Determinants of acquisitions: an Indian perspective

Abstract

PurposeThe purpose of this paper is to identify and investigate firm level determinants of the firm's decision on acquisition strategy.Design/methodology/approachA total of 360 firms across fast growing sectors in India, namely automobile, FMCG and pharmaceutical were selected for six years, i.e. from 2004‐2010, thus making a sample of 360 firms. Hypothesis were tested using panel logit regression and instrumental IV variable regression.FindingsFindings suggest that earnings volatility and business group affiliation are statistically significant determinants of the firm's acquisition decision. Earnings volatility follows inverted “U” curvilinear relationship with a firm's propensity to bid for acquisition and business group affiliation is a quasi moderator, i.e. has both direct and moderating impact on earnings volatility and acquisition likelihood relationship.Research limitations/implicationsOut of several manufacturing and service sectors only three fastest growing sectors are selected. Moreover, though study has been conducted in emerging market, i.e. India. For further generalization, other emerging economies should have also been selected. However, availability of data restricts scope of study.Practical implicationsManagers can look at strategies like acquisition to reduce their volatility. However, they have to make this decision in a prudent manner as acquisition itself is a risky strategy. Moreover, managers of stand alone firms should seek to find solutions of resource scarcity.Originality/valueDeterminants mentioned above have not been investigated earlier with respect to acquisition decision especially in emerging market context.

Reconstructing Literature for Determinants of Cross Border Inbound and Outbound Mergers and Acquisitions: A Review Study

“…M&A can be one of the appropriate strategies to increase the market share of firms, improve profitability, acquire resources which further reduce the earning volatility. This was supported by Agnihotri (2013), that the firms experiencing high earning volatility take this as a crucial matter and acquirer firms thereby acquire the resources and assets which recovers its earnings. Aevoae, Dicu, and Mardiros (2018), found that certain target firms applied GAAP (Generally Accepted Accounting Principles) in reporting the financial statements and other target firms used IFRS (International Financial Reporting Standards), and the acquirers were found to be looking for related companies which are reporting profits accurately as well as the productivity of employees found to be high.…”

A Study on Mergers and Acquisition in India and Its Impact on Operating Efficiency of Indian Acquiring Company

“…Agnihotri [5] investigate and analyzed determinants of acquisitions in three industries in India and find that the volatility of earnings and business group affiliation has a significant influence on acquisitions by Indian firms.The paper focused more on increase in earnings due to Acquisitions.…”

Mergers and Acquisitions and Trade Integration: A Spatial and Temporal Study of India

“…Agnihotri [7] found that the acquisition decision of a firm is determined significantly by earnings volatility and business group affiliation in India. A sample of 360 firms, spanning three fast-growing sectors, was chosen for the period 2004-10.…”