ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Trends and Perspectives on Corporate Mergers in Contemporary India

The corporate sector in India has witnessed a substantial growth of mergers and acquisitions since the 1990s. Through the first wave of M&As (1990-95), the Indian corporate houses seem to have been bracing up to face foreign competition, while the second wave (since 1995) saw a significant involvement of multinational firms. The macroeconomic policy changes in India facilitated the third wave of merger movement since 2000 - i e, overseas acquisitions by the Indian firms. A large number of mergers were between firms belonging to the same business groups and product lines with a view to increase their respective controlling blocks and market power. The performance of acquiring firms in 1990-2005 was relatively better as compared to that of the Indian private corporate manufacturing sector. However, this study does not find significant evidence of improvement in their performance in terms of various parameters during the post-merger phase as compared to the pre-merger period. The study argues that it is not efficiency-related factors that influenced M&A activities in the Indian corporate sector. An appropriate competition policy needs to be designed so as to address the possible anti-trust implications of overseas mergers for India, as well as to deal with M&As among Indian enterprises.

REVIEW OF INDUSTRY AND MANAGEMENT

Trends and Perspectives on Corporate Mergers in Contemporary India

P L Beena

The corporate sector in India has witnessed a substantial growth of mergers and acquisitions since the 1990s. Through the first wave of M&As (1990-95), the Indian corporate houses seem to have been bracing up to face foreign competition, while the second wave (since 1995) saw a significant involvement of multinational firms. The macroeconomic policy changes in India facilitated the third wave of merger movement since 2000 – i e, overseas acquisitions by the Indian firms. A large number of mergers were between firms belonging to the same business groups and product lines with a view to increase their respective controlling blocks and market power. The performance of acquiring firms in 1990-2005 was relatively better as compared to that of the Indian private corporate manufacturing sector. However, this study does not find significant evidence of improvement in their performance in terms of various parameters during the post-merger phase as compared to the pre-merger period. The study argues that it is not efficiency-related factors that influenced M&A activities in the Indian corporate sector. An appropriate competition policy needs to be designed so as to address the possible anti-trust implications of overseas mergers for India, as well as to deal with M&As among Indian enterprises.

This is a revised version of the working paper published in 2004 by CDS, Thiruvananthapuram. I wish to thank K K Subrahmanian, P Mohanan Pillai, K Pushpangadan, D Narayana, Rakesh Basant, R Nagaraj, N S Siddharthan, Aditya Bhattacharjea and Gilbert Sebastian for providing me insights at various stages of this work. I also thank K L Krishna, Anjan Mukherji, M H Suryanarayana and U S Mishra for their valuable comments. I have also benefited from the comments given by participants at the seminar at QEH, Oxford in 2002 especially by Barbara Harriss-White and Judith Heyer. I also greatly benefited from C P Chandrasekhar who initiated me into this area. For any remaining errors or shortcomings, I am responsible.

P L Beena (beena@cds.ac.in) is with the Centre for Development Studies, Thiruvananthapuram, Kerala.

M
ergers and acquisitions (M&As) have been prominent in the advanced capitalist countries since the late 19th century. But only in recent times have they become a regular phenomenon in developing countries. The striking feature of the present wave of M&As at the global level is that it includes many cross-border (CB) deals and is propelled by a different set of forces. The global environment that emerged from the new policy regime of privatisation, liberalisation in trade, finance and investment, as well as technological changes has created a situation that facilitates cross-border mergers [UNCTAD 2000].

The Indian evidence suggests that the new economic environment has facilitated M&As since the 1990s. In the first wave of M&As (i e, 1990-95), the Indian corporate houses seem to have been bracing up to face foreign competition while the second wave since 1995 experienced a significant involvement of multinational firms. Evidence shows that almost 40 per cent of the inflow of foreign direct investment (FDI) into India during the second half of 1990s came through cross-border M&As [Beena 2001b; Saha 2001].

It is argued that merger bids by multinationals accelerated in India since the mid-1990s as a result of mismanaged financial sector reforms [Khanna 1999] as well as higher interest rates consequent on poor macroeconomic management [Basant and Morris 2000]. Kumar (2000) argued that such mergers have potential damaging consequences for capital formation, the balance of payments, technology transfer and competition. The factors influencing foreign acquisitions by Indian firms could be to gain market access for exports, horizontal or vertical integration, capture of brand names, access to technology and global leadership aspirations [Nagaraj 2006; Nayyar 2007].

An attempt has been made in this paper to understand the motives and implications of the merger wave in India during the second half of the 1990s. The choice of our period of analysis was subject to the availability of adequate information relating to the performance variables of a period of five years before and after M&As. The analysis has been conducted in a comparative perspective by classifying the acquiring firms into two categories in terms of ownership, namely, Indian-owned and foreign-owned. The paper is divided into six sections:

  • (1) policy reforms and trends of M&As, (2) theories on motives and implications of M&As, (3) sample, data and methodology,
  • (4) impact of M&As on the performance of acquiring firms,
  • (5) source of financing and some plausible issues for corporate governance, and (6) conclusion.
  • september 27, 2008

    1 Policy Reforms and Trends of M&As

    Before embarking on the trends of M&As, let us place the issue in the context of the shift in the industrial policy regime that has made M&As possible in the first place. The policy framework in India during the 1990s has not been regulating M&A deals from an anti-trust or competition policy perspective.1 In 1991, the restrictive provisions of the Monopolies and Restrictive Trade Practices (MRTP) Act relating to licensing for expansion of enterprises, amalgamations and takeovers of business enterprises, and acquisition of foreign technology and foreign investment were removed. This was done under the presumption that such restrictions hampered the expansion, diversification and upgradation of technology required for international competitiveness, which had become imperative with the opening up of the economy. The Foreign Exchange Regulation Act (FERA) was substantially altered in early 1993 with the intention of reversing the earlier policy of restricting foreign investment to one in which the State took an active role in promoting it. All restrictions on FERA companies with respect to borrowing funds or raising deposits in India as well as taking over or holding stakes in Indian companies were removed. Indian companies and Indian nationals were allowed to start joint ventures abroad and accept directorships in overseas companies – something hitherto prohibited. A number of reform initiatives in the financial sector accompanied these changes. New capital issues have been completely deregulated. Private mutual funds and foreign institutional investors (FIIs) have been allowed to enter the capital market (Company News and Notes, 1993). The Foreign Exchange Management Act (FEMA) was introduced in 2000 which allowed companies to invest 100 per cent of the proceeds of their American Depository Receipts/ Global Depository Receipts issues for acquisitions of foreign companies and direct investments in joint ventures (JVs), whollyowned subsidiaries (WOS) without any profitability condition. Indian parties investing in JVs/WOs outside India were permitted to invest $ 100 million as against the earlier limit of $ 50 million. The change in policy regime in 2005 allowed Indian firms to invest in entities abroad up to 200 per cent of their net worth without any profitability or exchange earning condition [Gopinath 2007: 237].

    Historically, different countries adopted different policy frameworks in order to abolish the forces, which reduce competition. The number of developing countries that have adopted a competition law has risen from 35 in 1995 to more than 100 in 2003 [CUTS 2003 as cited in Ramaswamy 2006]. The Competition Policy Act, 2002 decided to set up the Competition Commission of India (CCI), which has the power to break up dominant companies and reverse mergers. It is aimed at countering anti-competitive practices such as cartelisation, collusive bidding and bid rigging, to check the abuse of market dominance. The Act does not prevent combinations unless they are anti-competitive in nature or detrimental to the consumers’ interest. All M&As in which the joint turnover of the companies involved is greater than Rs 3,000 crore or with a combined value of assets of more than Rs 1,000 crore will be referred to the CCI [The Gazette of India 2003].

