Abstract
Cross-border mergers and acquisitions (M&As) allow economic integration across countries and impact industries’ productivity and structure, which has implications for managers, customers, suppliers, and policy-makers. Therefore, it is crucial to examine what drives inbound and outbound M&As more in certain industries compared to other industries. Prior research examined firm-level and country-level factors as antecedents of cross-border M&As, with the firm as the main unit of analysis and subsumed industry effects within country effects. However, not all industry effects—an industry’s capital intensity, for example—can be subsumed under country effects; consequently, the extant empirical findings do not present a holistic view. This study addresses this research gap by segregating industry effects from country effects and examining the impact of an industry’s domestic growth rate, imports growth rate, and capital intensity on the industry’s inbound and outbound M&A activity. Using a dataset of 87 industries from India that spans over a period of 11 years, we find that low capital-intensive industries have higher outbound and inbound M&As in the service sector but low inbound M&As and high outbound M&As in the manufacturing sector. Capital-intensive industries attract inbound M&A only when domestic industry growth and/or imports growth rate is low. These results indicate that foreign multinational-companies prefer to enter India via exports rather than via M&As in capital-intensive industries. This trend conforms to the traditional theories of international business, which do not seem to be completely applicable to outbound M&As from India. Further, an industry’s level of outbound M&A is positively related to the industry’s profitability; however, inbound M&A has no impact on the profitability.
Similar content being viewed by others
Notes
More information on this could be obtained from the following link: https://www.thehindubusinessline.com/markets/stock-markets/Inbound-merger-and-acquisitions-jump-30/article20389579.ece; accessed on 19th May, 2019.
More information on this could be obtained from the following link: https://m.timesofindia.com/business/india-business/tata-steel-to-divest-southeast-operations/amp_articleshow/65075987.cms; accessed on 25th Sept., 2018.
Please note metal and metal related industry is high on capital but also high on employees/labor engaged.
References
Agrawal, A., & Jaffe, J. F. (2003). Do takeover targets underperform? Evidence from operating and stock returns. Journal of Financial and Quantitative Analysis, 38(4), 721–746.
Agrawal, A., & Walkling, R. A. (1994). Executive careers and compensation surrounding takeover bids. Journal of Finance, 49(3), 985–1014.
Almazan, A., De Motta, A., Titman, S., & Uysal, V. (2010). Financial structure, acquisition opportunities, and firm locations. The Journal of Finance, 65(2), 529–563.
Anand, J., & Singh, H. (1997). Asset redeployment, acquisitions and corporate strategy in declining industries. Strategic Management Journal, 18(S1), 99–118.
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2003). Founding family ownership and the agency cost of debt. Journal of Financial Economics, 68(2), 263–285.
Basant, R., & Mishra, P. (2017). Vertical integration, market structure and competition policy: Experiences of Indian manufacturing sector during the post-reform period. IIMA working paper no. W. P. No. 2017-09-02. https://web.iima.ac.in/assets/snippets/workingpaperpdf/11903850902017-09-02.pdf. Accessed 10 May 2019.
Bauer, F., Dao, M. A., Matzler, K., & Tarba, S. Y. (2017). How industry lifecycle sets boundary conditions for M&A integration. Long Range Planning, 50(4), 20–517.
Berger, A. N., Saunders, A., Scalise, J. M., & Udell, G. F. (1998). The effects of bank mergers and acquisitions on small business lending. Journal of Financial Economics, 50(2), 187–229.
Bhaumik, S. K., & Selarka, E. (2012). Does ownership concentration improve M&A outcomes in emerging markets? Evidence from India. Journal of Corporate Finance, 18(4), 717–726.
Bower, J. L. (2001). Not all M&As are alike—And that matters. Harvard Business Review, March, 92–101.
Buckley, P. J., Forsans, N., & Munjal, S. (2012). Host-home country linkages and host–home country specific advantages as determinants of foreign acquisitions by Indian firms. International Business Review, 21(5), 878–890.
