The Effects of the Political-Legal Environment and Corporate Characteristics on Mergers and Acquisitions in India, 1991-2005

Abstract

Emerging markets such as India have witnessed waves of domestic and cross-border mergers and acquisitions. This historical analysis, which consists of two parts, tests central tenets of resource dependence theory. The first part entails an analysis of the transition in public policy governing corporations between 1991 and 2005. The second part tests hypotheses derived from resource dependence theory relating to a firm’s decision to acquire. The analysis explores the factors that explain why firms engage in mergers and acquisitions by examining three specific policy periods (i.e., 1991-1996, 1997-2001 and 2002-2005). The findings from the historical analysis suggest that firms did not merely react to the conditions (i.e., constraints on capital) in their environment by undertaking merger and acquisition activity, but attempted to alter them as resource dependence theory suggests. Findings from the event history logit model also support resource dependence theory. Overall, the study shows that merger and acquisition activity increased during a period of intense deregulation (i.e., 1991-2005) brought about by the adoption of neo-liberal reforms, change to the multilayer subsidiary form, deregulation of the banking and financial sectors’ and reforms in foreign direct investment and equity markets. During this period of uncertainty, firms controlling more resources in terms of earnings, efficiency and number of subsidiaries were more likely to undertake acquisition activity as they have leverage in organization-environment relationships. The effect of number of subsidiaries on acquisition activity was the most consistent across policy periods’. This dissertation is organized in the following manner: Following the introductory chapter, Chapter II is a historical examination of the three policy periods and includes an analysis of the effect of the political-legal environment on mergers and acquisitions between 1991 and 2005. Chapter III reviews the propositions of resource dependence theory that pertain to organizational change and presents research hypotheses related to mergers and acquisitions. Chapter IV describes the data, measurement and methodology employed in the quantitative analysis. Chapter V presents the findings from the quantitative analysis and discusses the results. The concluding chapter (Chapter VI) includes a presentation of the theoretical findings and discussion of the limitations and scope of the study.