Impact of Cash Deals and Related Industry Merger on Synergies Gains: A Case of Indian M&A

Keywords: M&A Activity, Synergies, Variable, Regression Analysis, Cash Deals, Industry Relatedness.


A firm's financial attributes play an essential part in the merger decision. The present paper attempts to improve the existing literature on assessing M&A activity in Indian corporate. This research paper aims primarily to analyze the (a) Synergies realized when the mode of payment in the merger deal is cash, (b) impact on bidder liquidity when payment is made in cash (c) Synergies realized when both target and acquirer in the deal belong to related industry, i.e. the merger is horizontal and (d) assess the impact on bidder leverage when payment is made in equity. The paper has analyzed a panel of 120 major Indian M&A deals from 2005 to 2015, having three years of data pre and post-merger. Instrument Variable Probit Regression analysis has been employed in the study. The key results from the analysis show that in case of payment method in the deal being cash, M&A appears financially favorable for the bidder companies. The results of the empirical analysis of the study do support the generation of synergies in the case of horizontal mergers. The combined firm has also found to have lower liquidity for Indian Mergers & Acquisitions. Significant results have also been obtained for the leverage variables indicating fewer borrowings for the merged firm.

JEL Classification Codes: G34, C35, M41.                                      

Author Biographies

Anjala Kalsie, University of Delhi, India

Assistant Professor

Faculty of Management Studies

University of Delhi, India      

E-mail: [email protected]

Neha Singh, University of Delhi, India

Research Scholar

Faculty of Management Studies

University of Delhi, India

E-mail: [email protected]


Andrade, G., Mitchell, M., & Stafford, E. (2001). New evidence and perspectives on mergers. Journal of Economic Perspectives, 15(2), 103–120.American Economic Association.

Asquith, P., Bruner, R. F., & Mullins, D. W. (1990).Merger returns and the form of financing.

Awogemi, C . A., & Oguntade, E. S. (2012). Element of Statistical Methods.USA: LAMBERT. Academic Publishing.

Barai, P., & Mohanty, P. (2014). Role of industry relatedness in performance of Indian acquirers-Long and short run effects. Asia Pacific Journal of Management, 31(4), 1045–1073.

Barkema, H. G., Baum, J. A., & Mannix, E. A. (2002). Management challenges in a new time. Academy of Management Journal, 45(5), 916-930.

Basu, D., Dastidar, S. G., & Chawla, D. (2008). Corporate Mergers and Acquisitions in India: Discriminating between Bidders and Targets. Global Business Review, 9(2), 207–218.

Beena, P. (2000). An analysis of mergers in the private corporate sector in India.

Bena, J., & Li, K. (2014). Corporate Innovations and Mergers and Acquisitions.Journal of Finance, 69(5), 1923–1960.

Bernile, G. (2005). The information content of insiders’ forecasts : analysis of the gains from mergers in the 90s. November 2003.

Bernile, G., & Lyandres, E. (2019). The effects of horizontal merger operating efficiencies on rivals, customers, and suppliers.Review of Finance, 23(1), 117–160.

Bhoi, B. K. (2000). Mergers and Acquisitions: An Indian Experience, 21(1). Retrieved from

Bouwman, C. H. S., Fuller, K., & Nain, A. S. (2009). Market valuation and acquisition quality: Empirical evidence. Review of Financial Studies, 22(2), 633–679.

Bradley, M., Desai, A., & Kim, E. H. (1988). Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms. Journal of financial Economics, 21(1), 3-40.

Bruner, R., & Mullins, D. J. (1987). Merger returns and the form of financing.Harvard University.

Byrd, J. W., & Hickman, K. A. (1992). Do outside directors monitor managers?. Evidence from tender offer bids. Journal of Financial Economics, 32(2), 195–221.

Carline, N. F., Linn, S. C., & Yadav, P. K. (2005). The Influence of Managerial Ownership on the Real Gains in Corporate Mergers and Market Revaluation of Merger Partners: Empirical Evidence.SSRN Electronic Journal. 10.2139 ssrn.302606

Carnes, T. A., Black, E. L., & Jandik, T. (2001). The long-term success of cross-border mergers and acquisitions.Available at SSRN 270288.

Chari, A., Ouimet, P., & Tesar, L. L. (2004, March). Cross border mergers and acquisitions in emerging markets: The stock market valuation of corporate control. In EFA 2004 Maastricht Meetings Paper (No. 3479).