    While deleting regulatory provisions under the MRTP Act, the government set up the Securities and Exchange Board of India

    Economic & Political Weekly

    EPW
    september 27, 2008

    (SEBI) under the SEBI Act, 1992 which was responsible for framing guidelines and rules regarding many aspects of corporate behaviour. SEBI came out with a regulation namely, the regulation on substantial acquisition of shares and takeovers, in 1994. This regulation was further revised in 1997 [Government of India 1999]. The acquirer appoints a merchant banker (MB) who has been registered with SEBI before making a public announcement (PA). The PA is required to be made through the said MB. The acquirer is required to make the PA within four working days of entering into an agreement to acquire shares or deciding to acquire shares/voting rights of target company or after any such change or changes as would result in change in control over the target company. In case of indirect acquisition or change in control, the PA is made by the acquirer within three months of consummation of such acquisition or change in control or restructuring of the parent or the company holding shares of or control over the target company. The offer price in these cases is determined with reference to the date of the public announcement by the parent company and the date of the public announcement for acquisition of shares of the target company whichever is higher, in accordance with the parameters mentioned in the takeover regulations [SEBI 2006].

    It is now clear that the structural adjustment programme and the new industrial regime adopted by the government of India allows business houses to undertake, without restriction, any programme of expansion either by entering into a new market or through expansion in an existing market. While taking into account the asset size to define the threshold limit for monitoring, the provision in CCI has not taken into account the factor of market share. This loosely defined provision seems to have enough potential for abuse of power through market share [Chandrasekhar 2003]. However, measuring the market share of different product lines at the global level has become a more complex task now.

    A substantial growth of M&As in the Indian corporate sector has been witnessed since the 1990s. For instance, the total number of M&As has sharply increased to

    Table 1: Trends of M&As between 1,370 during 2000-2006 from 1990 and 2006

    291 during 1990-95 (Table 1). It is Year Mergers Takeovers Total

    also evident that this trend has 1990-95 236 55 291(20) been sharper since the latter half 1995-2000 425 311 736(236)

    2000-06 897 473 1,370

    of the 1990s. A large share of

    1990-06 1,558 839 2,397

    M&As was in the manufacturing

    Source: (1) Monthly Review of the Indian sector throughout this period. Economy (CMIE); Department of Company

    Affairs, Research and Statistics division,

    The policy shift that facilitated

    New Delhi and SEBI web site. (2) Figures in brackets represent the number of

    M&As has had implications for

    multinational corporation-related deals.

    various industry groups. Our study observed that firms in beverages, spirits and vinegar, financial and other services, chemicals, drugs and pharmaceuticals, cement, tea, electrical machinery and electronics sectors have had a relatively higher involvement in M&As activity. A large share of M&As during the second half of the 1990s were group mergers, i e, between firms belonging to related management [Agarwal 2003]. This may go to indicate that the same pattern of strengthening the controlling block as witnessed during the first half of the decade [Beena 2001a] is found repeated during the second half as well.2 The deals relating to M&As have been predominantly horizontal rather than vertical in nature.3 Multinational Corporations (MNCs) have actively participated in the M&A process during the second half of the 1990s. For instance, it is observed that 32 per cent of M&As during 1995-2000 were MNC-related deals. The increasing interest of MNCs in financial services, advertising, travel agencies and other business services is notable. Consumer goods industries such as food and beverages, household appliances, pharmaceuticals and personal care products, automobiles and the like have had a high concentration of MNC-related deals. Two-fifths of them involved buying out the local partners in joint ventures set up in India or raising the stake of MNCs [Kumar 2000; Saha 2001]. A recent study reported that the foreign acquisition by Indian firms has increased from 46 in 2004 to 130 in 2005 [Gopinath 2007]. According to the study by FICCI (as cited by Nayyar 2007), the number of foreign acquisitions by Indian firms during January 2000 to June 2006 was 306. Almost 48 per cent of the total value of Indian acquisitions abroad was in the manufacturing sector such as pharmaceuticals, automobiles, steel, chemicals and consumer goods. While information technology (IT) and telecommunications accounted for 31 per cent of the total value of Indian acquisitions abroad, 80 per cent of these acquisitions were in the industrialised countries such as the United States (US) and the UK. Significantly, 13 firms made 43 per cent of the total Indian acquisitions abroad during the corresponding period [Nayyar 2007: 11].

    2 Theories on Motives and Implications of M&As

    A merger or amalgamation results in the combination of two or more companies into one, wherein the merging entities lose their identities by being absorbed into the merged entity. No fresh investment is made through this process. However, an exchange of shares takes place between the entities involved in such a process. Generally, the company which survives is the buyer which retains its identity, and the seller company is extinguished. An acquisition, on the other hand, is aimed at gaining a controlling interest in the share capital of the acquired company. It can be enforced through an agreement with the persons holding a majority interest in the company’s management or through purchasing shares in the open market or purchasing new shares by private treaty or by making a takeover offer to the general body of shareholders [Ramaiya 1977]. The theories on M&As extend over the terrains of industrial organisation, financial economics and international business studies. It has been pointed out that the trends of M&As can be theoretically traced back to particular motives for mergers emphasised by industrial organisation theories (i e, market power and defensive reactions), the financial economics literature (i e, managerial ego) and international business research (i e, access to markets or technologies) [see Cantwell and Santangelo 2002]. We may classify these merger theories into four categories (i) efficiency-enhancing measures,

  • (ii) concentration and monopoly-enhancing, (iii) driven by macro-economic changes, and (iv) driven by financial motives.
  • (i) Mergers as Efficiency Enhancing Measures: Forward or backward integration through vertical mergers can create a
  • 50 collective organisational structure in which the parties have mutual confidence and that enhances efficiency [Williamson 2002]. Coase (1937) highlights the viability of integration when transactions between firms in the market place are potentially inefficient as there is difficulty in writing contracts that fully specify what should happen in future situations [Bolton and Schartstein 1998: 97]. Conversely, it has been pointed out that integration can also lead to inefficient outcomes from decision-making process with regard to the allocation of capital, in contrast to the efficient outcomes from bargaining that always occur in the GrossmanHart-Moore paradigm [Bolton and Schartstein 1998: 111]. Mergers in general can lead to increased efficiencies. Such efficiencies and transaction cost savings can flow from economies of scale and scope possible in the larger post-merger operations; greater control over key inputs; product rationalisation; combining marketing, advertisement and distribution; and from cutting down overlapping research and development [Coase 1937; Ansoff and Weston 1962]. Schemalensee (1987) argued that the cost-reducing effect of a particular proposed merger might probably outweigh its collusion-enhancing effects. Williamson (1968) argued that a small efficiency gain would generally be offset by a large increase in market power, which creates a situation that sets prices above the competitive levels. Viewing mergers as efficiency enhancing measures tends to portray mergers, in general, in a positive light.

