Analysis of Cross Border Acquisitions by Indian Information Technology Sector Firms (Part-1)

(ProQuest: . denotes formulae omitted.)INTRODUCTIONIndia happened to be among the top ten Outward Foreign Direct Investment sources in the period 2000-2007 and by 2008 India had become almost net outward Foreign Direct Investor country Chandrawanshi and Banerji (2014); Indian Outward Foreign Direct Investment has been a natural extension of their core competence developed over the decades. These core competencies were developed with increment growth in efficiencies and also a result of globalisation because of which Indian firms were exposed to global competition. Indian MNCs post liberalisation (1991) changed the course of business and turned to strategy of inorganic growth along with organic growth strategy, the former encouraged them to go outside geographical boundaries to seek new markets, technical know-how and strategic assets. A major change of shift of OFDI from manufacturing to services was observed during 2000, and Information Technology & Information Technology Enabled Services sector emerged as a sector with largest OFDI through Mergers and Acquisitions (MA whether Indian firms have been successful in achieving their targets though this route. To look into the issue, in this study, previous studies which were done globally and at domestic level were studied and then problems of existing methodologies were addressed. This study is however limited to financial aspect of M&A activity. Various studies have given varied outcomes and results. Some studies found, that acquisitions were not beneficial for them, and in some it was observed have a positive impact on profitability.LITERATURE REVIEWNumerous studies have been conducted to study the impact of M&As on performance of organizations which have undergone mergers and/or acquisitions, either in domestic or cross border. Extant studies have used following methodologies in more or less similar manner to study the impact of acquisition which are as follows:1) Event Study Methodology2) Accounting returns analysis3) Economic Value Added Analysis4) Combined studies of Event study and Accounting return analysisEvent Study MethodologyIn this methodology, studies were done to find the abnormal returns gained by shareholders as a result of acquisition announcement news and also in long run on shareholder's wealth. Studies were also done regarding the profitability of the acquired firms.Accounting Return AnalysisThe studies conducted using this methodology looked in the post acquisition financial performance of acquiring firms through evaluating financial and profitability measures viz. Operating cash flow, Return on Assets, Returns on Equity, Returns on Net Worth, Return on Capital Employed etc. If is there a positive change in these measures of profitability in post acquisition period. Another approach which is followed is to compare the pre and post acquisition financial ratios to have a view, if there is a significant change in above said measures as a result of M&A activity.Economic Value Added AnalysisEVA is an indicator developed by the Stern Stewart & CO., a consulting firm Kan & Ohno (2012). In acquiring firm as a result of M&A activity has been proposed by some researchers, EVA is the balance of capital earnings of an enterprise or its business segment in a certain period minus investment cost Xue S and Yang D (2006). …