Euphoria in financial markets: How Indian companies generate value in their cross-border acquisitions

Rekha Rao-Nicholson and Ayton, Julie (Salaber)

Research in International Business and Finance, 2016, vol. 38, issue C, 494-508

Abstract: In this paper, we investigate the effect of euphoria on returns derived by Indian companies in their cross-border acquisitions. Cognitive legitimacy generated at the country level facilitated firms in deriving higher value from internationalization. In addition, overoptimism after the legitimacy-building event led to euphoria in financial markets and short-term abnormal returns. Hence we argue that the springboard effect created by legitimacy is short-lived, as euphoria fades away over time. Using cross-border and domestic acquisitions by Indian companies during 1999–2009, and controlling for fundamental factors, both financial and non-financial, we find support for our euphoria hypothesis. Because of overoptimism, Indian companies experienced short-term abnormal returns in their cross-border acquisitions in the few years following the legitimation process, but not in later years.

Keywords: Cognitive legitimacy; Euphoria effect; India; Cross-border acquisitions (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:38:y:2016:i:c:p:494-508

DOI: 10.1016/j.ribaf.2016.07.022

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