Value creation through cross-border mergers and acquisitions by the Indian pharmaceutical firms

Abstract

Purpose – Cross-border mergers and acquisitions (M&A) have given the opportunity to the emerging market multinationals to add value while implementing the strategy of internationalization. The Indian pharmaceutical firms are also adopting this strategy and the purpose of this paper is to determine the evidence of value creation for their international M&A activity. Design/methodology/approach – In total, 30 cross-border M&A are examined for value addition through accounting (PAT as percentage of net worth, PAT as percentage of capital employed, research and development (R&D) expenses as percentage of operating expenses) and shareholder return (cumulative abnormal returns) measures of the acquirer firm ex-ante and ex-post M&A. The difference in mean values of the variables after the M&A event is determined through Student's t-test. The time horizon selected for accounting variables was five years and the abnormal stock market returns were calculated using domestic market model with the event window being 40 days. Findings – The results indicate no statistically significant difference in the mean values of all the measures except R&D expenses as percentage of operating expenses for the acquirer Indian firms before and after the M&A event. The mean values of abnormal returns were less than those before the M&A activity. Research limitations/implications – The study does not include a control group of Indian firms engaged wholly in domestic M&A activity or those firms who have not merged or acquired at all. Practical implications – The study may point out toward no significant ex-ante value creation in terms of the selected profit measures but it suggests the probability of the strategy being adopted as a solution to problems like the transfer of tacit knowledge in case of technology led competitive advantages in the pharmaceutical industry and the rise of R&D activity. Originality/value – The Indian pharmaceutical industry has been experiencing waves of international M&A activity since 2005 after the implementation of Product patent Act, 2005. However, little research has been done on the sector to understand the value creating implications of such corporate strategic decisions.

Mergers, taxation and accounting performance: Some evidence from Greece

“…This result is consistent with the results of some studies (Kumar, 1984;Healy et al, 1992;Chatterjee and Meeks, 1996;Ghosh, 2001;Srivastava and Prakash, 2014). However, it is not consistent with the results of some other studies that found a decline of the profitability ratios (Meeks, 1977;Salter and Weinhold, 1979;Mueller, 1980;Kusewitt, 1985;Ravenscraft and Scherer, 1987;Dickerson et al, 1997;Sharma and Ho, 2002;Oduro and Agyei, 2013;Pantelidis et al, 2014;Rodionov and Mikhalchuk, 2016 (in crisis periods).…”

“…Many past studies on post-merger performance that employed accounting ratios and were conducted during the last decades supported an improvement in the corporate performance after the M&As action (Cosh et al, 1980;Parrino and Harris, 1999;Vijayakumar and Sridevi, 2013;Muhammad and Zahid, 2014;Oruc Erdogan and Erdogan, 2014;Rao-Nicholson et al, 2016), while others claimed that there was a deterioration in the post-merger firm performance (Meeks, 1977;Salter and Weinhold, 1979;Mueller, 1980;Kusewitt, 1985;Ravenscraft and Scherer, 1987;Dickerson et al, 1997;Sharma and Ho, 2002;Oduro and Agyei, 2013), and some others concluded a "zero" result or ambiguous results from the M&As action (Kumar, 1984;Healy et al, 1992;Chatterjee and Meeks, 1996;Ghosh, 2001;Srivastava and Prakash, 2014;Rodionov and Mikhalchuk, 2016).…”

Impact of Intellectual Capital on Mergers and Acquisitions: Evidence from Developed and Emerging Capital Markets

“…Acquisition of companies with huge R&D investments facilitates the accumulation of technology and innovation resources and the development of competitive advantages. The research of R. Srivastava and A. Prakash [41] proved a significant positive impact of R&D intensity on M&A performance on the basis of 187 mergers and acquisitions initiated by Indian pharmaceutical companies. A positive but statistically insignificant influence of R&D intensity on M&A performance was found by X. Wu et al [40] using a selection of data on 180 cross-border mergers and acquisitions made by Chinese companies in 2002-2012, as well earlier by M. Hassan et al [39].…”

Sunk Cost Dilemma Behavior: The Contribution Marketing Expenses towards Financial Performance

“…One way to fund the firm is by borrowing money to leverage the ability of the company to survive. Based on Srivastava & Prakash (2014), leverage can indicate the expenditure, and it will show that the company launches the new product. The debt ratio is used in this research as the control variable, to show the efficiency of using borrowed capital.…”