Chatterjee, S. (1986). Types of synergy and economic value: The impact of acquisitions on merging and rival firms. Strategic Management Journal, 7(2), 119–139.

Chira, I., García-Feijóo, L., & Madura, J. (2017). When do managers listen to the market? Impact of learning in acquisitions of private firms. Review of Quantitative Finance and Accounting, 49(2), 515–543.

Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance 20(2), 249–272.

Cudd, M., & Duggal, R. (2000). Industry distributional characteristics of financial ratios: An acquisition theory application. Financial Review, 35(1), 105–120.

Cullinan, G., Le Roux, J. M., & Weddigen, R. M. (2004). When to walk away from a deal. Harvard business review, 82(4), 96-105.

Cummins, J. D., & Weiss, M. A. (2004). Consolidation in the European Insurance Industry: Do Mergers and Acquisitions Create Value for Shareholders? Brookings-Wharton Papers on Financial Services, 2004(1), 217–258. https:// 10.1353/pfs.2004.0001

Dickerson, A. P., Gibson, H. D., & Tsakalotos, E. (1997). The impact of acquisitions on company performance: Evidence from a large panel of UK firms. Oxford Economic Papers, 49(3), 344–361.

Farjoun, M. (1994). Beyond industry boundaries: Human expertise, diversification and resource-related industry groups.Organization science, 5(2), 185-199.

Fich, E. M., Nguyen, T., & Officer, M. (2018). Large Wealth Creation in Mergers and Acquisitions.Financial Management, 47(4), 953–991.

Finlay, K., Magnusson, L., & Schaffer, M. (2014). WEAK IV: Stata module to perform weak-instrument-robust tests and confidence intervals for instrumental-variable (IV) estimation of linear, probit and to bit models.https:// c/ boc/bocode/s457684.html.

Ghosh, A. (2001). Does operating performance really improve following corporate acquisitions? Journal of Corporate Finance, 7(2), 151–178.

Ghosh, A., & Jain, P. C. (2000). Financial leverage changes associated with corporate mergers. Journal of Corporate Finance, 6(4), 377–402.

Godbole, P. (2013). Mergers, acquisitions and corporate restructuring.Vikas Publishing House Pvt Ltd.

Gujarati, D. (2004). Basic Econometrics. (4 th edtn) The McGraw− Hill Companies.

Hamza, T., Sghaier, A., & Thraya, M. F. (2016). How do Takeovers Create Synergies? Evidence from France.Studies in Business and Economics, 11(1), 54–72.

Harding, D., & Rovit, S. (2004). Mastering the merger: Four critical decisions that make or break the deal. Harvard Business Review Press.

Harford, J. (1999). Corporate cash reserves and acquisitions.Journal of Finance, 54(6), 1969–1997.

Harris, R. S., Franks, J., & Mayer, C. (1987). Means of Payment in Takeovers: Results for the UK and US (No. w2456). National Bureau of Economic Research.

Harris, R. S., Stewart, J. F., Guilkey, D. K., & Carleton, W. T. (1982). Characteristics of Acquired Firms: Fixed and Random Coefficients Probit Analyses. Southern Economic Journal, 49(1),164-184.

Harrison, J. S., Hitt, M. A., Hoskisson, R. E., & Ireland, R. D. (2000). Resource Complementarity in Business Combinations: Extending the Logic to Organizational. Journal of Management, 27(6), 679–690. https:// 10.1177/ 014920630102700605

Healy, P. M., Palepu, K. G., & Ruback, R. S. (1992). Does corporate performance improve after mergers?. Journal of financial economics, 31(2), 135-175.

Herman, E., & Lowenstein, L. (1988). The efficiency effects of hostile takeovers. Oxford University Press.

Hogarty, T. (1970). The profitability of corporate mergers.The Journal of Business.

Hollander, M., & Wolfe, D. A. (1973). Nonparametric Statistical methods. London: John Wiley and Sons.

Huyghebaert, N., & Luypaert, M. (2013). Sources of Synergy Realization in Mergers and Acquisitions: Empirical Evidence from Non-Serial Acquirers in Europe.International Journal of Financial Research, 4(2).

Ismail, A. (2011). Does the management’s forecast of merger synergies explain the premium paid, the method of payment, and merger motives? Financial Management, 40(4), 879–910.