    (ii) Mergers as Enhancing Concentration and Monopoly: The immediate effect of a merger is to increase the degree of concentration as it reduces the number of firms. Another effect of mergers on competition is on the generation of barriers to entry. Artificial barriers can be raised or strengthened, if the merger results in a strengthening of product differentiation through legal rights in designs, patents and know-how. The Chicago school argues that it makes more sense for a predator to buy out a rival firm than to engage in a mutually destructive price war that does not maximise profits [Bhattacharjea 2000]. However, this position is not well accepted as there are several theories of rational predation. Such theory suggests that predation for merger is a distinct possibility and that the actual price-cut under predatory pricing tactic needs to be only a very short lived one, with minimum costs to the predator and only transient benefits to the consumers [Bhattacharjea 2000]. It is also argued that the development of an active market for corporate control may encourage managers to “empire build”, not only to increase their monopoly power but also to progressively shield themselves from a takeover by becoming larger in terms of their controlling block [Beena 2001a; Singh 2003]. It is pointed out elsewhere that the potential for monopolistic behaviour and restrictive practices have continued to exist in the liberalised business environment in the integrating global economy [Singh 1999; Evenett 2002]. We also refer to this herein as the defensive tactic of firms in a developing country like India. Grossman and Hart (1986) and Hart and Moore (1990) view from the angle of property rights approach that ownership of a firm would give the owner residual control rights over the use of the firm’s non-human assets whatever way the owner likes unless otherwise prohibited in a

    september 27, 2008

    contract [Bolton and Schartstein 1998: 98]. Berle and Means (1932) argued that the separation of ownership and control may lead managers to pursue their own objectives at the expense of owners. However, they also argued that the diffuse equity ownership can also make managers to run the firm to their own benefits at the expense of investors [Bolton and Schartstein 1998: 100].

    The motives behind transnational or cross-border acquisitions differ from those, that drive purely domestic acquisitions. An acquiring firm might decide to go in for an international merger in order to take advantage of cheap raw materials and labour, to capture profits from exchange rates, or to invest its surplus cash [Weston et al 1996]. Horn and Persson (2001) showed that international mergers may arise due to lower trade costs, contrary to the “tariff jumping” argument. Lommerud et al (2005) argued that oligopolistic competition in the presence of plant specific trade unions raises the incidence of international mergers. The study explained that unions are plant specific in the international setting and hence international mergers are profitable because wages decrease after the mergers. Neary (2004) showed that international differences in technology generate incentives for cross-border mergers in which low-cost firms from one country take over high-cost firms from another country. Qiu and Zhou (2006: 40) have theoretically shown that a merger raises consumer surplus and social welfare if and only if products are sufficiently differentiated. The study further argued that international mergers should be encouraged when demand uncertainty is large and market competition is intense as they are privately unprofitable but socially desirable. However, international mergers should be discouraged in the opposite conditions, where firms have incentives to merge but such mergers reduce social welfare. Based on the linear/Cournot framework, Bhattacharjea (2003:219) argued that if the existing trend with the domestic oligopolies is not towards export orientation, mergers by foreign firms can have the effect of reducing the welfare gains from the angle of self-reliance.

    The entry and subsequent activities of multinational firms affect the structure of markets for goods and services in host countries in several different ways. Numerous studies for individual developing countries as well as developed economies indicate a positive association between TNC activities and the concentration of producers in host country industries [UNCTAD 1997: 137]. International M&As may be regarded as a new cross-border strategy that aims at increasing corporate global competitiveness by pursuing related diversification and by integrating affiliates into a global network [Cantwell and Santangelo 2002]. Sanjaya Lall rightly questioned whether the positive economic effects that cross-border acquisitions can have, outweigh the concerns they arouse [Lall 2002]. Some qualifications and exceptions have also been pointed out about this trend. “Greenfield investment” in new production facilities adds to the number of firms engaged in the production of a good or service and it might reduce or at least leave unchanged the concentration of producers in an industry. In contrast, “FDI entry through a merger or acquisition would increase the concentration of producers if a merger or takeover results in increased sales for the newly created foreign affiliates; or leave it unchanged, if its

    Economic & Political Weekly

    EPW
    september 27, 2008

    size is the same as that of the incumbent firm acquired” [UNCTAD 1997: 141]. The actual impact of an acquisition on competition depends upon the marketing strategies of TNCs, as well as on industry and country-specific circumstances [Dunning 1993]. The risk that cross-border M&As may reduce competition tends to be greater in those industries in which shrinking demand and excess capacity are important motivations for M&As and in countries in which competition policy does not exist or where its implementation is weak [Zhan and Ozawa 2001: 61]. In sum, M&As as concentration enhancing and building oligopolistic market power is a rather familiar view in studies on mergers internationally.

    (iii) Mergers as Driven by Macroeconomic Changes: M&As are undertaken to compensate for instabilities such as wide fluctuations in demand and product mix, excess capacities related to slow sales growth and declining profit margins, and technological shocks [Post 1994; Weston et al 1996]. Firms may pursue M&As for the sole reason of growing in size as size, more than profitability or relative efficiency, is considered to be the effective barrier against takeovers [Singh 1975, 1992]. Macroeconomic changes become the context or provide opportunities for M&As. Mergers may also be resorted to as defensive measures in response to major policy shifts. Andrade, Mitchell and Stafford (2001: 104) argued that the “decade of deregulation” during the 1990s caused M&As in US. The study shows that industry shocks are a primary source of takeover activity. Similar findings were observed by earlier studies as well [Mitchell and Mulherin 1996]. While there are firm-specific motives for undertaking crossborder M&As, there are also economic forces that have acted to encourage the cross-border M&As, such as the economic integration of the EU and the formation of the North American Free Trade Agreement (NAFTA) represented by the creation of a common market [Caves 1991; UNCTAD 1997]. A view relating macroeconomic changes to merger moves is particularly relevant in the context of transitional economies and developing countries under neoliberal reforms.

    (iv) Mergers as Driven by Financial Motives: Firms adopt M&As as a route to growth whenever alternative investment opportunities for financing corporate expansion in specific environments become less attractive. Availability of capital to finance acquisitions and innovations in financial markets such as junkbonds can also be among the reasons for cross-border mergers [Sudersanam 1995]. The valuation differences of the share prices or economic disturbances lead to acquisitions of firms that are low valued from the viewpoint of outsiders [Gort 1969]. Lower interest rates also lead to more acquisitions, as acquiring firms rely heavily on borrowed funds [Melicher et al 1983]. It is also argued that the undervaluation of the dollar vis-a-vis pound and yen in the early 1980s had resulted in some very substantial acquisitions of assets in the US by British and Japanese firms [Dunning 1993]. The currency devaluations in the crisis-affected countries as well as falling property prices reduced the foreigncurrency costs of acquiring fixed assets in those countries and provided a golden opportunity for TNCs to enter the local markets [Zhan and Ozawa 2001]. Hay and Liu (1998) have shown the crucial role of financial variables in explaining growth by acquisitions, especially the “free cash flow” hypothesis developed by Jensen (1988). The earlier study by Beena (2001a) clearly pointed out how financial motives had a crucial role in M&As during the first half of the decade of liberalisation. The study argued that in many cases among the motives for mergers could have been the desire to improve the financial position of the firm through a viable capital structure and the desire of firms to exploit the opportunity provided by the initial postliberalisation buoyancy in the Indian stock market. It should not be surprising if in the latest phase of contemporary finance capitalism, financial motives are also the major determinants of M&As in our country. Paul Sweezy (1994: 249) had spoken of the enormous growth of a “financial superstructure” atop the real productive base of the world economy (over the last three decades). However, the linkages between a huge financial superstructure of the global capitalist economy and the financial motives of M&As in India are not readily apparent and would need further exploration.

