The Financial Determinants of Acquirer Returns

Abstract

Acquisitions are in a rising trend in Indian context. Acquirers go in for acquisitions due to various reasons and researchers have been studying acquirer motives in a large scale. But is their decision to acquire right? Are they in a position to acquirer and have they made the right decisioninselectingthetarget?Thesequestionshaven’tbeengivenattentionintheacquisition literature. Though the financial characteristics of acquirers and targets have been analysed in the literature, the usefulness of these financial characteristics to analyse the decision of acquirers has been undermined in the literature. The objective of this study is to analyse whether acquirers have made the right decision and if they are financially in a position to acquire. Taking into account the financial characteristics of acquirers such as profitability, liquidity, leverage, turnover, free cash flow and sales growth, this study analyses acquirers of their decision to acquire and examines what kind of an acquisition the acquirer is capable of going into and also analyses which of the financial characteristic of acquirers’ exhibit more influence on acquirer decisions. Using Binary Logistic Regression, the results of the study suggests that the acquirer decisions such as multiple/single acquirer, private/public acquirer and cross-border/domestic acquirer are most influenced by their financial characteristics than other decisions. The implications of this study are many and it is useful not only to acquirers, but to various parties involved in acquisition such as agents, targets, banks and theinvestors.