Predicting takeovers: Indian evidence

Abstract

A sizable literature in financial economics has examined the characteristics of firms that have been acquired / taken over or merged. Knowledge of the factors that influence the likelihood of an acquisition / takeover is an economically important question as it points to the motives for takeovers. Hence, it will help policymakers design regulations that will prevent undesirable takeovers. Further, shareholders of firms are interested in understanding this likelihood as their wealth is directly impacted if their firm is taken over. Investment banks assign considerable importance to this likelihood as it enables them to plan their marketing activities vis-à-vis prospective clients. In this study, we will apply extant econometric methods such as log it model to a comprehensive sample of Indian Mergers and Acquisitions specifically in the Indian Software Industry to estimate the significance of the financial parameters of the acquired firm. By doing so, we will document the factors that are relevant to the probability of acquisition in India in the Software Industry and also the classification accuracy of our model. We will focus on Indian Software firms which are the targets, acquirer being either Indian or Foreign. Our approach consisted of the following steps: a. Review of Prior Literature b. Data collection from the SDC and Prowess database c. Estimation of Models d. Tabulation of Results e. Writing Report Through this project, we have bettered our understanding of a: Motives for takeovers. b: Indian takeover regulations c: Binary choice models.