Cannella, A. A., & Hambrick, D. C. (1993). Effects of executive departures on the performance of acquired firms. Strategic Management Journal, 14(S1), 137–152.
Chen, C., & Findlay, C. (2003). A review of cross-border mergers and acquisitions in APEC. Asian-Pacific Economic Literature, 17(2), 14–38.
Chen, V., Li, J., & Shapiro, D. (2012). International reverse spillover effect on parent firms: Evidence from emerging market MNEs in developed markets. European Management Journal, 30(3), 204–218.
Child, J. (2009). Context, comparison and methodology in Chinese management research. Management and Organization Review, 5(1), 91–105.
Chittoor, R., Aulakh, P. S., & Ray, S. (2015). What drives overseas acquisitions by Indian firms? A behavioral risk-taking perspective. Management International Review, 55(2), 255–275.
Cornaggia, J., Mao, Y., Tian, X., & Wolfe, B. (2015). Does banking competition affect innovation? Journal of Financial Economics, 115(1), 189–209.
Das, A., & Kapil, S. (2015). Inorganic growth of technology sector firms in emerging markets: Influence of firm-specific factors in Indian firms’ M&A activities. International Journal of Emerging Markets, 10(1), 52–72.
De Beule, F., & Duanmu, J.-L. (2012). Locational determinants of internationalization: A firm-level analysis of Chinese and Indian acquisitions. European Management Journal, 30(3), 264–277.
Deng, P. (2004). Outward investment by Chinese MNCs: Motivations and implications. Business Horizons, 47(3), 8–16.
Deng, P., & Yang, M. (2015). Cross-border mergers and acquisitions by emerging market firms: A comparative investigation. International Business Review, 24(1), 157–172.
di Giovanni, J. (2005). What drives capital flows? The case of cross-border merger and acquisition activity and financial deepening. Journal of International Economics, 65, 127–149.
Dunning, J. H., Kim, C., & Park, D. (2008). Old wine in new bottles: A comparison of emerging-market TNCs today and developed-country TNCs thirty years ago. In K. Sauvant (Ed.), The rise of transnational corporations from emerging markets: Threat or opportunity? (pp. 158–182). Cheltenham: Edward Elgar.
Dutz, M. A. (1989). Horizontal mergers in declining industries. International Journal of Industrial Organization, 7(1), 11–33.
Feliciano, Z., & Lipsey, R. E. (2017). Foreign entry into US manufacturing by takeovers and the creation of new firms. Eastern Economic Journal, 43(1), 1–16.
Gaffney, N., Kedia, B., & Clampit, J. (2013). A resource dependence perspective of EMNE FDI strategy. International Business Review, 22(6), 1092–1100.
Gorton, G., Kahl, M., & Rosen, R. J. (2009). Eat or be eaten. A theory of mergers and firm size. Journal of Finance, 64(3), 1291–1344.
Gubbi, S. R., Aulakh, P. S., Ray, S., Sarkar, M. B., & Chittoor, R. (2010). Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies, 41(3), 397–418.
Haleblian, J., Devers, C. E., McNamara, G., Carpenter, M. A., & Davison, R. B. (2009). Taking stock of what we know about mergers and acquisitions: A review and research agenda. Journal of Management, 35(3), 469–502.
Harford, J. (2005). What drives merger waves? Journal of Financial Economics, 77(3), 529–560.
Hope, O., Thomas, W., & Vyas, D. (2011). The cost of pride: Why do firms from developing countries bid higher? Journal of International Business Studies, 42(1), 128–151.
Huyghebaert, N., & Luypaert, M. (2010). Antecedents of growth through mergers and acquisitions: Empirical results from Belgium. Journal of Business Research, 63(4), 392–403.
Jayanthi, B., Sivakumar, S. N. V., & Haldar, A. (2016). Cross-border acquisitions and host country determinants: Evidence from Indian pharmaceutical companies. Global Business Review, 17(3), 684–699.
