Mergers and Value Creation in a Post-Liberalized Environment: The Case of India

Abstract

The purpose of this paper is to examine domestic merger and acquisitions in the Indian market following the economic liberalizations in 1995. We find that in in Indian mergers both parties gain with acquirers showing higher abnormal returns and targets showing lower abnormal returns relative to their counterparts in the U.S. Contrary to our expectation that the takeover market in India has become more competitive since 1995, we find little evidence that acquirers’ abnormal returns have declined or target abnormal returns have increased over time. In addition, we find evidence that large group affiliated firms have higher announcement returns, and this directly translates into lower target returns. Further, targets belonging to groups can exploit their affiliation and achieve higher abnormal returns.