Valuation effects of cultural disparity on cross border mergers: The evidence from India

Manish Tewari, Pradip Banerjee and Soumen De
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Manish Tewari: Department of Finance, Menlo College, Atherton, CA, USA
Pradip Banerjee: Department of Finance,Indian Institute of Management, Indore, India
Soumen De: Department of Finance, Menlo College, Atherton, CA, USA

International Journal of Finance & Banking Studies, 2019, vol. 8, issue 4, 21-40

Abstract: The object of this study is to explore the effect of cultural distance on both the long run and short run performance of cross border mergers and acquisitions undertaken by Indian acquiring firms. We utilize buy and hold returns (BHAR), cumulative abnormalreturns (CAR) and cross-sectional regression analysis in our study. Adopting the traditional Hofstede measure of cultural distance and other pertinent variables,commonly used to measure cultural differences, we document a negative and statistically significant influence of cultural distance on Indian cross-border M&As and corroborate some of other findings reported in prior research. Also, we find that the BHAR is nevertheless higher when the acquisitions are friendly, paid for 100% cash, and the acquiring firm is large, older and belongs to a business group. The inclusion of the variable ‘business group’ along with industry relatedness and acquirer size provides valuable insights into the Indian cross border acquisition landscape,wherein business groups dominate to a great extent.

Keywords: Valuation; Cross Border Mergers; Cultural Disparities; Indian Acquirers (search for similar items in EconPapers)
Date: 2019
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