Johanson, J., & Vahlne, J. E. (1977). The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1), 23–32.
Kalghatgi, J., & Badi, V. R. (2013). Cross border mergers and acquisitions and its effect on shareholders wealth in India. International Journal of Research in Commerce and Management, 4(6), 5–9.
Kumar, N. (2007). Emerging TNCs: Trends, patterns and determinants of outward FDI by Indian enterprises. Transnational Corporations, 16(1), 1–26.
Lebedev, S., Peng, M. W., Xie, E., & Stevens, C. E. (2015). Mergers and acquisitions in and out of emerging economies. Journal of World Business, 50(4), 651–662.
Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4), 481–498.
Miller, K. D. (1993). Industry and country effects on managers’ perceptions of environmental uncertainties. Journal of International Business Studies, 24(4), 693–714.
Mitchell, M., & Mulherin, J. (1996). The impact of industry shocks on takeover and restructuring activity. Journal of Financial Economics, 41(2), 193–229.
Nair, S. R., Demirbag, M., & Mellahi, K. (2015). Reverse knowledge transfer from overseas acquisitions: A survey of Indian MNEs. Management International Review, 55(2), 277–301.
Nayyar, D. (2008). The internationalization of firms from India: Investment, mergers and acquisitions. Oxford Development Studies, 36(1), 111–131.
Nicholson, R. R., & Salaber, J. (2013). The motives and performance of cross-border acquirers from emerging economies: Comparison between Chinese and Indian firms. International Business Review, 22(6), 963–980.
Palepu, K. G., & Khanna, T. (1998). Institutional voids and policy challenges in emerging markets. The Brown Journal of World Affairs, 5(1), 71–78.
Peng, M. W., Wang, D. Y. L., & Jiang, Y. (2008). An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5), 920–936.
Popli, M., Akbar, M., Kumar, V., & Gaur, A. (2016). Reconceptualizing cultural distance: The role of cultural experience reserve in cross-border acquisitions. Journal of World Business, 51(3), 404–412.
Popli, M., & Sinha, A. K. (2014). Determinants of early movers in cross-border merger and acquisition wave in an emerging market: A study of Indian firms. Asia Pacific Journal of Management, 31(4), 1075–1099.
Porter, M. (1990). The competitive advantage of nations. Harvard Business Review, March–April, 73–91.
Powell, R., & Yawson, R. (2005). Industry aspects of takeovers and divestitures: Evidence from the UK. Journal of Banking & Finance, 29(12), 3015–3040.
Powell, R., & Yawson, R. (2007). Are corporate restructuring events driven by common factors? Implications for takeover prediction. Journal of Business Finance and Accounting, 34(7–8), 1169–1192.
Pradhan, J. P. (2010). Strategic asset-seeking activities of emerging multinationals: Perspectives on foreign acquisitions by Indian pharmaceutical MNEs. Organizations and Markets in Emerging Economies, 1–2(2), 9–31.
Ramamurti, R. (2012). What is really different about emerging market multinationals? Global Strategy Journal, 2(1), 41–47.
Ramamurti, R. (2013). Cross-border M&A and competitive advantage of Indian EMNEs. In P. J. Williamson, et al. (Eds.), The competitive advantage of emerging market multinationals (pp. 239–259). New York: Cambridge University Press.
Ranju, P. K., & Mallikarjunappa, T. (2018). The effect of cross-border mergers and acquisitions on shareholder wealth: Evidence from Indian high-technology industry. South Asian Journal of Management, 25(2), 139–166.
Reddy, K. S., Li, Y., & Xie, E. (2016a). Economic transition and cross-border mergers and acquisitions: The Indian experience among BRICs. Journal of Comparative International Management, 18(2), 23–53.
Reddy, K. S., Xie, En, & Huang, Y. (2016b). Cross-border acquisitions by state-owned and private enterprises: A perspective from emerging economies. Journal of Policy Modeling, 38(6), 1147–1170.
