Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
Management International Review
Published in: Management International Review 2/2015

01-04-2015 | Research Article

What Drives Overseas Acquisitions by Indian Firms? A Behavioral Risk-Taking Perspective

Authors: Raveendra Chittoor, Preet S. Aulakh, Sougata Ray

Published in: Management International Review | Issue 2/2015

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

Overseas acquisitions as a mode of international expansion entail a high level of risk, especially for firms from emerging economies which face considerable liabilities of foreignness and newness in international markets. Building on the behavioral risk-taking perspective, we examine the role of ownership characteristics on the propensity of Indian firms to make foreign acquisitions. Empirical results from a sample of BSE 500 Indian firms during the 2002–2011 period show that after controlling for firm level resources and capabilities identified in the prior literature, international experience of firm CEOs, promoter shareholding, and ownership share of foreign institutional investors positively influence firms’ acquisition propensities in foreign markets. Furthermore, our results show that the effects of these determinants on overseas acquisitions are stronger for stand-alone independent firms than for those affiliated to business groups.
previous article International Diversification of Emerging Market Firms: The Role of Ownership Structure and Group Affiliation
next article Reverse Knowledge Transfer from Overseas Acquisitions: A Survey of Indian MNEs

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Management International Review

MANAGEMENT INTERNATIONAL REVIEW is a double-blind refereed journal that aims at the advancement and dissemination of research in the fields of International Management.

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

inform now
Footnotes
1
Some examples of high profile acquisitions include Hindalco, an Indian company owned by the Aditya Birla group, acquiring Novelis for US$ 6.0 billion to emerge as the world’s largest manufacturer of rolled aluminum products and the fifth-largest integrated aluminum maker in the world (The Times of India 2007), the acquisition by Tata Steel, of the Anglo-Dutch major Corus for about US$ 12 billion to jump from 56th to 5th largest steel company in the world in 2007 and the acquisition of the iconic Jaguar and Land Rover by Tata Motors for US$ 2.3 billion (The Financial Express 2008).
 
2
According to the Securities Exchange Board of India (SEBI), a promoter is defined as any person or persons who are directly or indirectly in control of the company.
 
3
This data collection, which took about 6 months, was carried out with the help of a research associate and cross-verified by one of the authors.
 
4
As the companies are not expected to make overseas acquisitions every year, we were interested in the determinants a company making a cross-border acquisition at least once during our study period. About 34 % of our sample firms made an overseas acquisition at least once during the study period.
 
5
According to the Securities Exchange Board of India (SEBI), a promoter is defined as any person or persons who are directly or indirectly in control of the company.
 
