Does ownership concentration improve M&A outcomes in emerging markets?

Abstract

Using firm level data from India, we examine the impact of ownership concentration on post-M&A performance of firms. Our analysis has implications for both the M&A literature, which emphasises the role of agency conflict between managers and owners of widely held companies as a key reason for M&A failures, and the corporate governance literature, especially in the context of emerging market economies. A cautious interpretation of our results suggests that while ownership concentration may reduce the manager-owner agency conflict, it may nevertheless precipitate other forms of agency conflict such that ownership concentration may not necessarily improve post-M&A performance. In particular, our results have implications for the literature on the agency conflict between large (or majority) shareholders and small (or minority) shareholders of a company, especially in contexts such as emerging market economies where corporate governance quality is weak.

Mergers and acquisitions in and out of emerging economies

“…China Chen and Young (2010), Chi et al (2011), Deng (2009), Knoerich (2010), Li and Qian (2013), Lin et al (2009), Peng (2006Peng ( , 2012, Rui and Yip (2008), Wu and Xie (2010), Xu et al (2010), Yang and Hyland (2012), , Yang, Sun, et al (2011) India Agarwal and Bhattacharjea (2006), Buckley et al (2012), Bhaumik and Selarka (2012), Elango and Pattnaik (2011), Gubbi et al (2010) Poland Roberts et al (2008) Russia Bertrand and Betschinger (2012) restructuring is so extensive that the new operation resembles a greenfield investment'' (Meyer & Estrin, 2001: 575). Brownfield acquisitions are likely to be a preferred mode of entry when there is a need for local, firm-specific resources (such as political ties, networks, or brands), but the local firm's technological and managerial capabilities are weak (Estrin & Meyer, 2011).…”

Ownership identity, strategy and performance: Business group affiliates versus independent firms in India

“…Since profit after tax (PAT) is influenced by factors such as depreciation that are affected by accounting rules, and exogenous interest payments (see, e.g., Meeks, 1977), we follow convention and use profit before interest payments and taxes (PBIT) (e.g., Bhaumik & Selarka, 2012;Cuervo-Cazzura & Dau, 2009); accordingly, our measure of ROA is the ratio of PBIT to total assets.…”

CEO Turnover after Acquisitions: Are Self-interested Bidders Fired?

“…In the literature on mergers and acquisitions (M&A), the majority of studies concluded that M&A fail to add value to the acquirer (Eckbo (2009) [1] , Bhaumik and Selarka (2012) [2] ). A dominant explanation is the well-known agency conflict between managers and owners, whereby managers undertake value-destroying acquisitions to reap personal benefits at the expense of shareholders (Jensen (1986) [3] ).…”