Conclusion

M&As have become a hot topic, partly because the total value of M&As per year has increased globally. Firms from emerging markets have increasingly used cross-border mergers and acquisitions during the last decades (Deng & Yang, 2015). While M&As can be motivated by several value-increasing and value-decreasing factors (Weitzel and McCarthy, 2011), several emerging market studies argue that acquiring firms from emerging markets, like India, are mainly motivated by the strategic asset seeking motive (Athreye & Kapur, 2009; Luo & Tung, 2007). According to asset seeking perspective, firms can acquire a foreign firm to access strategic assets, which can lead to increased performance.

This makes it interesting to examine M&A performance and the impact of the strategic asset seeking motive. This thesis aims to clarify, how the strategic asset seeking motive affects short- term M&A stock performance of Indian acquirers. Therefore, the following two research questions are formulated:

1. What is the short-term stock market reaction to cross-border M&A announcements by Indian firms?

2. What is the impact of the strategic asset seeking motive on the short-term stock market reaction to cross-border M&A announcements by Indian firms?

Previous cross-border M&A studies that focused on announcement returns of Indian acquirers show positive abnormal return (Gubbi et al., 2010; Kohli & Mann, 2012; Nicholson & Salaber 2013). However, there is value in revisiting these findings with more current data. In addition, only two of them studied the impact of the asset seeking motive (Gubbi et al., 2010; Nicholson & Salaber 2013). Because of several developments, thorough study of this question, using more recent data is warranted.

To address these research questions, this thesis is built on the synergy, internalization, and resource-based theory. According to hypothesis 1, the announcement of a cross-border M&A by an Indian firm leads to a significant positive stock market reaction. According to hypotheses 2a, 2b, and 2c, Indian firms gain higher short-term abnormal returns when the main M&A motive is to get access to strategic assets. To answer research question 2 three proxies for the asset seeking motive are used, namely the acquirer being mainly active in the services sector

75 (SERVICES; H2a), the level of technology export in the host country (TEXTECH; H2b), and the target being located in a developed country (TDEVELOPED; H2c). In addition, several control variables are considered.

To test hypothesis 1 the event study methodology has been used, more specifically the market model and the market-adjusted return model. To test the significance, t-tests and WSR tests are performed for several event windows. To test hypotheses 2a, 2b, and 2c, OLS regression analyses have been performed. The event windows (-5,-1), (-1,1) and (0,2) using both the market model and the market-adjusted return model are used as the dependent variables in the regressions. The proxies SERVICES, TEXTECH, and TDEVELOPED each are used as independent variables in separate regression models as an independent variable.

The results provide strong support for hypothesis 1: “The announcement of a cross-border

M&A by Indian firms leads to a significant positive stock market reaction”. Using both the

market and market-adjusted return model, most mean and median CARs in the event windows around and after announcements, in contrast to the pre- announcement event windows, are statistically significantly higher than zero at the 10% significance level. The exceptions are the mean and median MM (5,5) and the median MM (0,5).

Regarding the impact of the strategic asset seeking motive, the results are mixed. The data does

provide support for hypothesis 2c: ”Among cross-border M&A announcements by Indian firms,

those that involve target firms in developed countries will generate greater abnormal returns for

the bidders”. In contrast, the data does not support hypothesis 2a: “Among cross-border M&A

announcements by Indian firms, those that involve bidding firms that operate in the service

sector will generate greater abnormal returns”. There is no support either, for hypothesis 2b:

“Among cross-border M&As by Indian firms, bidders’ abnormal returns are positively

associated with the level of technology exports in the host country”.

This means that the results regarding hypothesis 1 are in line with the literature and previous empirical studies (Gubbi et al., 2010; Kohli & Mann, 2012; Nicholson & Salaber, 2013). The positive impact of targeting firms located in developed countries (H2c) found in this thesis is also found by other studies (Gubbi et al., 2010; Nicholson & Salaber, 2013). However, I find no support for the positive impact of the dummy variable service sector (H2a). Nicholson and Salaber (2013) did find statistically significant support for this service variable in their

76 regression results.

Multiple factors could explain the different results compared to earlier studies. Examples might include the increased GDP in India (IMF, n.d.), the changed sectors of the targets (Prahalathan et al., 2014), and the changed size of the targets (Pradhan, 2017). In addition, the changed economic climate in the target countries as a consequence of the aftermath of the 2008 financial crisis could influence the stock market reactions. Beltratti and Paladino (2013) argue that if a risky cross border M&A deal is announced during crisis time, it may be interpreted as a signal of wealth. It indicates that the acquiring firm has financial strength and exploits the benefits of acquiring firms for low prices during crisis times. These M&As are riskier during crisis times, because demand in foreign markets is likely relatively low and the competition may become more severe, as firms are trying their best to survive.

The thesis makes several contributions to the academic literature. Firstly, it confirms that targeting a developed country does lead to significantly higher stock market reactions for acquiring firms using more recent data, compared to earlier studies. Secondly, prior studies did not specifically consider technology to assess the impact of the strategic asset seeking motive. The results of this thesis fail to support a significant impact of the level of high-technology in the host country on stock market reactions to cross-border M&A announcements. Thirdly, the data does not provide support for a significantly different stock market reaction for service sector acquirers, which have a competitive advantage. Fourthly, the mean and median stock market-reaction to cross-border M&A announcements made by Indian firms in recent years are positive.

The following management contributions are found. Managers of Indian firms can expect higher stock market reactions when targeting firms located in developed countries. This is important information, because shareholders can decide upon completion of M&A deals. However, I did not find higher abnormal returns for service sector bidders, which indicates that stock holders do not recognize the possibility of higher gains for service sector acquirers. I did not find an impact when targeting countries with a high level of high-technology exports either. However, the mean and median stock market reactions to cross-border M&A announcements were significantly positive. This means that the management of potential acquirers should be cautious when they are not targeting a developed country. It seems like being a service acquirer

77 with a competitive advantage and the level of technology in the host country, indicating the strategic asset seeking motive, are not enough for investors to react more positively.