    Our classification of the four categories of theorisations on M&As throws light on one or the other aspect of the phenomenon. Each of them is true in its own right. However, it is contextspecific studies that could substantiate the validity of each of these sets of arguments.

    3 Sample, Data and Methodology

    We have constructed our own list of M&As by compiling information available from different sources. The list of amalgamations/ mergers was collected from the division of research and statistics of the department of company affairs and the list on takeovers was collected from the Monthly Review of Indian Economy published by the Economic Intelligence Service, Centre for Monitoring Indian Economy (CMIE) and also cross-checked with the list provided by SEBI. However, our sub-sample for the following analysis consists of only 115 actual M&As which accounts for 22 per cent of the total number of M&As that occurred in the Indian manufacturing sector during 1995-2000 (Table 2). It consisted of 84 domestically owned acquiring firms and 31 foreign-owned acquiring firms

    Table 2: Sample of Acquiring Firms Involved in M&As Process in 1995-2000

    (Assets in Rs crore)

    Year Domestically-owned Foreign-owned All Acquiring Firms
    Acquiring Firms Acquiring Firms
    Assets Number Assets Number Assets Number
    1995-96 12,770 6 3,432.16 7 16,202.69 13
    1996-97 6,771.82 15 5,445.10 7 12,216.92 22
    1997-98 9,342.03 16 856.81 4 10,198.84 20
    1998-99 1,27,217 13 1,225.69 4 1,28,442.69 17
    1999-2000 41,267.39 34 4,463.42 9 45,730.81 43
    Total 1,97,362.2 84 15,423.18 31 2,12,798 115

    Source: Prowess Database, CMIE, Bombay. Assets = Total Asset.

    involved in M&As in the manufacturing sector during this period. Our sample includes only those MNC-related acquiring firms that were already operating in India as foreign subsidiaries.

    We have considered only those firms which have gone in for M&A deals during 1995-2000 for the purpose of our analysis so that our sample can provide information related to the performance indicators for five years before and five years after the concerned M&As. Many of these firms are not listed in the Prowess database. Our sample was further reduced in size because we have selected only those firms, for which the necessary data was available in the Prowess database, for the entire period of 1990-2005.

    It is indeed a matter of concern that no information was available regarding other foreign-owned acquiring firms like those buying out joint ventures already existing or new entrants through cross-border M&As.4

    Out of the total sample cases chosen for this study, around 70 per cent were horizontal M&As, while 18 per cent were conglomerate mergers. Another 11 per cent were vertical M&As. Here we have considered product-groups in which there has been incidence of at least one merger or acquisition during 1995-2000. When we classify the whole sample in terms of product-groups, it has been distributed into 52 categories.

    The main objective of this paper is to examine whether there is any significant difference in their performance between pre- and post-merger phases. We have also checked whether there is any significant difference in the performance of acquiring firms during 1990-2005 as compared to the average performance of the manufacturing sector as a whole. For our analysis, we have also grouped the total M&As that occurred during 1995-2000 into two groups, domestic M&As and cross-border M&As, and checked whether there is any significant difference in their performance between the pre- and post-merger phases. Further, we have looked into whether there has been any significant difference in performance between the two aforementioned groups.

    The study has tested the significance of the mean difference by applying the non-parametric, univariate Wilcoxon rank test [Sidney Siegel 1956]. We have considered the average performance of a period of five years before and after M&As for all firms in our sample.5

    The choice of our sample was subject to the availability of adequate information relating to the period of analysis from the Prowess database. The performance has been measured in terms of price-cost margin, rate of return, shareholders’ profit, dividend per equity, debt-equity ratio, export intensity, research and development intensity, capacity utilisation, product market share and the Herfindal Index of Concentration ratios. The variables were extracted from the Prowess database of the CMIE, and the ‘Size and Market Share’ data published by CMIE.

    4 Impact of M&As on the Performance of Acquiring Firms

    We observed that the profitability ratio in terms of rate of return (PBT/TCE), price-cost margin (PAT/NS) and shareholders’ profit (PAT/NW)6 of all acquiring firms has either remained stable or declined during the post-M&As period as compared to the period before M&As (Table 3, p 53). And this is statistically significant at 1 per cent level.

    The debt-equity ratio of all Acquiring firms has decreased after M&As and it is statistically significant at the 5 per cent level (Table 3). The declining trend in the debt-equity ratio shows that the capital structure could become relatively viable during the post-merger phase.

    The R&D intensity of majority of the acquiring firms has declined after merger and it is statistically significant at the 1 per cent level.

    september 27, 2008

    Further, it is noticed that the average ratio of export intensity for all acquiring firms has shown a slight improvement after the merger, which is significant at the 5 per cent level. Further, our study shows that the capacity utilisation ratio – (net sales/total assets) – has declined during the post-acquisition period at a significant level of 5 per cent.

    Table 3: Financial Behaviour of Acquiring Firms (Ratios in %)

    Performance Indicators Types of M&As Pre-Merger Post-Merger Z-Statistics Average
    (%) (%) (Wilcoxon- Performance of
    rank Test) Acquiring Firms
    during 1990-2005
    1 2 3 4 5 6
    Rate of return Domestic M&As 14.6 4.8 -4.56(.0) 11.5
    MNC M&As 16.1 26.1 -1.18(.85) 31.4
    Total 15.4 15.5 -4.09(.0) 21.4(0.39)
    Price cost margin Domestic M&As 0.3 -18.3 -3.64(.0) -9.5
    MNC M&As 2.4 1.5 -1.114(.265) 2.3
    Total 1.3 -8.4 -3.76(.0) -3.6(11.6)

    Shareholder’s profit Domestic M&As 15.2 1.9 -2.74(.006) 9.69 MNC M&As 11.2 1.6 -2.97(.003) 12.3 Total 13.2 1.7 -3.98(.0) 10.9 (NC)

    Dividend per equity Domestic M&As 23.9 49.9 .00 (1.00) 33.05
    MNC M&As 29.8 55.2 -.385(.70) 44.67
    Total 26.8 52.6 -.201(.84) 38.86(25.6)
    Gearing ratio Domestic M&As 1.03 1.77 -1.16 (.25) 1.59
    MNC M&As 3.85 1.79 -3.46 (.001) 1.29
    Total 2.44 1.78 -.883 (.38) 1.44(3.24)
  • (1) Figures in bracket of column 5 represent P-value.
  • (2) Figures in bracket of column 6 represent for the Indian manufacturing sector as a whole.
  • (3) nc is ‘not calculated’.
  • Table 4: Economic Behaviour of Acquiring Firms (Ratios in %)

    Indicators Type of M&As Pre-Merger Post-Merger Z-Statistics Average (Wilcoxon-Performance of rank Test) Acquiring Firms during 1990-2005 1 2 3 4 5 6

    Capacity utilisation Domestic M&As 91.6 83.4 -2.05(.04) 90.5 MNC M&As 113.8 104 -1.64(.10) 109.4 Total 102.7 93.8 -2.87(.004) 99.9(98.8)

    Export intensity Domestic M&As 19.3 16.1 -1.74(.08) 15.7 MNC M&As 12.6 16.37 -1.114(.26) 14.6 Total 15.9 16.22 -2.26(.02) 15.1(7.3)

    R&D intensity Domestic M&As 1.3 .19 -2.92(.004) 0.65 MNC M&As 0.1 0.26 NA (.064)a 0.19 Total 0.7 0.13 -3.51(.00) 0.43(0.26)

  • (1) Figures in bracket of column 5 represent P-value.
  • (2) Figures in bracket of column 6 represent for the Indian manufacturing sector as a whole.
  • (3) a – Binomial distribution used.
  • Table 5: Distribution of Acquiring Firms in Terms of Market Structure

    Acquiring Firms Major Product Herfindal Index Concentration of Ranking of Market Share Market Share
    Groups Major Product Groups as in 2001
    Number Number Increased Decreased 1-5 6-10 Above 10 Increased Decreased
    (No) (No) (No) (No)
    78 58 36 22 55 17 6 46 32

    Source: Industry Market Size and Shares, CMIE, August 2002.

