Vol 27, No 2; by Neelam Rani, Surendra S. Yadav and P.K. Jain; June 2015
As a result of the liberalization policy in 1991, the Indian economy witnessed dramatic growth, and changes in the domestic market and firm activities, specifically in relation to the expansion strategies of Indian firms across borders. Indian firms developed their existing skills in production capabilities and process R&D by acquiring technology focussed firms in advanced markets. Indian companies have ventured abroad in the software, biotechnology, automotive and oil sectors. They have successfully adopted internationalization strategies and have become globally competitive. India has transformed its image from being a foreign direct investment destination to a major emerging foreign direct investor. The strategies adopted by Indian companies for their internationalization are: outsourcing, geographic diversification, joint ventures, and cross-border mergers and acquisitions. Cross-border acquisition is an important corporate strategy that enables firms to extend their current businesses to new markets, leverage their current capabilities, and diversify into related markets.
Asset-seeking acquisitions, therefore, have been increasingly used as a means for Indian acquirers to tap into strategic resources across borders, particularly in developed economies that are viewed as sources of innovation. This study finds evidence that shareholders of acquirer Indian corporations engaging in cross-border transactions experience a statistically significant positive abnormal return on announcement day as well as statistically cumulative abnormal returns over multi-day event windows. The gains are significantly positive and higher for the acquisitions of targets from developed markets. The regression analysis in the paper reveals that cross-border acquisitions of high tech sector target firms in developed markets generate better wealth. Further, relatively larger acquisitions create higher gains.
The acquisition of strategic assets may bring significant competitive advantages to Indian acquirers, thereby enhancing global competitiveness; this is also reflected in the stock market through positive market reaction.
