv. Stock
Industries Ltd. Allied Oils Ltd.
128 531175 B L S Infotech Bossom Exim Pvt. 20-Feb-06 Unlisted Stock
Ltd. Ltd.
531175 B L S Infotech Business Point Ltd. 20-Feb-06 Unlisted Stock
Ltd.
531175 B L S Infotech DKS Homes Pvt 20-Feb-06 Unlisted Stock
Ltd. Ltd.
129 531429 Advent Itheories Business 13-Jun-05 Unlisted Stock
Computer Factory (India) Pvt.
Services Ltd. Ltd.
130 531486 Filmcity Media Wellness 15-Nov-06 Priv. Stock
Ltd. Communication Pvt
Ltd.
131 531645 Southern Ispat & Kerala Sponge Iron 16-Jan-08 Unlisted Stock
Energy Ltd. Ltd.
132 531651 National General Modi Metal Udyog 28-Aug-08 Priv. Stock
Industries Pvt Ltd.
133 531716 Rids Securities Tricom Agrochem 19-Sep-08 Priv. Stock
Ltd. Ltd.
134 531972 Trident Tools Quickcut 16-Dec-11 Priv. Stock
Ltd. Engineering Co
135 532039 Sunline Zenotech 20-Nov-03 Priv. Stock
Technologies Laboratories Pvt
Ltd. Ltd.
136 532161 Baffin Uniworld Telecom 24-Jan-05 Sub. Stock
Engineering Ltd.
Projects
137 532196 NCL Seccolor Alltek Coating 3-Dec-03 Priv. Stock
Ltd. Products Ltd.
138 532321 Cadila German Remedies 15-Jan-03 Listed Stock
Healthcare Ltd. Ltd.
(continued)
250 Appendix F: Sample Companies in Event Study …

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
139 532342 I T People Orient Information 27-Nov-07 Unlisted Stock
(India) Ltd. Technology Ltd.
(OITL)
532342 I T People Marketplace 27-Nov-07 Unlisted Stock
(India) Ltd. Technologies Pvt
Ltd.
140 532395 I T & T Ltd. Axis Computers 29-Apr-04 Unlisted Stock
India Pvt Ltd.
141 532408 Megasoft Ltd. Visualsoft 1-Oct-06 Listed Stock
Technologies Ltd.
142 532411 Visesh M P S Techno Soft 22-Sep-04 Unlisted Stock
Infotecnics Ltd. Ltd.
143 532414 IKF Visual Vistas 30-Dec-05 Priv. Stcok
Technologies
Ltd.
144 532486 Pokarna Ltd. Pokarna Engineered 16-Sep-08 Unlisted Stock
Stone Ltd.
145 532531 Strides Arcolab Shasun 30-Sep-14 Listed stock
Ltd. Phamaceutical
146 532548 Century Sharon Wood Inds. 3-Jun-07 Unlisted Stock
Plyboards (India) Pvt. Ltd.
Ltd.
532548 Century Sharon Veneers Pvt. 3-Jun-07 Unlisted Stock
Plyboards (India) Ltd.
Ltd.
532548 Century Century Panels Pvt. 3-Jun-07 Unlisted Stock
Plyboards (India) Ltd.
Ltd.
147 532727 Adhunik Sri M P Ispat & 29-Jul-08 Unlisted Stock
Metaliks Ltd. Power Pvt. Ltd.
532727 Adhunik Vedvyas Ispat Ltd. 29-Jul-08 Unlisted Stock
Metaliks Ltd.
532727 Adhunik Zion Iron & Steel 29-Jul-08 Unlisted Stock
Metaliks Ltd. Ltd.
148 532747 Deccan Aviation Kingfisher Airlines 20-Dec-07 Priv. SHARES
Ltd. Ltd.
149 532748 Prime Focus Ltd. Reliance 2-Jul-14 Sub. Stock,
MediaWorks-Film Preferntial
& Med allotment
150 532761 HOV Services SOURCECORP 14-Mar-11 Sub. Stock
Ltd. Inc.
151 532815 SMS Plant Organics Ltd. 30-Jul-08 Unlisted Stock
Pharmaceuticals
Ltd.
152 532819 Mindtree Ltd. Aztecsoft Ltd. 29-Sep-08 Listed Stock
(continued)
Appendix F: Sample Companies in Event Study … 251

