Do Institutional and Macroeconomic Factors Matter in IT companies M&As? Evidence from India

Abstract

The liberalisation of the Indian economy, along with targeted policies of the Indian government for the information technology (IT) sector, has led to tremendous growth in this sector. While there has been substantial foreign investment in India in the IT sector through setting up of subsidiaries, joint ventures and acquisitions, Indian firms have also aggressively invested within and outside India through multiple modes. Among different sectors, the IT sector has been the most dominant in terms of mergers and acquisitions (M&As). This article focuses on host country (macroeconomic and institutional) determinants of M&As undertaken by Indian IT firms. Random effect negative binomial model in panel set up was selected to estimate the models. Four models were estimated as per the availability of data for 35–42 countries and for the period 2000–2015. The results for most of the variables in four models were very similar, reflecting robustness of the methodology. Most of the macroeconomic and institutional factors were found to be important determinants of the M&As by Indian IT companies. However, the economic recession of 2008–2009 was found to significantly reduce the M&A activities by Indian IT companies.

M&A Movements: An Analysis of Patterns of Indian Trends

“…Extant literature suggests the effects of various macroeconomic factors (Bhasin et al, 2020), international shocks (like the South-East Asian crisis in 1997, recession caused by the financial crisis in 2008, etc) (Kar et al, 2020;Soni et al, 2019) and firm-specific strategic reasons having impacted M&As in India (Kalra et al, 2013;Kar & Soni, 2018). Although, investigating the impacts of these factors on Indian M&As is beyond the scope of this study, yet our trend analysis reveals three significant peaks generated in the years 1999, 2000 and 2011. This may be attributed to those factors.…”

“…However, the decision associated with each event is likely to be affected by various external factors, such as macroeconomic conditions, industry shocks and prevailing stock market valuations. Researchers, including the author of this article (Bhasin et al, 2020) already established it in the case of the Indian IT sector. The study by Bhasin et al (2020) strongly indicates that the market size, GDP growth in a country and exchange rate of a country have a positive influence on the M&As, whereas results for the inflation variable show negative influences on M&As.…”

“…Researchers, including the author of this article (Bhasin et al, 2020) already established it in the case of the Indian IT sector. The study by Bhasin et al (2020) strongly indicates that the market size, GDP growth in a country and exchange rate of a country have a positive influence on the M&As, whereas results for the inflation variable show negative influences on M&As. The macroeconomic factors are more systematic in nature, and it is closely related to the aggregate economy and the prevalent market conditions that might be affecting M&As.…”

“…The common factors impacting the time series of all M&As waves is a natural outcome because the firms are part of the big ocean called aggregate economy. Their behaviour, apparently independent corporate decisions that are most likely affected by the conditions of the economy, which can be changed by various macroeconomic factors (Bhasin et al, 2020), industry shocks (Kar et al, 2020;Soni et al, 2019), Government interventions, etc. From our earlier study, it has emerged that macroeconomic variables like market size, GDP growth and exchange rate were found to positively influence M&As, whereas inflation influenced M&As negatively for the Indian IT companies .…”

FLAGGING DETERMINANTS FOR INDIAN OUTBOUND M&A

“…like Goh (2011) studied the Malaysian economic in this respect, and many more like Bhasin and Garg, 2020;Varma et al, 2015;Reddy, 2015;Zhou et al, 2021;Pantelidis and Kyrkilis, 2003;Deng and Yang, 2015. Some country specific studies with respect to macroeconomic factors for Indian outbound M&A has also been carried out (Das and Banik, 2015;Nunnenkamp et al, 2012, Pradhan, 2011Bhasin et al, 2021). But most of these studies concentrated its research around a group of countries like BRIC nations, ASEAN countries or many towards Chinese economy.…”