6
We preferred probit over logit models based on the curve fit with the data. Results were similar in both the cases.
 
Literature
Athreye, S., & Kapur, S. (2009). Introduction: the internationalization of Chinese and Indian firms: trends, motivations and strategy. Industrial and Corporate Change, 18(2), 209–221.CrossRef
Aulakh, P. S. (2007). Emerging multinationals from developing economies: motivations, paths and performance. Journal of International Management, 13(3), 235–240.CrossRef
Aulakh, P. S., Kotabe, M., & Teegen, H. (2000). Export strategies and performance of firms from emerging economies: evidence from Brazil, Chile, and Mexico. Academy of Management Journal, 43(3), 342–361.CrossRef
Barkema, H. G., Bell, J. H. J., & Pennings, J. M. (1996). Foreign entry, cultural barriers and learning. Strategic Management Journal, 17(2), 151–166.CrossRef
Bertrand, M., Mehta, P., & Mullainathan, S. (2002). Ferreting out tunneling: an application to Indian business groups. Quarterly Journal of Economics, 117(1), 121–148.CrossRef
Business Week (2006). Emerging giants. July 31, 40.
Capron, L., Dussauge, P., & Mitchell, W. (1998). Resource redeployment following horizontal acquisitions in Europe and North America, 1988–1992. Strategic Management Journal, 19(7), 631–661.CrossRef
Carpenter, M. A., Pollock, T. G., & Leary, M. M. (2003). Testing a model of reasoned risk-taking: governance, the experience of principals and agents, and global strategy in high-technology IPO firms. Strategic Management Journal, 24(9), 803–820.CrossRef
Coff, R. W. (1999). How buyers cope with uncertainty when acquiring firms in knowledge-intensive industries: caveat emptor. Organization Science, 10(2), 144–161.CrossRef
Coles, J. L., Daniel, N. D., & Naveen, L. (2006). Managerial incentives and risk-taking. Journal of Financial Economics, 79(2), 431–468.CrossRef
Craig, C. S., & Douglas, S. P. (1997). Managing the transnational value chain: strategies for firms from emerging markets. Journal of International Marketing, 5(3), 71–84.
Cui, L., & Jiang, F. (2012). State ownership effect on firms’ FDI ownership decisions under institutional pressure: a study of Chinese outward-investing firms. Journal of International Business Studies, 43(3), 264–284.CrossRef
Dawar, N., & Frost, T. (1999). Competing with giants: survival strategies for local companies in emerging markets. Harvard Business Review, 77(2), 119–129.
Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12), 1504–1513.CrossRef
Elango, B., & Pattnaik, C. (2007). Building capabilities for international operations through networks: a study of Indian firms. Journal of International Business Studies, 38(4), 541–555.CrossRef
Fombrun, C. (2005). Corporate reputations as economic assets. In M. Hitt et al. (Eds.), The Blackwell handbook of strategic management (pp. 289–312). Oxford: Blackwell.
Gaur, A. S., Kumar, V., & Singh, D. A. (2014). Institutions, resources and internationalization of emerging economy firms. Journal of World Business, 49(1), 12–20.CrossRef
Gavetti, G., Greve, H. R., Levinthal, D. A., & Ocasio, W. (2012). The behavioral theory of the firm: assessment and prospects. Academy of Management Annals, 6(1), 1–40.CrossRef
Ghemawat, P., & Khanna, T. (1998). The nature of diversified business groups: a research design and two case studies. Journal of Industrial Economics, 46(1), 35–61.CrossRef
Granovetter, M. (1995). Coase revisited: business groups in the modern economy. Industrial and Corporate Change, 4(1), 93–130.CrossRef
Gubbi, S., Aulakh, P. S., Ray, S., Sarkar, M. B., & Chittoor, R. (2010). Do international acquisitions of emerging economy firms create value? the case of Indian firms. Journal of International Business Studies, 41(3), 397–418.CrossRef
Guillen, M. F. (2002). Structural inertia, imitation, and foreign expansion: South Korean firms and business groups in China, 1987–1995. Academy of Management Journal, 45(3), 509–525.CrossRef
Guillen, M. F., & Garcia-Canal, E. (2009). The American model of the multinational firm and the “new” multinationals from emerging economies. Academy of Management Perspectives, 23(2), 23–35.CrossRef
Haleblian, J., Deevers, C. E., McNamara, G., Carpenter, M. A., & Davison, R. B. (2009). Taking stock of what we know about mergers and acquisitions: a review and research agenda. Journal of Management, 35(3), 469–502.CrossRef