(continued)
BSE Acquirer name Target name Announcement Target Payment
code date type method
153 532821 Indus Fila Ltd. Tulip Apparels Pvt. 12-Mar-08 Unlisted Stock
Ltd.
154 532822 Idea Cellular Spice 25-Jun-08 Listed Stock
Ltd. Communications
Ltd.
155 532966 Titagarh Wagons Titagarh Steels Ltd. 30-Mar-09 Public SHARES
Ltd.
156 532981 Anu’s Nitya Laboratories 10-Mar-10 Priv. Stock
Laboratories Ltd. Ltd.
157 533100 Premier Energy Valagam Power 28-Jun-10 Priv. Stock
Projects Ltd.
158 533166 Sundaram Multi Vidarbha Paper 11-May-07 Unlisted Stock
Pap Ltd. Products Mills Ltd.
533166 Sundaram Multi Sihora Paper 11-May-07 Unlisted Stock
Pap Ltd. Products Mills Ltd.
159 590022 Eastern Silk Sstella Silks Ltd. 19-Jul-04 Unlisted Cash
Inds. Ltd.
590022 Eastern Silk Eastern Jingying 19-Jul-04 Unlisted Cash
Inds. Ltd. Ltd.
159 590037 Steel Exchange Vizag Profiles Ltd. 31-Oct-06 Unlisted Stock
India Ltd.
160 502207 Alembic Glass Shreno Ltd. 6-Jan-06 Priv. Stock
Industries Ltd.
Index

A Corporate governance index, 8, 148, 150, 151,

Abnormal returns, 5, 7, 8, 12–15, 17–25, 27, 170, 187, 189
28, 37, 38, 43, 44, 46, 47, 50, 56, 57, 60, Corporate governance score, 5, 8, 147, 148,
63, 66, 67, 71, 75, 79, 81, 82, 84, 90, 91, 150, 169–173, 175, 176, 178, 180, 182, 186
98, 103, 170, 173, 182, 184, 187, 189 Costs, 4, 5, 78, 112, 125, 126, 129, 152, 169,
Acquire, 1, 3, 4, 8, 11, 46, 50, 57, 59, 60, 63, 182, 186, 188
66, 68, 69, 71, 76, 78, 89, 109, 117, 118, Country-level, 4
120, 121, 124, 126, 130, 138, 182, 186–189 Cross-border, 3, 4, 12, 38, 39, 48–50, 54,
Acquirer, 1, 3, 4, 6, 12, 38, 40, 50, 51, 57, 58, 57–60, 86, 88, 89, 91, 92, 95, 97, 98, 100,
60, 63, 65, 67, 69–71, 77–79, 91, 113, 122, 103, 184, 185, 187–189
124, 126, 128, 134, 135, 148, 149, 152, Cross-sectional standard deviation test, 21, 22
169, 176, 184, 185 Crude dependence test, 21
Agency theory, 169 Cultural, 4, 60
Announcement, 5–8, 12, 13, 15–18, 20, 29, 31, Cumulative average abnormal returns, 6, 7, 13,
33, 37–40, 43, 44, 46, 50, 53–55, 57, 60, 19, 20, 28, 40, 43–45, 50, 56, 57, 84, 173,
61, 63, 71, 73, 75, 77–79, 81, 84, 85, 174, 189
89–92, 94–96, 98, 103, 104, 135, 136, 148,
154, 160, 170, 173, 175, 184–189 D
Announcement effects, 20, 44, 79, 89, 91, 95, Data set, 8
98, 148, 169 Destroy, 2, 3
Asset seeking perspective, 4 Developed, 2, 6, 8, 12, 20, 24, 38, 59, 89, 92,
93, 95–98, 101, 103, 104, 134, 157, 184,
B 185, 189
Behavioral hypothesis, 2, 46 Distribution channels, 4
Behavioral theories, 2 Diversification, 3, 88
Brand, 1, 4, 39, 59 Domestic, 4, 12, 33, 38–40, 50, 54–60, 104,
Business process outsourcing, 1 140, 155, 157, 184, 185, 187, 190
Du-pont, 110, 125, 126, 128
C
Capacity, 4, 49, 60, 68, 116, 130, 188 E
Competence, 1 Earn-out, 38, 84, 87, 88
Competition, 1 Economic benefits, 5, 114
Competitiveness, 1, 4, 188 Economic integration, 3
Corporate governance, 2, 5, 6, 8, 11–13, 15, Economies of scale, 3, 5, 46, 57, 122, 126, 129,
48, 142, 147–153, 155–157, 161, 165, 130, 186, 189
169–173, 175, 177, 179, 180, 182, 183, Efficiency, 3, 13, 28, 38, 110–113, 116, 117,
186, 188–190 123, 124, 126–130, 134, 140, 148, 170, 186

© Springer Science+Business Media Singapore 2016 253

N. Rani et al., Mergers and Acquisitions, India Studies
in Business and Economics, DOI 10.1007/978-981-10-2203-6
254 Index

Emerging economies, 2, 88 J
Emerging market acquirers, 3 Jackknife test, 27–29
Emerging market multinationals, 3
Emerging markets, 2, 38, 60, 89, 98, 99, 101, K
102 Knowledge, 4, 6, 134
Empire building, 2, 3, 134
Empirical, 2, 6, 7, 12, 37, 38, 50, 59, 70, 77, L
84, 103, 109, 110, 117, 121, 124, 130, 131, Leverage, 4, 13, 46, 48, 57, 110, 112, 117, 124,
133, 134, 139, 140, 142, 147, 148, 169, 185, 189
175, 182, 184 Liberalization, 2
Entity, 1, 135 Liquidity, 13, 71, 76, 110, 112, 117, 124, 130,
Estimation period, 16, 18, 20–22, 24–26 134, 185
Estimation window, 16, 20, 27 Local, 4, 60
Event-induced, 7, 23, 27, 189 Long-term, 2, 5, 8, 17, 33, 69, 109, 110, 112,
Event study methodology, 6, 7, 11, 12, 14–16, 113, 117, 121, 125, 130, 134, 170, 182,
34, 37, 38, 183 183, 189
Eventus version 8, 8 Losses of one, 1
Event window, 13, 17–20, 24–27, 31, 33, 37,
39, 40, 43–47, 50–57, 59, 61–68, 70–77, M
79–82, 84, 87, 89, 91–96, 98–100, 102, Management acts, 2
103, 173, 174, 189 Managerialism hypothesis, 3
Expansion strategy, 2 Mangers, 2
Market for corporate control, 2–4, 49, 169
F Market for corporate control hypothesis, 4
Financial market, 3, 20, 134 Market model, 18, 21, 24
Financial performance, 5, 6, 8, 11, 12, 15, 33, Market power, 3, 59, 126, 130, 134, 140
109, 112, 117, 130, 148, 152, 169, 170, Market reaction, 5, 6, 16, 37, 54, 69, 79, 83, 87,
175–177, 182, 183, 185, 186, 189 90, 91, 93, 97, 98, 183, 188
Financial synergy, 1 Market share, 1, 3, 142, 185
Flexible strategy, 1 Maximize, 2, 3
Free cash flow, 2, 78, 87, 185 Mean, 13, 20, 27–29, 57, 58, 65, 67, 68, 74, 76,
Frequency distribution, 38, 46–52, 138, 149, 87–89, 98, 102, 110–112, 115, 118–121,
150, 159, 170–172 123, 124, 127, 129, 153, 157, 171, 172,
174–181, 186
G Median, 40, 41, 44, 45, 51–53, 55, 56, 60, 61,
Generalized sign test, 25, 26 64, 66, 71, 72, 75, 80–82, 84, 85, 92, 94,
Geographic, 4, 88 96, 99, 173
Globalization, 2, 3 Mergers and acquisitions (M&A), 1–3, 5–9,
Growth, 1–3, 78, 79, 109, 139, 188 11, 13–16, 29, 31–33, 37–39, 46, 88,
103, 109–111, 115, 130, 133–136, 138,
H 142, 148, 170, 173, 176, 183–186,
Hubris, 1, 3, 46 188, 189
Motives, 1–3, 5, 6, 8, 11, 12, 31, 60, 130,
I 133–135, 138, 139, 185
Industry, 1, 6, 150, 172
Information technology, 1, 59 N
International trade, 3 Negative, 1–3, 6, 40, 43, 44, 46, 51, 54, 56, 62,
Investigate, 2, 15, 17, 78, 109, 110, 133, 135, 65, 69, 71, 73, 78, 79, 81, 83, 87, 90, 91,
139–142, 157, 170 97, 111, 115, 122, 124, 126, 129, 130, 175,
Investments, 2, 5, 13, 141, 176, 182, 188 186
Investors’ expectation, 5 Neoclassical hypothesis, 2
Index 255

Nonparametric test, 7, 20, 25, 41, 44, 45, 51, 99, 103, 104, 152, 153, 155–157, 159, 169,
53, 55, 56, 61, 64, 66, 72, 75, 80, 82, 85, 173–175, 186, 188, 189
92, 94, 96, 99 Short-term, 2, 5, 8, 14, 15, 33, 37, 38, 40, 44,
Null hypothesis, 20, 23–27, 29, 44, 57, 63, 65, 50, 54, 60, 63, 71, 73, 79, 81, 84, 89, 91,
79, 90, 91, 97, 98, 110, 178, 179 95, 98, 124, 134, 169, 170, 173, 175,
182–184, 186
O SPSS, 8
Operational synergy, 1 Standard deviation, 19, 21, 22, 24, 27, 33, 46,
Organization, 8 47, 112
Overvaluation hypothesis, 2, 3 Standardized cross-sectional test, 21, 24, 25
Statistical software, 8
P Strategic market entry hypothesis, 4, 49
Parametric test, 20, 21, 41, 45, 53, 55, 61, 64, Strategy, 1, 2, 4, 6, 9, 48, 109, 134, 139, 142,
66, 72, 75, 80, 82, 85, 92, 94, 96, 99 170, 183, 188
Patell’s test, 21, 22 Superior, 4
Patent, 4 Survey, 6–8, 11, 14, 15, 130, 133–136, 138,
Pharmaceuticals, 1, 59, 149 139, 142, 147, 148, 150, 152, 153, 171,
Policy, 3, 136, 156, 157, 182, 183, 188, 189 183, 185
Precision-weighted cumulative abnormal Synergy, 1–3, 6, 8, 31, 46, 57, 78, 133, 135,
return, 19 139, 142
Primary data, 11, 13, 14, 31, 151, 189
Product market, 4 T
Target firm, 1, 3, 4, 12, 38–40, 49, 60, 63, 65,
Q 67, 69–71, 74, 77–79, 88, 91, 95, 97, 98,
Questionnaire-based survey, 8 100, 104, 184, 185, 187, 188
Tax treaty, 4
R Telecommunications, 1
R&D, 5 Time line, 17
Rank test, 26, 27
Regional, 4, 88 U
Regulation, 3, 142, 151, 155, 157 Undervaluation, 3
Reputation, 4
Research method, 8, 11–14, 31, 33, 134 V
Restructuring, 3, 39, 60, 141 Valuations, 2, 3, 78, 88, 134, 147, 148, 169,
170, 180–182, 187, 188, 190
S Value-reducing mergers, 2
SAS system for windows 9.1, 8 Variance, 7, 21–25, 27, 29, 47, 189
Secondary data, 8, 11, 13, 31, 183
Security returns, 5, 21 W
Shareholders, 2–4, 6, 16, 20, 37, 38, 46, 50, 51, Wealth, 1–3, 6, 8, 37, 54, 57, 58, 62, 63, 71,
53, 55–58, 60, 61, 63, 64, 66, 71, 72, 75, 76, 83, 87, 103, 104, 175, 186
77, 78, 80–82, 84, 85, 87, 91, 92, 94, 96, Wholly owned subsidiary, 6, 31, 63, 65, 67,
104, 133, 138, 140–142, 184, 185, 187