Rajesh Chakrabarti may be reached at Indian School of Business, Gachibowli, Hyderabad, 500 032; Tel: +91-40-2318-7167; E-mail: rajesh_chakrabarti@isb.edu.
M&A activity in India—both domestic and cross-border—has exhibited explosive growth in recent years. International evidence is quite clear about the value-reducing nature of the average acquisition, both on announcement (for the acquirer) as well as in the long run. We show that in India, in contrast to this finding, the effects of acquisition on acquirer returns—both on announcement as well as over a three-year post-acquisition window—over and above the market index are significantly positive. However, the statistical significance of the positive long-run effects disappears when we correct for industry effects. Also acquirers do considerably worse compared to their performance vis-á-vis the index or with respect to their relevant industry indices in a three-year pre-acquisition window, suggesting that the acquisitions are actually value reducing, but the markets fail to perceive them as such on announcement.