Hambrick, D. C. (2007). Upper echelons theory: an update. Academy of Management Review, 32(2), 334–343.CrossRef
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: the organization as a reflection of its top managers. Academy of Management Review, 9(2), 193–206.
Harvey, D. (2005). A brief history of neoliberalism. Oxford: Oxford University Press.
Hitt, M. A., Bierman, L., Uhlenbruck, K., & Shimizu, K. (2006). The importance of resources in the internationalization of professional service firms: the good, the bad, and the ugly. Academy of Management Journal, 49(6), 1137–1157.CrossRef
Hoskisson, R. E., Cannella, A. A., Tihanyi, L., & Faraci, R. (2004). Asset restructuring and business group affiliation in French civil law countries. Strategic Management Journal, 25(6), 525–539.CrossRef
Hutzschenreuter, T., Pedersen, T., & Volberda, H. W. (2007). The role of path dependency and managerial intentionality: a perspective on international business research. Journal of International Business Studies, 38(7), 1055–1068.CrossRef
Jung, J. C., & Bansal, P. (2009). How firm performance affects internationalization. Management International Review, 49(6), 709–732.CrossRef
Keister, L. A. (1998). Engineering growth: business group structure and firm performance in China’s transition economy. American Journal of Sociology, 104(2), 404–440.CrossRef
Khanna, T., & Palepu, K. (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4), 41–51.
Khanna, T., & Palepu, K. (2000). The future of business groups in emerging markets: long-run evidence from Chile. Academy of Management Journal, 43(3), 268–285.CrossRef
Khanna, T., & Palepu, K. (2006). Emerging giants: building world-class companies in developing countries. Harvard Business Review, 84(10), 60–71.
Khanna, T., & Rivkin, J. W. (2001). Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22(1), 45–74.CrossRef
Lall, S. (1983). The new multinationals: the spread of third world enterprises. New York: Wiley.
Lamin, A. (2013). Business groups as information resource: an investigation of business group affiliation in the Indian software services industry. Academy of Management Journal, 56(5), 1487–1509.CrossRef
Langlois, R. N. (2010). Economic institutions and the boundaries of business groups. In A. M. Colpan et al. (Eds.), The Oxford handbook of business groups (pp. 629–649). Oxford: Oxford University Press.
Leff, N. H. (1978). Industrial organization and entrepreneurship in the developing countries: the economic groups. Economic Development and Cultural Change, 26(4), 661–675.CrossRef
Lu, J. W., & Beamish, P. W. (2001). The internationalization and performance of SMEs. Strategic Management Journal, 22(6–7), 565–586.CrossRef
Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: a springboard perspective. Journal of International Business Studies, 38(4), 481–498.CrossRef
Madhok, A., & Keyhani, M. (2012). Acquisitions as entrepreneurship: asymmetries, opportunities, and the internationalization of multinationals from emerging economies. Global Strategy Journal, 2(1), 26–40.CrossRef
Manning, W. G., Duan, N., & Rogers, W. H. (1987). Monte Carlo evidence on the choice between sample selection and two-part models. Journal of Econometrics, 35(1), 59–82.CrossRef
Mathews, J. A. (2006). Dragon multinationals: new players in 21st century globalization. Asia Pacific Journal of Management, 23(1), 5–27.CrossRef
McDougall, P. P., & Oviatt, B. M. (2000). International entrepreneurship: the intersection of two research paths. Academy of Management Journal, 43(5), 902–906.CrossRef
Morck, R., Yeung, B., & Zhao, M. (2008). Perspectives on China’s outward foreign direct investment. Journal of International Business Studies, 39(3), 337–350.CrossRef
Nayyar, D. (2008). The internationalization of firms from India: investment, mergers and acquisitions. Oxford Development Studies, 36(1), 111–131.CrossRef
Norton, E. C., Wang, H., & Ai, C. (2004). Computing interaction effects and standard errors in logit and probit models. Strata Journal, 4(2), 154–167.
Pablo, A. L., Sitkin, S. B., & Jemison, D. B. (1996). Acquisition decision-making processes: the central role of risk. Journal of Management, 22(5), 723–746.CrossRef
