Mergers and Corporate Performance in India an Empirical Study

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A STUDY OF CORPORATE TAKEOVERS IN
INDIA
Abstract of Ph. D Thesis to be submitted to
THE UNIVERSITY OF DELHI
For the Degree of
DOCTOR OF PHILOSOPHY
By
Ms. Surjit Kaur
Lecturer in Commerce
Sri Guru Gobind Singh College of Commerce
Under the Supervision of
Professor O. P. Gupta
Department of Financial Studies
University of Delhi, South Campus
Benito Juarez Road, New Delhi-110021
2002
1
The Indian economy has undergone a major transformation and structural change during the past decade or so as a result of economic reforms introduced by the Government of India since 1991 in the wake of policy of economic liberalization and globalization. In this liberalized era, “size” and "core competence" have become the focus of every business enterprise. Naturally, this requires companies to grow and expand in businesses that they understand well. Thus, leading corporate houses have undertaken a massive restructuring exercise to create a formidable presence in their core areas of interest. Mergers and acquisitions (M&As) is one of the most effective methods of corporate restructuring and has, therefore, become an integral part of the long-term business strategy of corporates. The M&A activity has its impact on various diverse groups such as corporate management, shareholders and investors, investment bankers, regulators, stock markets, customers, government and taxation authorities, and society at large. Therefore, it is not surprising that it has received considerable attention at the hands of researchers world over. A number of studies have been carried out abroad especially in the developed capital markets of Europe, Australia, Hong Kong, and US. These studies have largely focused on different aspects, viz., (a) the rationale of M&As, (b) allocational and redistributional role of M&As, (c) effect of takeovers on shareholders’ wealth, (d) corporate financial performance, etc. Some studies have also been carried out to predict corporate takeovers using financial ratios. M&As, being a new phenomenon in India, has not received much attention of researchers. In fact, no comprehensive study has been undertaken to examine various aspects especially after the Takeover Code came into being in1997. This study has been undertaken to fill this gap. OBJECTIVES OF THE STUDY

The study has been aimed at examining the M&A activity in India during the post liberalization period, in general, and post Takeover Code period in specific. Another objective of the study has been to test the usefulness of select financial ratios to predict corporate takeovers in India. Further, the study has also evaluated the posttakeover corporate performance of sample companies.

2
RESEARCH METHODOLOGY
The study focuses on three main aspects viz.: (a) corporate takeovers in India, (b) financial ratios as predictors of corporate takeovers, and (c) post-takeover corporate performance. The methodology followed for each of these aspects is different. Therefore, the same has been discussed in three parts:

(A) THE SAMPLE SURVEY
Using convenient sampling method, a structured questionnaire was circulated amongst top M&A consultants of the country. Finally, a total number of 20 responses could be obtained. The survey provided data related to various aspects of M&A activity in India. The major aspects covered are: (a) reasons for takeovers, (b) sectors witnessing takeover activity, (c) takeover process, (d) methods of valuation, (e) a set of financial ratios useful for predicting corporate takeovers, and (f) takeovers and stock market activity, etc.

The respondents included middle and senior level executives from organizations such as DSP Merrill Lynch, Rabo India Finance, Ernst & Young, Arthur Andersen, Mc. Kinsey, Deloitte Haskins & Sells, Kotak Mahindra, Ambit Corporate Finance, SBI Caps, and others.

Method of Analysis
The responses so collected were classified and grouped according to several characteristics and were presented in the form of tables to draw...
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