An Empirical Analysis of Cross Border Acquisitions by Indian Pharmaceuticals Firms

Abstract

Acquisitions across boundaries can enable firms to expand their operations into new and potential geographies, enlarge product portfolios, leverage competencies, take benefit of distribution networks and competent workforce, local knowledge and the brand reputation of an already established brand. Indian pharmaceutical firms are one of the best representations of emerging market multinationals. These firms have been actively engaging in cross border acquisitions (CBAs) to get technology-based assets which assists them to advance their competitiveness and capabilities, these acquisitions may offer valuable assistance to firms by providing them skills and important assets that may not be present in the domestic market. After an extensive literature review, it was observed that an in-depth research study regarding CBAs by Indian pharmaceutical firms has not been undertaken. The study has used well-known research techniques such as event study methodology, panel data regression and Wilcoxon Sign rank test. The results suggest that the investors are able to earn significant abnormal returns surrounding cross border acquisition announcements by Indian pharmaceutical firms. The data reveals that most of the acquisitions have been reported in advanced markets like U.S, U.K and Germany, as advanced markets are centers of advanced technologies and skills. The results of the study indicate mixed impact of CBAs on financial performance of Indian pharmaceutical firms. The findings reveal that profitability ratios of acquiring firms declined in post CBAs. The findings also revealed a significant decline in the liquidity of acquiring firms in post acquisition period. This may be because additional asset create additional capacities. The results of the analysis reported no significant changes in the solvency ratio in post-acquisition period. Based on the findings of the study, several recommendations have been put forth for investor, managers and plicy makers. newline