    From the pre- and post-merger performance analysis, it is noticed that the return on shareholders’ equity (dividend/equity) has increased after the merger although it is not statistically significant. Our analysis has further shown that the shareholders of acquiring firms were paid better returns as dividends, probably, to win the shareholders’ confidence in the post-merger phase.

    However, the performance of the acquiring firms in terms of the above-mentioned profitability ratios for the period 1990-2005 has been relatively better as compared to the overall average of

    Economic & Political Weekly

    EPW
    september 27, 2008

    private corporate manufacturing sector. Further, we notice that the foreign-owned acquiring firms performed relatively better as compared to Indian-owned acquiring firms during 1990-2005. From the pre- and post-merger performance analysis, it is noticed that the return on shareholders’ equity (dividend/equity) has increased after the merger. Further, we have noticed that the same ratio for all firms involved in M&As has been quite high for the period 1990-2005 as compared to the overall average for the private corporate manufacturing sector. And this ratio is relatively high for foreign-owned acquiring firms as compared to their Indian counterparts. The debt-equity ratio of all acquiring firms has decreased after M&As. This ratio for all acquiring firms during 1990-2005 is relatively low as compared to the average for the private corporate manufacturing sector as a whole. And it is even lower for the foreign-owned firms as compared to the domestically owned firms. From a relatively low gearing ratio of all firms involved in M&As as compared to the private corporate manufacturing sector, we could argue that these firms were using this strategy in order to make their capital structure more viable.

    We have further looked into the economic performance of these acquiring firms in terms of R&D intensity, export intensity, capacity utilisation and product market share. This has been done in a comparative framework by grouping all M&As into two categories again, namely, M&As involving domestic firms and M&As involving foreign owned firms and examining whether there are any differences in behaviour between these two groups during the pre- and post-merger phases. Our analysis of R&D intensity (i e, the ratio R&D expenditure/gross sales) showed the following trends: the R&D intensity of all acquiring firms, both domestic and foreign was relatively higher as compared to that of the private corporate manufacturing sector as a whole in the period 1990-2005.

    R&D intensity of domestic acquiring firms was significantly higher than that of foreign-owned acquiring firms during 19902005 (Table 4).7 The R&D intensity of majority of the acquiring firms has declined after merger.8 The export intensity (export/gross sales) of all acquiring firms during 1990-2005 has been much higher than the private corporate manufacturing sector as a whole. And this ratio was slightly higher for the domestically owned acquiring firms as compared to the foreign-owned acquiring firms.9 Further, it is noticed that the average ratio of export intensity for all acquiring firms has increased significantly after the merger.

    Table 4 shows a similar trend is observed in the case of MNCrelated acquiring firms. Further, our study shows that the capacity utilisation ratio10 (net sales/total assets) has declined during the post-acquisition period and this ratio is almost same for all acquiring firms as compared to the private corporate manufacturing sector.

    From our analysis of the changes in the major product market shares in the period 1995 to 2005, we observed that the market share of the majority of the acquiring firms, especially Indianowned acquiring firms has been on the increase (Table 5). A majority of these acquiring firms were found to be among the topfive players in their respective product groups.11 Another interesting observation is that the Herfindal Index of concentration of those industries where we find a higher incidence of M&As has increased during this period. These industries are automobile ancillaries, cement, spun yarn, drugs and pharmaceuticals, tea, and synthetic detergents.

    Let us now conclude this section. The profitability indicators are showing a statistically significant stable or downward trend during the post-merger period. Our analysis has further shown that the shareholders of acquiring firms were paid better returns as dividends, probably, to win the shareholders’ confidence in the post-merger phase. However, statistically this trend has not been proven significant. Although it is not statistically significant, the declining trend in the debt-equity ratio shows that the capital structure could become relatively viable during the post-merger phase. This may point towards the plausible tactic of the firms using a merger as the occasion for enhancing equity in order to mobilise capital through borrowings to further their modernising activities [Beena 2001a]. The post-merger performance in terms of export intensity in India showed a significant upward trend, which coincides with the recent evidence from countries hit by financial crises.12 Agarwal (2003) argued that firms with the “expansionary motive” of using excess capacities resort to the tactic of mergers. However, our evidence points to the contrary, as capacity utilisation during the post-merger phase shows a statistically significant downward trend. Lastly, it is rather commonplace to point out that increasing concentration enables firms concerned to set mark-up prices above competitive levels. However, our recent evidence in the case of India shows a mixed trend: The price-cost margin has not gone up significantly during the post-merger period although the product market share has gone up in a majority of the firms that have gone in for mergers. Section 5 briefly analyses the sources of financing of these acquiring firms.

    5 Sources of Financing and Issues for Corporate Governance

    An earlier analysis [Beena 2001a] of the major sources of funds of the sample of 34 firms involved in mergers during the first phase (1990-95) shows that 71 per cent of the total assets of the acquiring firms in the period 1989-90 to 1994-95 was mobilised from external sources. The capital market accounted for 33 per cent of the total funds acquired and current liabilities for another 21.8 per cent. Only about 16 per cent of the total funds were mobilised through borrowings. However, firms that were involved in mergers during the second phase (1995-2000) have changed their corporate financing strate-

    Table 6: Sources of Finance (in %)

    Source: Prowess Database and corporate sector, CMIE, financing by 2005. June 2003 and May 2007.

    gies as is evident from Acquiring Firms Corporate Sector
    Table 6. For instance, 1995 2005 1995 2005
    acquiring firms were depending more on external financing in 1995. I Internal a Retained profits b Depreciation II External 27.56 18.01 9.55 72.44 20.26 14.14 5.85 79.74 28 15.7 12.4 72 55.827.628.1 44.2
    Among these, the capi a Capital market 33.68 6.66 15.6 5
    tal market accounted (Of which share
    for 34 per cent and premium) 29.93 5.48 9.2 3.2
    borrowings accounted b Borrowings 21.85 37.49 31.8 8.3
    for 22 per cent. But there c Current liabilities 16.89 30.11 24.6 29.6
    is a change in corporate Total 100 100 100 100

    As for external sources of financing with acquiring firms, current liabilities accounted for the major share of up to 30 per cent in 2005, compared to 17 per cent in 1995. Similarly, borrowing accounted for 38 per cent in 2005, up from 22 per cent in 1995. Resource mobilisation from the capital markets by acquiring firms suffered a drastic fall from 34 per cent in 1995 to nearly 7 per cent in 2005. The decline in resource mobilisation from the capital market in the corporate sector as a whole from 16 per cent in 1995 to 5 per cent in 2005 was also marked. However, the Indian corporate sector mobilised relatively a large proportion of total resources from internal sources in 2005, as compared to 1995.