Ismail, A., Dbouk, W., & Azouri, C. (2014). Does industry-adjusted corporate governance matter in mergers and acquisitions? Corporate Ownership and Control, 11(4 Continued 7), 642–656.

Jensen, M. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review.

Kaplan, S. N., & Weisbach, M. S. (1992). The Success of Acquisitions: Evidence from Divestitures. The Journal of Finance, 47(1), 107–138.

King, D. R., Dalton, D. R., Daily, C. M., & Covin, J. G. (2004). Meta-analyses of Post-acquisition Performance: Indications of Unidentified Moderators. Strategic Management Journal, 25(2), 187–200.

Kruse, T. A., Park, H. Y., & Suzuki, K. (2003).The Value Of Corporate Diversification: Evidence From Post-Merger Performance In Japan.

Krzanowski, W. J. (1998). An Introduction to Statistical Modelling. London: Arnold Publishers.

Kuipers, D., Miller, D., & Patel, A. (2002). Shareholder wealth effects in the cross-border market for corporate control. Working Paper.

Lahey, K., & Conn, R. (1990). Sensitivity Of Acquiring Firms’returns To Alternative Model Specifications And Disaggregation.Journal of Business Finance & Accounting. Retrieved from

Lang, L., Stulz, R., & Walkling, R. (1989). Managerial Performance, Tobin’s Q, And The Gains From Successful Tender Offers.Journal of Finance, 24, 137–154.

Lev, B., & Mandelker, G. (1972). The microeconomic consequences of corporate mergers.Journal of Business,85-104.https://

Limmack, R. J. (1991). Corporate Mergers and Shareholder Wealth Effects: 1977-1986. Accounting and Business Research, 21(83), 239–252.

Linn, S. C., & Switzer, J. A. (2001). Are cash acquisitions associated with better post combination operating performance than stock acquisitions?. Journal of Banking and Finance, 25(6), 1113–1138.

Loughran, T., & Vijh, A. M. (1997). Do long-term shareholders benefit from corporate acquisitions?. Journal of Finance, 52(5), 1765–1790.

Loukianova, A., Nikulin, E., & Vedernikov, A. (2017). Valuing synergies in strategic mergers and acquisitions using the real options approach. Investment Management and Financial Innovations, 14(1), 236–247.

M&A Statistics by Countries-Institute for Mergers, Acquisitions and Alliances (IMAA). (2019). Retrieved from

Meeks, G. (1977). Disappointing marriage: A study of the gains from merger.

Megginson, W. L., Morgan, A., & Nail, L. A. (2005). The Determinants of Positive Long-Term Performance in Strategic Mergers: Corporate Focus and Cash. SSRN Electronic Journal, 8501(205).

Mitchell, M. L., & Stafford, E. (2000). Managerial decisions and long-term stock price performance. Journal of Business, 73(3), 287–329.

Moeller, S., & Schlingemann, F. (2004). Are cross-border acquisitions different from domestic acquisitions? Evidence on stock and operating performance for US acquirers.Journal of Banking and Finance.https:// sol3/ papers.cfm? abstract_id=311543

Mohanty, P., & Mishra, S. (2011). Run-up in Stock Prices Prior to Merger & Acquisitions Announcements: Evidence from India. NSE Working Paper., January, 8–9.

Mooney, T., & Shim, H. (2015). Does Financial Synergy Provide a Rationale for Conglomerate Mergers? Asia-Pacific Journal of Financial Studies, 44(4), 537–586.

Morag, O. (2011). The Role of Speed of Integration in the Integration Effectiveness and Mergers & Acquisitions Success. Retrieved from Morag - tezisek.pdf?sequence=2

Mulherin, J. H., & Boone, A. L. (2000). Comparing Acquisitions and Divestitures. Journal of Corporate Finance.

Newey, W. K. (1987). Efficient estimation of limited dependent variable models with endogenous explanatory variables.Journal of Econometrics, 36(3), 231–250.

Parrino, J. D., & Harris, R. S. (1999). Takeovers, Management Replacement, and Post-acquisition Operating Performance: Some Evidence from the 1980s. Journal of Applied Corporate Finance, 11(4), 88–96.

Pastena, V., & Ruland, W. (1986). The Merger/Bankruptcy Alternative.The Accounting Review, 61(2), 288-301.

