Innovative Mode of Financing and Abnormal Returns to Shareholders of Indian Acquiring Firms

The present paper is an attempt to explore the influence of method of payment employed in financing the acquisitions. The aim of the present paper is to investigate the returns to acquirer shareholders in the case when a combination of cash and stock are used as mode of payment. The study also looks into whether the short-run performance of domestic and cross-border acquisitions is impacted differently when a combination of cash and stock are used as mode of payment. This paper examines the abnormal return to the shareholders of 14 acquiring companies in India during the period 2003-08. The results indicate acquisitions generate statistically significant positive abnormal returns of 5.29 percent during the 5 days event window (-2, 2) when a combination of cash and stock is used as a mode of acquisition. The major finding of disaggregated analysis is that, the acquirer experience higher cumulative average abnormal return (CAAR) in the case of acquisition of domestic target firm. The acquirer earns more than ten percent cumulative average abnormal return (CAAR) during the 5 days event window (-2, 2) when the target firm is domestic. The acquirer earn more than three per cent when during the 5 days event window (-2, 2) when the target firm is cross-border. However, the difference is not statistically significant. The acquisitions financed with a combination of cash and stock experience positive abnormal returns, could be a signal in support of the investment opportunity hypothesis and the risk sharing hypothesis