    This new trend of internal financing of the corporate sector conforms to the so-called “pecking order” theory of financing corporate growth (as experienced in the developed and emerging economies). It suggests that firms resort to financing their investments from internal sources in order to maintain family ownership and control of corporations [Singh 2003]. But what is surprising is that a high level of depreciation accounts for the major share of internal sources of finance in 2005. For instance, the share of depreciation in total sources of finance in the Indian corporate sector was 52.5 per cent in 1976-77, decreased to 20.12 per cent in 1990-91 and then further to 12.4 per cent in 1995-96 [Rajagopalan et al 1989: 8; Dennis Rajakumar 1996: 203]. Since then, this share has been increasing continuously reaching 28 per cent in 2005 (Table 6). Does such a high level of depreciation actually reflect a higher rate of obsolescence of plant and machinery during “liberalisation”? If it were not the case, the matter would need attention from the angle of corporate governance. Moreover, despite showing a declining trend in profitability (as in Table 3), the dividend pay-out per equity has been increasing and would, once again, merit attention from a corporate governance angle.13 By the end of 1995, the post-liberalisation buoyancy in the Indian stock market generated finances for the acquiring firms [Beena 2001a]. However, in 2005, mobilisation of resources from the stock market showed a disturbingly declining trend for the acquiring firms and the corporate sector as a whole (Table 6). Once again, this calls for attention from the angle of regulation.

    6 Conclusions

    The evidence suggests that the new economic environment of the 1990s has facilitated M&As between companies under domestic or foreign ownership. Firms under the same business groups and similar product lines dominated the merger wave. The average performance of acquiring firms based on all indicators during 1990-2005 was relatively better than that of the manufacturing sector as a whole. However, the study could not find significant evidence of improvement in their performance in terms of various parameters during the post-merger phase, as compared to the pre-merger phase and this observation is quite consistent with earlier findings related to merger waves [Beena 2001a; Beena 2004]. Similar findings were arrived at by other studies as well for the Indian corporate sector [Agarwal 2003; Mantravadi and Reddy 2007].

    To draw parallels at the international level, an examination of the effect of mergers on profitability in six countries showed that mergers had no effect on profitability or led to minor increases in

    september 27, 2008

    Belgium, Germany and UK, whereas it had declined slightly or re-The new anti-trust regulation in India in the 1990s has helped mained unchanged in France, Holland and Sweden [Mueller foreign and Indian firms to expand their product market share 1987]. Ikeda and Doi (1983) observed that merging firms had through M&As. It could also be argued that one of the main moimproved their performance during the post-merger period in the tives was to increase the equity size, which could be further Japanese manufacturing industry in the period 1959-77. It is evi-used to borrow resources for modernisation. This study could dent that the profitability of 64 per cent of the acquired firms in not find any significant evidence of efficiency-related factors crisis-hit countries rose after acquisition. Further it is observed as primarily influencing the M&As that have occurred in the that profitability improved in those acquired firms in Asia and Indian corporate sector since the mid-1990s. It is rather the Latin America where Japanese executives replaced the old man-growth of the firm in terms of their asset-size, market share agement in more than one half of the cases [Zhan and Ozawa and the strengthening of the controlling bloc that have been 2001: 55-56]. Univariate analysis of profit-related variables in the noticed. Particularly since 2000, the macroeconomic policy UK does not support the view that firms seek to take over other changes have facilitated the third wave of mergers in India, i e, units which are less efficient than their own, whose assets can be overseas acquisitions by Indian firms. It is, however, too early to utilised more profitably [Levine and Aaronovitch 1981]. assess the impact of this recent wave of mergers. The behav-

    A considerable number of profitability studies in the US, span-ioural pattern of acquiring firms in the Indian corporate sector ning 60 years of merger activity, have found little evidence for the alerts us to the importance of working towards a desirable and hypothesis that mergers actually enhance company performance. workable competition policy and a feasible corporate governance Only two out of 11 studies argued that mergers may lead to an regime for the country. improved performance. Five could discern no difference and four An appropriate competition policy needs to be designed so as concluded that performance was worse off as a result of mergers to address the possible anti-trust implications of overseas merg[Utton 1974]. A more recent study in the US [Scherer 1988] and the ers for India, as well as to regulate M&As among Indian enter-UK [Dickerson et al 1997 as cited in Hay and Liu 1998: 144) could prises. This needs to be done keeping in view the need to develop not identify positive impacts of merger on firm-performance.14 productive capacities and generate employment within the coun-Both Utton (1974: 26) in the case of the US and Levine and Aarono-try, providing for adequate “promotional measures” and safevitch (1981: 149, 166-67) in the case of the UK noted the trend of guards to small and medium entrepreneurs. oligopolisation in the economy and expressed concern about the This paper could not deal with aspects such as the impact of welfarist implications of this trend. Head and Ries (1997) argued M&As on capital formation, balance of payments, employment that a national government could be relied on to block a world generation, managerial and marketing skills, quality of services welfare-reducing merger if it does not generate cost savings [see and prices. These are also issues that need careful scrutiny espealso Qiu and Zhou 2006: 40]. cially, in the case of cross-border M&As.

    Notes

    1 European Union (EU) policy concerning M&As which came into force in September 1990, has tended to discourage cross-border mergers in order to maintain competitive markets. However, the new policy by the EU initiated in June 2000 protects minority shareholders and encourages cross-border mergers. The legal framework in the United Kingdom is more flexible about foreign purchases of UK companies [Cantwell and Santangelo 2002]. “Crisis cartels were permitted in Europe and Japan till recently to protect declining industries, and mergers were encouraged for the same reason, as well as to create ‘national champions’”. Similarly, in the case of the US, merger policies until the 1970s, as well as laws to control price discrimination, such as the Robinson-Patman Act and state laws on fair trading, were designed to protect small businesses, regardless of efficiency [Bhattacharjea 2001].

    2 By related management, we mean her, firms which either in terms of controlling block or in terms of other indicators like company name, composition of the board of directors, etc, are clearly identifiable as belonging to a particular business group or house. Such information has been extracted from the scheme of amalgamation and other documents related to the firms involved in the merger process.

    3 Vertical mergers/acquistions are resorted to, in order to achieve backward integration through control over sources of supply or forward integration towards market outlets. Horizontal mergers/ acquistions involve combination of firms belonging to a similar product-line, thereby achieving economies of scale. A conglomerate merger/acquistion is the amalgamation of two companies engaged in unrelated industries.

    4 The list provided by RBI consisted of 3,909 firms through which foreign investment worth Rs 479.75 billion has come into the country during 1990 to 2000. A recent survey carried out under a study conducted by LBS-NCAER on ‘Entry Strategies of MNCs in India during 1990s’, made an attempt to identify the addresses of the above-mentioned firms, based on the CD available from the department of company affairs. Only 2,500 firms’ addresses were available therein. On being contacted, letters sent to 1,000 returned as addressees not contacted. Of the rest, of the 1,500 firms, only 190 responded to the survey out of which only 22 companies were involved in M&As during 1990s, although this researcher had identified 100 companies from among those 1,500 firms involved in M&As. It is indeed a matter of concern that with the end of licensing policies, not even a reliable list of MNCs in India could be located from a publicly accessible source, not to speak of reliable information about their operations in the country.

    5 For the purpose of analysing the impact of M&As on the performance of acquiring firms, many studies have used three years or five years, average performance before and after merger [Cosh et al 1981].

    6 PPBT/TCE is profit before tax as a ratio of the total capital employed, PAT/NS is profit after tax as a ratio of net sales, and PAT/NW is profit after tax as a ratio of the net worth.

    7 This is not all that surprising as we have also observed a similar trend in a study based on 160 MNC affiliates that entered India during the 1990s. The study found that most of the firms investing in India have small R&D budgets, relative to their turnover and most of them do not provide significant training to the employees in their Indian affiliates [Beena, Bhaumik, Bhandari and Gokarn 2004].

    8 The empirical study in the US by Welch and Bolster (1992) reported that acquired firms experienced an increase rather than a reduction in both R&D and long-term capital spending in the postmerger environment.

    9 In fact, it has been argued by others that MNCs have less incentive to export if profitability in the domestic market is high when they have a high market-share and the domestic market is not yet mature [Kumar and Siddharthan 1994; Patibandla 1995].

    10 This ratio, taking sales instead of net sales, has been used by [Ikeda and Doi 1983] in order to test the effect of mergers on equipment utilisation and they argue that it is surely one of the efficiency measures.

    11 The evidence based on the crisis-hit countries showed that TNCs had acquired local firms that were competing with them in the same market prior to the acquisition [Zhan and Ozawa 2001: 159].

    12 Thirty-six per cent of the acquired firms in crisishit countries showed an increase in exports after the acquisition while 8 per cent of the acquired firms showed a declining trend in their exports after acquisition [Zhan and Ozawa 2001: 55].

    13 Corporate governance meant to create some rules and regulations which would ensure that external investors and creditors in a firm can get their money back and would not simply be expropriated by those who are managing the firm [Shleifer and Vishny 1997].

    14 Whereas, “event” studies in the context of the US and the UK have shown substantial gains to the shareholders in the acquired firms [see Hay and Liu 1998:144].

    Economic & Political Weekly

    EPW
    september 27, 2008

    References

    Andrade, G, M Mitchell and E Stafford (2001): ‘New Evidence and Perspectives on Mergers’, Journal of Economic Perspectives, Vol 15, No 2, pp 103-20.

    Agarwal, M (2003): ‘Analyses of Mergers in India’, unpublished Mhil Dissertation submitted to the University of Delhi, Delhi School of Economics, Delhi.

    Ansoff, H I and J F Weston (1962): ‘Merger Objectives and Organisational Structure’, The Quarterly Review of Economics and Business, Vol 2, No 3, pp 49-58.

    Basant, R and S Morris (2000): ‘Competition Policy in India: Issues for a Globalising Economy’, Economic & Political Weekly, July 29.

    Beena, P L (2000): ‘An Analysis of Mergers in the Private Corporate Sector in India’, Working Paper No 301, Centre for Development Studies, Thiruvananthapuram.

  • (2001a): ‘Intangibles and Finance: Motives and Consequences of Mergers in the Indian Corporate Sector’ in P Banergee and F J Richter (eds), Intangibles in Competition and Cooperation: Euro-Asian Perspectives, Palgrave, New York, pp 53-73.
  • (2001b): ‘An Overview of the Mergers and Acquisitions during the Post-Liberalisation Era’, Business Digest, Vol XVI, Issue 16, August 16-31, FICCI.
  • (2004): ‘Towards Understanding the Merger-Wave in the Indian Corporate Sector: A Comparative Perspective’, Working Paper No 355, January, CDS, Thiruvananthapuram.
  • Beena, P L, Laveesh Bhandari, Sumon Bhaumik and Subir Gokarn (2004): ‘Foreign Direct Investment in India’ in Estrin Saul and Meyer Klaus (eds), Investment Strategies in Emerging Markets, Edward Elgar, Cheltenham.

    Berle, Adolf and Gardiner Means (1932): The Modern Corporation and Private Property, MacMillan, New York.

    Bhattacharjea, Aditya (2000): ‘Predation, Protection and the Public Interest’, Economic & Political Weekly, December 2, pp 4327-36.

  • (2001): ‘Competition Policy: India and the WTO’, Economic & Political Weekly, December 22, pp 4710-13.
  • (2003): ‘Trade, Investment, Competition Policy: An Indian Perspective’ in Aditya Mattoo and Robert M Stern (eds), India and the WTO (A Copublication of the World Bank and Oxford University Press).
  • Bolton, Patrick and S Schartstein David (1998): ‘Corporate Finance, the Theory of the Firm and Organisations’, Journal of Economic Perspectives, Vol 12, No 4, pp 95-114.

    Cantwell, J and G D Santangelo (2002): ‘M&As and the Global Strategies of TNCs’, The Developing Economies, Vol XL, Number 4.

    Caves, R E (1991): ‘Corporate Mergers in International Economic Integration’ in A Giovanni and C Mayer (eds), European Financial Integration, Cambridge University Press, Cambridge, pp 136-60.

    Chandrasekhar, C P (2003): ‘The End to Indian Anti-Trust’, Frontline, Volume 20, No 1, January 18-31.

    Coase, Ronald (1937): ‘The Nature of the Firm’, Economica, 4, pp 386-405.

    Cosh, A, A Hughes and A Singh (1981): ‘The Causes and Effects of Takeovers in the United Kingdom: An Empirical Investigation for the Late 1960s at the Microeconomic Level’ in Mueller, Dennis (eds), The Determinants and Effects of Mergers: An International Comparison, University of Maryland, Cambridge.

    Department of Company Affairs (1993): ‘Important Features of Corporate Sector and Policy Development’, Company News and Notes, Vol 31, No 1, pp 3-18.

    Dennis, Rajakumar (1996): ‘Financial Intermediation and Corporate Finance in India: Some Recent Experiences’, The Journal of Entrepreneurship, Vol 5, No 2.

    Dunning, J H (1993): Multinational Enterprises and the Global Economy, Addison-Wesley, Harrow.

    EIS: ‘Monthly Review of Indian Economy’, Centre for Monitoring Indian Economy, Economic Intelligence Service, Mumbai.

  • (2002): ‘Industry Market Size and Shares’, Centre for Monitoring Indian Economy, Mumbai, August.
  • (2007): ‘Corporate Sector’, Centre for Monitoring Indian Economy, Mumbai, May.
  • Evenett, S J (2002): ‘Merger and Anti Cartel Policies in an Era of Integrating Markets’ in B Hoekman, A Mattoo and P English (eds), Development, Trade and the WTO, World Bank, Washington DC.

    Gopinath, Shyamala (2007): ‘Overseas Investments by Indian Companies – Evolution of Policy and Trends’, RBI Bulletin, February, Vol LXI, No 2.

    Gort, M (1969): ‘An Economic Disturbance Theory of Mergers’, Quarterly Journal of Economics, Vol 83, pp 624-42.

    Government of India (1999): Economic Survey 1998-99, Ministry of Finance, Delhi.

    Grossman, Sanford and Oliver Hart (1986): ‘The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration’, Journal of Political Economy, 94, pp 691-719.

    Hart, Oliver and John Moore (1990): ‘Property Rights and the Nature of the Firm’, Journal of Political Economy, 98, pp 1119-58.