Santos, F. M., & Eisenhardt, K. M. (2005). Organizational boundaries and theories of organization. Organization Science, 16(5), 491–508.
Schoenberg, R., & Reeves, R. (1999). What determines acquisition activity within an industry? European Management Journal, 17(1), 93–98.
Sethi, D. (2009). Are multinational enterprises from the emerging economies global or regional? European Management Journal, 27(5), 356–365.
Shrieves, M., & Stevens, D. (1979). Bankruptcy avoidance as a motive for merger. Journal of Financial and Quantitative Analysis, 14(3), 504–515.
Srivastava, R., & Prakash, A. (2014). Value creation through cross-border mergers and acquisitions by the Indian pharmaceutical firms. Journal of Strategy and Management, 7(1), 49–63.
Su, N. (2013). Internationalization strategies of Chinese IT service suppliers. MIS Quarterly, 37(1), 175–200.
Sun, S. L., Peng, M. W., Ren, B., & Yan, D. (2012). A comparative ownership advantage framework for cross-border M&As: The rise of Chinese and Indian MNEs. Journal of World Business, 47(1), 4–16.
Tolentino, P. E. (2010). Home country macroeconomic factors and outward FDI of China and India. Journal of International Management, 16(2), 102–120.
UNCTAD. (2014). World Investment Report 2014. New York: UN Publication.
Varma, S. (2011). Born global acquirers from Indian IT: An exploratory case study. International Journal of Emerging Markets, 6(4), 351–368.
Varma, S., Kar, R. N., Soni, A., & Suder, G. (2017). Drivers of emerging market cross border mergers and acquisitions: Evidence from the Indian IT industry. Transnational Corporations Review, 9(4), 360–374.
Vyas, V., & Narayanan, K. (2016). Does M&A matter for R&D? Evidence from the pharmaceutical sector in India. In N. Siddharthan & K. Narayanan (Eds.), India studies in business and economics (pp. 89–109). Singapore: Springer.
Wang, C., Hong, J., Kafouros, M., & Boateng, A. (2012). What drives outward FDI of Chinese firms: Testing power of three theoretical frameworks. International Business Review, 21(3), 425–438.
Williamson, O. E. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36(2), 269–296.
Xie, E., Reddy, S., & Liang, J. (2017). Country-specific determinants of cross-border mergers and acquisitions: A comprehensive review and future research directions. Journal of World Business, 52(2), 127–183.
Xu, D., & Meyer, K. E. (2013). Linking theory and context: ‘Strategy research in emerging economies’ after Wright et al. (2005). Journal of Management Studies, 50(7), 1322–1346.
Zhou, C., Witteloostuijn, A. V., & Zhang, J. (2014). The internationalization of Chinese industries: Overseas acquisition activity in Chinese mining and manufacturing industries. Asian Business and Management, 13(2), 89–116.
Zhou, C., Xie, J., & Wang, Q. (2016). Failure to complete cross-border M&As: “To” vs. “From” emerging markets. Journal of International Business Studies, 47(9), 1077–1105.
Zhu, H., & Zhu, Q. (2016). Mergers and acquisitions by Chinese firms: A review and comparison with other mergers and acquisitions research in the leading journals. Asia Pacific Journal of Management, 33(4), 1107–1149.
Acknowledgements
I would like to thank both the reviewers of this manuscript for their guidance and encouraging comments. I acknowledge the research assistance provided by Mr. Vikram Agrawal in the initial phase of this project. I am thankful to Prof. Rakesh Basant of IIM Ahmedabad and Dr. Dhruv Gupta for meaningful discussions on the topic. I am also thankful to Indian Institute of Management Ahmedabad, India for providing seed-money research grant for this research project.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Singla, C. Antecedents of Inbound and Outbound M&A: Industry-Level Analysis from India. Manag Int Rev 59, 703–739 (2019). https://doi.org/10.1007/s11575-019-00398-3
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11575-019-00398-3