DOES MODE OF PAYMENT MATTER IN MERGERS AND ACQUISITIONS IN DETERMINING ANNOUNCEMENT RETURNS AND OPERATING PERFORMANCE?: A STUDY OF INDIAN COMPANIES ACQUIRING FOREIGN TARGETS

The present study examines the impact of mode of payment used in cross border mergers and acquisitions by Indian companies on the abnormal returns generated on account of announcement and the post merger operating and financial performance. The study considers the cross border M & A undertaken by Indian companies during the period of 1998-2009. We used event study methodology and post & pre merger performance comparison of financial ratios. One sample t-test, Paired samples t-test and Independent Samples t-test are employed for establishing the statistical significance. Our results convey that the cash paid deals provided significantly higher abnormal returns to the shareholders on the day of announcement than the deals in which other than cash was resorted. Acquiring firms using cash received significantly higher growth in the sales along with a significant increase in debt to equity ratios subsequent to the acquisitions. The reason could be acquiring firms’ continuous dependency on debt for financing the cross border M & A. There has also been a spurt in capital raising by Indian corporate both from domestic as well as foreign capital market during the study’s period. The acquiring firms using cash have also experienced a significant decline in Returns on capital employed.