    Head, K and J Ries (1997): ‘International Mergers and Welfare under Decentralised Competition Policy’, Canadian Journal of Economics, 30, pp 1104-23.

    Horn, H and L Persson (2001): ‘The Equilibrium Ownership of an International Oligopoly’, Journal of International Economics, 53, pp 307-33.

    Hay, Donald A and Guy S Liu (1998): ‘When Do Firms Go in for Growth by Acquisitions?’, Oxford Bulletin of Economics and Statistics, Vol 60, No 2, pp 143-64.

    Ikeda, K and N Doi (1983): ‘The Performance of Merging Firms in Japanese Manufacturing Industry: 1964-75’, The Journal of Industrial Economics, Vol 31, No 3.

    Jensen, M (1988): Takeovers: Their Causes and Consequences’, Journal of Economic Perspectives, Vol 2, pp 21-48.

    Khanna, Sushil (1999): ‘Financial Reforms and Industrial Sector in India’, Economic & Political Weekly, November 6-12, pp 3231- 41.

    Kumar, Nagesh (2000): ‘Mergers and Acquisitions by MNEs: Patterns and Implications’, Economic & Political Weekly, Vol XXXV, No 32.

    Kumar, Nagesh and N S Siddharthan (1994): Technology, Firm Size and Export Behaviour in Developing Countries: The Case of Indian Enterprise’, Journal of Development Studies, Vol 31, No 2, pp 289-309.

    Levine, Paul and Sam Aaronovitch (1981): ‘The Financial Characteristics of Firms and Theories of Merger Activity’, The Journal of Industrial Economics, Vol XXX, No 2.

    Lommerud, K E, O Straume and L Sorgard (2005): ‘Downstream Merger with Upstream Market Power’, European Economic Review, 49, pp 717-43.

    Lall, S (2002): ‘Implications of Cross-Border Mergers and Acquisitions by TNCs in Developing Countries: A Beginners’ Guide’, Working Paper No 88, Department of International Development, QEH, Oxford.

    Mantravadi, Pramod and A Vidyadhar Reddy (2007): ‘Relative Size in Mergers and Operating Performance: Indian Experience’, Economic & Political Weekly, September 29, pp 3936-42.

    Melicher, R et al (1983): ‘A Time Series Analysis of Aggregate Merger Activity’, The Review of Economics & Statistics, Vol 65, pp 423-30.

    Mitchell, Mark L and J Harold Mulherin (1996): ‘The Impact of Industry Shocks on Takeover and Restructuring Activity’, Journal of Financial Econo mics, 41, pp 193-229.

    Mueller, D C (1987): The Corporation: Growth, Diversification and Mergers, University of Maryland, US.

    Nagaraj, R (2006): ‘Indian Investments Abroad: What Explains the Boom?, Economic & Political Weekly, Vol XLI, No 46, pp 4716-18.

    Nayyar, D (2007): ‘The Internationalisation of Firms from India: Investments, Mergers and Acquisitions’, SLPTMD WP No 004, Department of International Development, QEH, University of Oxford.

    Neary, J P (2004): ‘Cross-border Mergers as Instruments of Comparative Advantage’, Working Paper, University College, Dublin.

    Patibandla, Murali (1995): ‘Firm Size and Export Behaviour: An Indian Case Study’, Journal of Development Studies, Vol 31, No 6, pp 868-82.

    Post, Alexandra (1994): Anatomy of a Merger: The Causes and Effects of Mergers and Acquisitions,

    Prentice-Hall, Englewood Cliffs, New Jersey. Qiu, L D and W Zhou (2006): ‘International Mergers: Incentives and Welfare’, Journal of International Economics, 68, pp 38-58. Ramaiya, A (1977): Guide to the Companies Act, Eighth Edition. Ramaswamy, K V (2006): ‘Competition Policy and Practice in Canada: Salient Features and Some Perspectives for India’, Economic & Political Weekly, May 13, pp 1903-11. Rajagopalan, R V et al (1989): ‘Financing of Investment in the Private Corporate Sector’, Monograph No 6, ASSOCHAM, New Delhi. Saha, Biswatosh (2001): ‘Investment Policy in India’, paper presented in a seminar organised by CUTS Centre for International Trade, Economics and Environment, Jaipur. Schmalensee, R (1987): ‘Horizontal Merger Policy: Problems and Changes’, Journal of Economic Perspectives, Vol 7, No 2, pp 41-54. Scherer, F M (1988): ‘Corporate Takeovers: The Efficiency Arguments’, Journal of Economic Perspectives, Vol 2, pp 69-82. SEBI (2006): ‘Substantial Acquisition of Shares and Takeovers (Amendments) Regulations’, May, 26, web site of SEBI.

    Shleifer, A and R Vishny (1992): ‘The Takeover Wave of the 1980s’, Journal of Applied Corporate Finance, No 2, p 49.

    Siegel, Sidney (1956): Nonparametric Statistics for the Behavioural Sciences, McGraw-Hill, New York.

    Singh, A (1975): ‘Take-overs, Economic Natural Selection and the Theory of the Firm’, Economic Journal, September, Vol 85, pp 497-515.

  • (1992): ‘Corporate Takeovers’ in J Eatwell, M Milgate and P Newman (eds), The New Palgrave Dictionary of Money and Finance, MacMillan, London, pp 480-86.
  • (1999): ‘Competition Policy, Development and Developing Countries’, Working Paper No 50, ICRIER, New Delhi.
  • (2003): ‘The New International Financial Architecture and Competition in Emerging Markets: Empirical Anomalies and Policy Issues’ in Ha-Joon Chang (ed), Rethinking Development Economics, Anthem Press, pp 377-403.
  • Sudersanam (1995): The Essence of Mergers and Acquisitions, Prentice-Hall, NJ.

    Sweezy, Paul M (1994): ‘The Triumph of Financial Capital’ in S Bobbye Ortiz and Tilak D Gupta (eds), History as It Happened, Cornerstone Publications, pp 244-51.

    The Gazette of India (2003): ‘The Competition Act 2002’, Ministry of Law and Justice, Legislative Department, New Delhi, January 14.

    UNCTAD (1997): Transnational Corporations, Market Structure and Competition Policy, World Investment Report, Geneva.

    – (2000): Cross-border Mergers and Acquisitions and Development, World Investment Report, Geneva.

    Utton (1974): ‘On Measuring the Effects of Industrial Mergers’, Scottish Journal of Political Economy, Vol 21, pp 13-28.

    Welch, J B and Paul Bolster (1992): ‘Corporate Raiders Don’t Cut Investments in R&D’, Long Range Planning, Vol 25, No 6, December, pp 72-78.

    Weston, J Fred et al (1996): Mergers, Restructuring, and Corporate Control, Prentice-Hall, Englewood Cliffs, NJ.

    Williamson, O E (1968): ‘Economics as an Antitrust Defence: The Welfare Trade-offs’, American Economic Review, March.

    – (2002): ‘The Theory of the Firm as Governance Structure: From Choice to Contract’, Journal of Economic Perspectives, Vol 16, No 3, pp 171-95.

    Zhan, James and Terutamo Ozawa (2001): Business Restructuring Asia: Cross-Border M&As in the Crisis Period, Copenhagen Business School Press, Denmark.

    EPW

    To read the full text Login

    Get instant access

    New 3 Month Subscription
    to Digital Archives at

    ₹826for India

    $50for overseas users

    Comments

    (-) Hide

    EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

    Back to Top