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What Drives Overseas Acquisitions by Indian Firms? A Behavioral Risk-Taking Perspective

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Abstract

Overseas acquisitions as a mode of international expansion entail a high level of risk, especially for firms from emerging economies which face considerable liabilities of foreignness and newness in international markets. Building on the behavioral risk-taking perspective, we examine the role of ownership characteristics on the propensity of Indian firms to make foreign acquisitions. Empirical results from a sample of BSE 500 Indian firms during the 2002–2011 period show that after controlling for firm level resources and capabilities identified in the prior literature, international experience of firm CEOs, promoter shareholding, and ownership share of foreign institutional investors positively influence firms’ acquisition propensities in foreign markets. Furthermore, our results show that the effects of these determinants on overseas acquisitions are stronger for stand-alone independent firms than for those affiliated to business groups.

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Notes

  1. Some examples of high profile acquisitions include Hindalco, an Indian company owned by the Aditya Birla group, acquiring Novelis for US$ 6.0 billion to emerge as the world’s largest manufacturer of rolled aluminum products and the fifth-largest integrated aluminum maker in the world (The Times of India 2007), the acquisition by Tata Steel, of the Anglo-Dutch major Corus for about US$ 12 billion to jump from 56th to 5th largest steel company in the world in 2007 and the acquisition of the iconic Jaguar and Land Rover by Tata Motors for US$ 2.3 billion (The Financial Express 2008).

  2. According to the Securities Exchange Board of India (SEBI), a promoter is defined as any person or persons who are directly or indirectly in control of the company.

  3. This data collection, which took about 6 months, was carried out with the help of a research associate and cross-verified by one of the authors.

  4. As the companies are not expected to make overseas acquisitions every year, we were interested in the determinants a company making a cross-border acquisition at least once during our study period. About 34 % of our sample firms made an overseas acquisition at least once during the study period.

  5. According to the Securities Exchange Board of India (SEBI), a promoter is defined as any person or persons who are directly or indirectly in control of the company.

  6. We preferred probit over logit models based on the curve fit with the data. Results were similar in both the cases.

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Acknowledgments

The authors thank the editors of the special issue and two reviewers for their valuable suggestions which helped improve the various aspects of the paper. Financial support from the Social Sciences and Humanities Research Council of Canada (Grant Number: 435-2012-1219) is gratefully acknowledged.

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Authors and Affiliations

  1. Indian School of Business, Hyderabad, India

    Raveendra Chittoor

  2. Schulich School of Business, York University, Toronto, Canada

    Preet S. Aulakh

  3. Indian Institute of Management Calcutta, Kolkata, India

    Sougata Ray

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  1. Raveendra Chittoor
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  2. Preet S. Aulakh
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  3. Sougata Ray
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Correspondence to Preet S. Aulakh.

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Chittoor, R., Aulakh, P.S. & Ray, S. What Drives Overseas Acquisitions by Indian Firms? A Behavioral Risk-Taking Perspective. Manag Int Rev 55, 255–275 (2015). https://doi.org/10.1007/s11575-015-0238-7

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