Ramamurti, R. (2004). Developing countries and MNEs: extending and enriching the research agenda. Journal of International Business Studies, 35(4), 277–283.CrossRef
Ramamurti, R. (2013). Cross-border M&A and competitive advantage of Indian EMNEs. In P. J. Williamson et al. (Eds.), The competitive advantage of emerging market multinationals (pp. 239–259). New York: Cambridge University Press.CrossRef
Ravenscraft, D. J., & Scherer, F. M. (1987). Life after takeover. Journal of Industrial Economics, 36(2), 147–156.CrossRef
Ray, S., & Gubbi, S. R. (2009). International acquisitions by Indian firms: implications for research on emerging multinationals. Indian Journal of Industrial Relations, 45(1), 11–26.
Reuer, J., Shenhar, O., & Ragozzino, R. (2004). Mitigating risk in international mergers and acquisitions: the role of contingent payouts. Journal of International Business Studies, 35(1), 19–32.CrossRef
Sanders, W. G., & Hambrick, D. C. (2007). Swinging for the fences: the effects of CEO stock options on company risk taking and performance. Academy of Management Journal, 50(5), 1055–1078.CrossRef
Simon, M., Houghton, S. M., & Aquino, K. (2000). Cognitive biases, risk perception, and venture formation: how individuals decided to start companies. Journal of Business Venturing, 15(2), 113–134.CrossRef
Sitkin, S. B., & Pablo, A. L. (1992). Reconceptualizing the determinants of risk behavior. Academy of Management Review, 17(1), 9–38.
Sitkin, S. B., & Weingart, L. E. (1995). Determinants of risky decision-making behavior: a test of the mediating role of risk perceptions and propensity. Academy of Management Journal, 38(6), 1573–1592.CrossRef
The Economist (2008). Emerging-market multinationals. January 10.
The Economist (2012). Indian takeovers abroad. Running with the bulls. March 3rd.
The Financial Express (2008). Tata Motors completes JLR acquisition. June 2.
Uhlenbruck, K., Meyer, K. E., & Hitt, M. A. (2003). Organizational transformation in transition economies: resource-based and organizational learning perspectives. Journal of Management Studies, 40(2), 257–282.CrossRef
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48(4), 817–838.CrossRef
Wiseman, R. M., Gomez-Mejia, L. R., & Fugate, M. (2000). Rethinking compensation risk. In S. L. Rynes & B. Gerhart (Eds.), Compensation in organizations (pp. 311–347). San Francisco: Josey-Bass.
Woodcock, C. P., Beamish, P. W., & Makino, S. (1994). Ownership-based entry mode strategies and international performance. Journal of International Business Studies, 24(2), 253–273.CrossRef
Wright, P., Ferris, S., Sarin, A., & Awasthi, V. (1996). Impact of corporate insider, blockholder, and institutional equity ownership on firm risk taking. Academy of Management Journal, 39(2), 441–463.CrossRef
Yin, S. (2013). The acquisitiveness of youth: CEO age and acquisition behavior. Journal of Financial Economics, 108(1), 250–273.CrossRef
Yiu, D. W., Lu, Y., Bruton, G. D., & Hoskisson, R. E. (2007). Business groups: an integrated model to focus future research. Journal of Management Studies, 44(8), 1551–1579.CrossRef
Zaheer, S. (1995). Overcoming the liability of foreignness. Academy of Management Journal, 38(2), 341–363.CrossRef
Metadata
Title
What Drives Overseas Acquisitions by Indian Firms? A Behavioral Risk-Taking Perspective
Authors
Raveendra Chittoor
Preet S. Aulakh
Sougata Ray
Publication date
01-04-2015
Publisher
Springer Berlin Heidelberg
Published in
Management International Review / Issue 2/2015
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI
https://doi.org/10.1007/s11575-015-0238-7

Other articles of this Issue 2/2015

Management International Review 2/2015 Go to the issue

Research Article

A Case for Contextual Intelligence

Guest Editors' Introduction

Leveraging India: Global Interconnectedness and Locational Competitive Advantage

Research Article

The Viability of Sustained Growth by India’s MNEs: India’s Dual Economy and Constraints from Location Assets

Research Article

Reverse Knowledge Transfer from Overseas Acquisitions: A Survey of Indian MNEs

Research Article

International Diversification of Emerging Market Firms: The Role of Ownership Structure and Group Affiliation

Research Article

Choose Your Friends Carefully: Home-Country Ties and New Venture Internationalization

Premium Partner

    Image Credits