Pazarskis, M., Vogiatzogloy, M., Christodoulou, P., & Drogalas, G. (2006). Exploring the improvement of corporate performance after mergers-the case of Greece.Int. Res. J. Financ. Econ.Retrieved from

Peterson, D., & Peterson, P. (1991). The medium of exchange in mergers and acquisitions.Journal of Banking & Finance.

Philippatos, G., Choi, D., & Dowling, W. (1985). Effects of mergers on operational efficiency: A study of the S&L industry in transition. Northeast Journal of Business & Economics, 11, 1-14.

Powell, R. G., & Stark, A. W. (2005). Does operating performance increase post-takeover for UK takeovers? A comparison of performance measures and benchmarks.Journal of Corporate Finance, 11, 293–317.

Rajeshkumar, B., & Rajib, P. (2007). Characteristics of merging firms in India: An empirical examination. Vikalpa, 32(1), 27–44.

Ramaswamy, K., & Salatka, W. (1996). Impact of Mergers on Long Term Operating Performance of the Combined Firm.Working Paper.

Ramaswamy, K. P., & Waegelein, J. F. (2003). Firm financial performance following mergers.Review of Quantitative Finance and Accounting, 20(2), 115–126.

Rau, P. R., & Vermaelen, T. (1998). Glamour, Value and the Post-acquisition Performance of Acquiring Firms.Journal of Financial Economics, 49, 223–253.

Ravenscraft, D., & Scherer, F. (2011). Mergers, sell-offs, and economic efficiency.

Rivers, D., & Vuong,Q. H. (1988). Limited information estimators and exogeneity tests for simultaneous probit models.Journal of Econometrics 39(3), 347–366.

Rozen-Bakher, Z. (2018). Comparison of merger and acquisition (M&A) success in horizontal, vertical and conglomerate M&As: industry sector vs. services sector. Service Industries Journal, 38(7–8), 492–518.

Servaes, H. (1991). Tobin’s Q and the Gains from Takeovers. The Journal of Finance, 46(1), 409–419. https:// 10.1111/j.1540-6261.1991.tb03758.x

Sharma, D. S., & Ho, J. (2002). The impact of acquisitions on operating performance: Some Australian evidence. Journal of Business Finance and Accounting, 29(1–2), 155–200.

Sinha, D. N., Kaushik, D. K. ., & Chaudhary, T. (2010). Measuring Post Merger and Acquisition Performance: An Investigation of Select Financial Sector Organizations in India. International Journal of Economics and Finance, 2(4), 190–200. https://

Smith, R. L., & Kim, J. H. (1994). The Combined Effects of Free Cash Flow and Financial Slack on Bidder and Target Stock Returns.The Journal of Business, 67(2), 281.

Sudarsanam, S., Holl, P., & Salami, A. (1996). Shareholder wealth gains in mergers: Effect of synergy and ownership structure. Journal of Business Finance and Accounting, 23(5–6), 673–698.

Switzer, J. (1996). Evidence on real gains in corporate acquisitions.Journal of Economics and Business.

Tanriverdi, H., & Uysal, V. B. (2011). Cross-business information technology integration and acquirer value creation in corporate mergers and acquisitions. Information Systems Research, 22(4), 703–720.

Tanriverdi, H., & Venkatraman, N. (2005). Knowledge relatedness and the performance of multibusiness firms. In Strategic Management Journal, 26(2), 97–119.

Tremblay, A. (2017). Cultural Differences, Synergies and Mergers and Acquisitions.SSRN Electronic Journal.

Ucla: Statistical Consulting Group. (n.d.). Logistic Regression Analysis | Stata Annotated Output. Retrieved May 14, 2020, from

Varaiya, N. P., & Ferris, K. R. (1987). Overpaying in Corporate Takeovers: The Winner’s Curse.Financial Analysts Journal, 43(3), 64–70.

Yeh, T., & Hoshino, Y. (2002). Productivity and operating performance of Japanese merging firms: Keiretsu-related and independent mergers. Japan and the World Economy, 14(3), 347–366.

How to Cite
Kalsie, A., & Singh, N. (2020). Impact of Cash Deals and Related Industry Merger on Synergies Gains: A Case of Indian M&A. Indian Journal of Finance and Banking, 4(2), 99-117.
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper