The Effect of Cross-Border Mergers and Acquisitions Performance on Shareholder Wealth: The Role of Advisory Services

Abstract

This study empirically examines the wealth effects of mergers and acquisitions (M&As) in the Indian capital market, focusing on cross-border M&As. This study considers a sample of 58 cross-border and 34 domestic M&As, comprising more than 50 percent of the shares acquired by the acquiring companies from 2004 to 2019. We analyzed the wealth effects of cross-border M&As by applying the event study methodology. The abnormal returns of domestic and cross-border mergers and acquisitions for various window periods were compared using an independent t-test. The wealth effects of the acquiring firm have been further investigated with the inclusion of top advisor services and without the inclusion of advisor services in mergers and acquisitions transactions. This result suggests that cross-border M&As do not create a significant positive return for shareholders. There is no considerable wealth gain for shareholders of acquiring companies in domestic and cross-border mergers and acquisitions. We also find that including top advisor services in the M&A process does not influence the acquiring firm’s wealth. The price-to-book value ratio of the acquiring firm is a significant determinant of its returns.

1. Introduction

The success of cross-border mergers and acquisitions (M&As) is significantly influenced by financial performance and M&A activity (Fieberg et al., 2021). Businesses from emerging markets (EMFs) are increasingly participating in cross-border M&As to speed up their international market expansion (Clampit et al., 2023). Cross-border investments by Indian companies over the last decade have also witnessed an increasing trend due to several strategic factors.

While exploitation-oriented acquisitions seek to bolster existing technologies and skills, exploration-oriented acquisitions seek to uncover and build new information, technology, and capabilities. Certain purchases have both an exploration and an exploitation focus. Businesses can use different forms of acquisition to introduce various types of information. Businesses that prioritize learning new things and starting over often employ acquisitions that are focused on discovery. Acquisitions with an eye toward exploitation are preferred by businesses that concentrate on improving their present expertise and strengthening the learning process (Zhang et al., 2020).

Although M&As have received extensive consideration in the literature, few studies have examined the wealth effects of cross-border M&As in the Indian setting. Further, few studies have reported the positive and significant impact of M&As on the shareholder wealth of acquiring companies, while others have reported negative and significant returns for the shareholders of acquiring companies. The lack of clarity regarding the wealth effect of M&A’s announcements on stock returns using market-based measures requires further research. A plethora of studies have used market-based measures, such as Travlos (1987), Bradley et al. (1988), Kaplan and Weisbach (1992), Smith and Kim (1994), Yuce and Ng (2005), and Sudarsanam and Mahate (2003), in developed economies such as the US, Canada, and the UK Kingdom. However, studies conducted in India covering market-based measures, such as Mishra and Goel (2005), Kashiramka and Rao (2014), and Rani et al. (2013), have provided diverse results in terms of value creation to the shareholders of acquiring companies.

More recently, Chaudhry et al. (2021) studied firm mergers in the US context and concluded that a large number of central M&A’s advisors lead to higher acquirer announcement returns. Similarly, McCarthy and Noseleit (2021) examined the influence of multiple advisors and the moderating impact of advisor reputation/quality and deal timing in US M&As. They find support for the value-creating role of single advisors. Furthermore, they reported that the moderating effect of advisor reputation and deal timing is dependent on firms’ advisor strength. Feng et al. (2023) examined the transmission role of M&A’s advisors during takeovers amidst economic distress. They found a significant and positive association between the M&A’s advisors and industry takeover behaviors.

Overall, the literature supports the positive impact of M&A’s advisors in developed countries, especially in the U.S. context. However, empirical studies on emerging economies are limited. This study attempts to evaluate the performance of a merger in the Indian context by comparing wealth gains in domestic and cross-border mergers and acquisitions. In addition, the role of the inclusion of advisor services that influence the wealth creation process of M&A’s has been investigated. Accordingly, this study is divided into five sections: Section 1 describes the introduction, Section 2 discusses the related literature, Section 3 describes the sample and methodological framework, Section 4 presents the empirical results, and Section 5 presents the conclusion and implications.

2. Literature Review and Hypothesis Development

Many studies have been conducted from the perspective of domestic and cross-border M&A. Some researchers argue that cross-border M&As yield standard returns, while others argue that cross-border M&As deliver substantial wealth gains for the acquiring firm to the acquiring firm’s shareholders. We reviewed some studies related to domestic and cross-border M&As abroad. The results are presented in

Table 1. Overview of studies on domestic and cross-border mergers and acquisitions abroad.

Authors	Sample Periods	Sample Size	Market	Methodology	Findings
Eckbo and Thorburn (2000)	1964–1982	1846	Canada	Event Study	Domestic acquirers earn significantly higher wealth gains than cross-border acquirers.
Goergen and Renneboog (2004)	1993–2000	187	Europe	Event Study Methods and OLS Regression	Acquirers experience a positive abnormal return in a cross-border transaction; however, cross-border merger acquirers earn more as compared to domestic mergers.
Campa and Hernando (2004)	1998–2000	262	Europe	Event Study and OLS Regression	Acquirers’ return on average is zero, and there is a significant positive return to the target shareholder of cross-border mergers, with acquirers earning less as compared to domestic mergers.
Aw and Chatterjee (2004)	1991–1996	79	UK	Event Study	Negative return to both the acquirer and target shareholder. The UK acquirer is superior in domestic acquisitions as compared to foreign acquisitions.
Conn et al. (2005)	1984–1998	4000	UK	Event Study, BHAR, and OLS Regression	Negative return to the acquirer firms in a cross-border transaction. Cross-border acquisitions earn less wealth gains than domestic acquisitions.
Aybar and Ficici (2009)	1991–2004	433	58 EM	Event Study and OLS Regression	Negative abnormal return for the acquirer.
Uddin and Boateng (2009)	1994–2003	373	UK	Event Study	The acquiring firms find a significantly negative abnormal return.
Martynova and Renneboog (2011)	1993–2001	2419	Europe and the UK	Event Study and OLS Regression	There are substantial share price increases at the announcement, most of which are captured by the target firm’s shareholders.
Danbolt and Maciver (2012)	1980–2008	251	UK	Event Study and OLS Regression	Both the acquirer and the target firms gain more as compared to domestic acquisitions.
Inoue and Ings (2012)	2000–2010	198	Japan	Event Study	The shareholder of cross-border deals receives a more positive return as compared to a domestic one.
Dutta et al. (2013)	1993–2002	1300	Canada	Event Study, BHAR, and OLS Regression	Cross-border deals generate more return than domestic deals; however, stock finances show the positive and significant impact.
Gregory and O’Donohoe (2014)	1990–2005	119	UK	Event Study and OLS Regression	Cross-border performance is better as compared to domestic performance; however, the acquiring firm incurs losses in cross-border mergers.
Sharma and Raat (2014)	2000–2011	125	DM	Event Study and OLS Regression	The developed market acquiring firm has a significant positive cumulative abnormal return in the three-day event window.
Tao et al. (2017)	2000–2012	165	China	Event Study	The stock market responded favorably and strongly, on average, according to Chinese listed corporations.
Liu et al. (2019)	2007–2012	86	China	DID Methods	The findings showed that domestic M&As outperformed cross-border M&As in terms of improving the firms’ financial performances.
Zhang et al. (2020)	2000–2015	477	China	Event Study and Regression	Our analysis of cross-border M&A’s data reveals that acquisitions focused on exploration perform worse on the stock market than those focused on exploitation.
Yuan et al. (2023)	2010–2019	1616	China	PSM_DID Methods	The outcome proved that domestic M&As can generate a higher market value than international M&As.

Note: EM: Emerging Market; DM: Domestic market.

.

More recently, Chen et al. (2022) studied the relationship between cross-border M&As on CSR performance and spending among Chinese firms. Their findings indicate a significant increase in CSR activities and spending post-acquisition. Another study in the Chinese context by Cheng et al. (2023) examined the necessity of aligning commercial and social reasonings to address external institutional pressures in cross-border acquisitions. The authors found that structured interaction is important for the effective combination of different institutional logics in cross-border M&As.

In the Indian context, Chandrika et al. (2022) studied the impact of the home country’s emissions on cross-border acquisition decisions in India. They found that firms from less carbon-emitting countries frequently engage in CBAs with large volumes in India, while high-emitting country firms prefer full equity control.

Boubakri et al. (2023) explored the dynamics of risk-taking in M&As, focusing on whether high-risk-taking firms acquire low-risk-taking firms by paying higher premiums and found evidence of a higher perceived valuation effect when high-risk-taking firms acquire lower-risk-taking targets. Recently, Basu et al. (2023) provided a positive linear association between effective democracy and inflows of foreign direct investment (FDI) and cross-border M&As, suggesting that democratic institutions play a crucial role in attracting foreign investment. Bao and Li (2023) examined the impact of cross-border M&As on board gender diversity among Chinese public firms and found that acquirers adjust the proportion of female directors to better align with the target country’s gender-equal culture. Aleksanyan et al. (2020) investigated the relationship between state visits and cross-border M&A’s activity and reported a positive relationship between state visits and M&A’s activity.

Chaudhry et al. (2021) studied firm mergers in the US context and concluded that a large number of central M&A’s advisors lead to higher acquirer announcement returns. Similarly, McCarthy and Noseleit (2021) examined the influence of multiple advisors and the moderating impact of advisor reputation/quality and deal timing on large US acquisitions and evaluated the impact of advisors using an event study and abnormal returns. They also found support for the value-creating role of single advisors, but found little support for the use of multiple advisors.

Overall, the literature on cross-border M&As has focused on several important dimensions including CSR, external institutional factors, environment pollution, governance, corruption and country-level democracy, cultural factors, and bilateral relations as important factors influencing M&As (Chen et al., 2022; Cheng et al., 2023; Chandrika et al., 2022). These different dimensions highlight the complicated nature of cross-border M&As and their broader implications for firms, stakeholders, and host countries. However, recent studies in the Indian context are limited. In the same context, we examine the wealth effects of cross-border mergers and acquisitions (M&As). Specifically, we compared the wealth effects of domestic and cross-border M&A’s transactions.

Additionally, we analyze the influence of advisory services on wealth creation in M&As. Finally, we investigate the key determinants of wealth creation in both domestic and cross-border M&As, identifying the factors that influence transaction performance, including deal type, advisor involvement, method of payment, acquirer size (measured by market capitalization), and price-to-book value ratio.

More specifically, we test the following hypothesis:

H₁. 

Cross-border M&As generate higher shareholder returns (wealth effects) than domestic M&As.

H₂. 

Financial advisors’ involvement in M&As has a positive impact on shareholder wealth.

H₃. 

The wealth effects of M&As are influenced by factors such as deal type (domestic vs. cross-border), advisory services, payment method, acquirer size, and price-to-book value ratio.

3. Data and Methodology

3.1. Sample Selection

The sample includes 92 deals to analyze the effects of domestic and cross-border M&As. We used the venture intelligence database of mergers and acquisitions to collect data on domestic and cross-border acquisitions and acquisitions during the period from 2004 to 2019. The period after 2019 was excluded from the study to eliminate the effect of COVID-19 on the sample companies’ returns. The sample is restricted only to M&As where the acquiring companies acquire more than 50 percent control of the target company. These companies have been deleted when the mode of financing and adjusted closing price data are not available and are required for this study. The final sample consists of 92 M&A’s deals, comprising 34 domestic M&As and 58 cross-border M&As.

3.2. Data Sources

Data relating to domestic and cross-border M&A’s in the sample period were obtained from Venture Intelligence database. Adjusted closing price data of the acquiring companies and the BSE Sensex index adjusted closing price were used as a proxy for market return and were collected from Prowess, a database developed by the Center for Monitoring Indian Economy (CMIE Prowess). Stock exchange announcement dates taken as event dates were collected from the CMIE Prowess database.

3.3. Empirical Methods

We employ the event study methodology to gauge the wealth implications for acquiring firms engaged in both domestic and cross-border M&As. Our approach uses a market model to compute the abnormal returns of these acquiring companies. The estimation of the model parameters for each acquiring firm was conducted over a specified estimation window ranging from 121 to 20 trading days before the event date. This methodology allowed us to examine the wealth effects across different time frames, including the announcement, pre-announcement, and post-announcement periods. To comprehensively analyze the market performance of mergers, we employed the event study methodology with a market model. By examining the short-term impact of mergers on market performance during the pre-announcement, post-announcement, and around-the-announcement periods, we sought to derive valuable insights. To assess the impact of these events, we focus on abnormal returns as a pivotal measure, as it facilitates the isolation of event-specific effects from broader market fluctuations. Specifically, the cumulative abnormal return (CAR) of the acquiring companies is determined through a series of steps. It is important to note that CAR pertains to the difference between the realized and expected returns, assuming that the event had not occurred. This CAR calculation was pivotal in elucidating the financial implications and market reactions associated with domestic and cross-border M&As. In this study, event dates were carefully selected to ensure the absence of other significant events, thereby maintaining the independence of each event. Consequently, the likelihood of external events influencing the observed outcomes was minimized.

This research approach allows us to provide a comprehensive assessment of how these mergers affect the wealth of acquiring companies across various time frames and provides a valuable understanding of short-term market dynamics and their impact on these firms. The following steps were taken to calculate the cumulative abnormal return of the acquiring companies:

$$r_{i,t}=In\left(P_{i,t}\right)-In\left(P_{i,t-1}\right)$$

(1)

$${AR}_{i,t}{=R}_{i,t}-E{(R}_{i,t})$$

(2)

$${CAR}_{i,T_{1,},T_2}={\sum }_{t=T_1}^{T_{2,}}{AR}_{i,t}$$

(3)

$$CAAR\left(T_{1,}{T}_2\right)={\displaystyle \frac{1}{N}}{\sum }_{I=1}^{N}CARi(T_1,T_2)$$

(4)

In Equation (1), we calculate the log returns of the stocks selected for analysis. In Equation (2), we calculate abnormal returns by comparing the actual and expected returns using the market model. In Equation (3), we calculate the CAR over time to measure the total impact of the M&A’s over the event window. In Equation (4), we calculate Cumulative Average Abnormal Return (CAAR), which is the average across firms, to assess the overall market response.

We use an independent t-test to compare the wealth gains of domestic and cross-border mergers and acquisitions. We conduct a mean difference t-test between the CAARs of domestic and cross-border transactions for the event window. Furthermore, we divide the sample into two sets to analyze the effects of advisor services.

4. Empirical Results

In this section, we analyze the short-term wealth effects of domestic and cross-border M&As using the event study methodology. First, the abnormal returns of the acquiring companies in the cross-border M&As have been listed for different window periods. This comparative analysis of domestic and cross-border M&As provides insight into the integration of the Indian market into the world capital market. Thus, this study analyzes the abnormal gains in the effect of measuring the difference in domestic and cross-border M&As.

We analyze the short-term wealth effects for cross-border M&As for the different window periods for pre-announcement periods, post-announcement periods, and around-the-announcement periods. We analyze the abnormal returns for the different observed periods. This analysis indicates the effects of wealth on acquiring firms through cross-border mergers and acquisitions.

Table 2. Cumulative average abnormal return (CAAR) for cross-border mergers and acquisitions (N = 58).

Event Window	Positive:Negative	CAAR	t-Statistics	Prob.
[−20, 20]	29:29	0.018	0.586	0.557
[−10, 10]	26:32	−0.006	−0.318	0.750
[−5, 5]	22:36	−0.016	−1.213	0.224
[−1, 1]	17:41	−0.008	−1.260	0.207
[0]	22:36	−0.003	−1.089	0.276
[−1, 0]	19:39	−0.011	−1.846	0.064 **
[−5, −1]	23:35	−0.014	−1.416	0.156
[−10, −1]	24:34	−0.005	−0.417	0.676
[−20, −1]	30:28	0.005	0.304	0.761
[1, 5]	33:25	0.001	0.184	0.853
[1, 10]	36:22	0.002	0.240	0.809
[1, 20]	32:26	0.016	0.895	0.370

Note: ** denotes statistical significance at the 0.05 and 0.10 levels, respectively.

presents the CAAR results of acquiring companies in cross-border acquisitions during various window periods. The CAAR was calculated for the acquiring companies in different window periods using the event study methodology. The CAAR for the [−10, 10] window period is −0.62% (t-stat = −0.318) which is negative and statistically insignificant. The CAAR for the [−5, 5] window period is −1.60% (t-stat = −1.213), which is negative and statistically insignificant. The CAAR for the [−1, 1] window period is −0.86% (t-stat = −1.260), which is also negative and insignificant. The CAAR for the [−5, −1] window period is −1.40% (t-stat = −1.416), which is negative and insignificant, and that for the [−10, −1] window period is −0.51% (t-stat = −0.417), which is negative and insignificant. The CAAR for the [1, 5] window period is 0.17% (t-stat = 0.184), which is positive and insignificant, and that for the [1, 20] window period is 1.63% (t-stat = 0.8951), which is positive and insignificant. Thus, the CAAR for the post-announcement period is positive and insignificant in most window periods for cross-border M&As.

Three trends were identified in the above results. First, abnormal returns for the pre-announcement window period hurt shareholders. Second, the effect of abnormal returns on announcement days was negative. Third, the post-announcement abnormal return is positive but statistically insignificant to shareholders in most of the window periods considered in this study. We do not find any significant pre- or post-announcement effects for the selected window periods considered in this study.

Thus, we can conclude that the wealth effects in cross-border M&As do not create a statistically significant value for the acquiring firm’s shareholders. The M&As carried out by Indian companies in other countries did not create significant value for the acquiring firm’s shareholders. The findings of these studies suggest that no net benefits have been generated for the shareholders of companies that went for cross-border M&A. The Indian capital market is highly integrated into the global financial market.

The CAAR for the window period [−20, 20] is shown in Figure 1. The figure shows that there is a significant decline in the CAAR leading up to the event, indicating potential investor skepticism before the M&A’s announcement. However, after the initial decline, the CAAR recovers and rises to its highest point post the event date. The results provide evidence that market participants react positively once the particulars of the M&A’s deal become clear. The volatility seen in the CAAR after the announcement is made public suggests that it can be linked to investor reactions, due to information dissemination or external market factors. Finally, the CAAR shows a recovery, due to a longer-term positive market assessment of the cross-border M&A’s potential benefits.

The results of the present study are similar to those of other studies conducted on cross-border M&As, such as Campa and Hernando (2004) and Lowinski et al. (2004).

4.1. Wealth Effects of Domestic and Cross-Border Mergers and Acquisitions

In the next section, we perform a comparative analysis of domestic and cross-border M&As for different window periods. We divide the total sample into domestic and cross-border M&As. Companies that acquire a target belonging within the geographical boundaries of the same country are considered domestic mergers and acquisitions, otherwise the target is outside the geographical boundaries of the country and is termed a cross-border merger and acquisition. We calculated the CAAR for 58 cross-border M&As and 34 domestic M&As. We calculated the CAAR for domestic and cross-border M&As for different window periods. We compared the M&A’s effects of domestic and cross-border M&As. The significant difference between the CAAR of domestic and cross-border M&As was analyzed using a t-test.

Table 3. Cumulative average abnormal return (CAAR) of acquirer for domestic and cross-border mergers and acquisitions.

Event Window	Domestic Mergers and Acquisitions			Cross-Border Mergers and Acquisitions			Effect of Cross-Border Mergers and Acquisitions
	CAAR	t-Statistics	Prob.	CAAR	t-Statistics	Prob.	${\mathit{C}\mathit{A}\mathit{A}\mathit{R}}_{\mathit{C}\mathit{B}}-{\mathit{C}\mathit{A}\mathit{A}\mathit{R}}_{\mathit{D}}$	t-Statistics	Prob.
[−20, 20]	−0.017	−0.433	0.665	0.018	0.586	0.558	0.035	−0.699	0.487
[−10, 10]	−0.002	−0.099	0.921	−0.006	−0.318	0.750	−0.004	0.121	0.904
[−5, 5]	−0.011	−0.661	0.508	−0.016	−1.214	0.225	−0.006	0.260	0.795
[−1, 1]	0.010	0.988	0.323	−0.009	−1.261	0.208	−0.019	1.578	0.118
[0]	0.002	0.448	0.654	−0.004	−1.089	0.276	−0.006	1.017	0.312
[−1, 0]	0.009	1.389	0.165	−0.012	−1.847	0.064 **	−0.021	2.160	0.334 *
[−5, −1]	−0.001	−0.113	0.910	−0.014	−1.417	0.157	−0.013	0.906	0.368
[−10, −1]	−0.009	−0.544	0.587	−0.005	−0.417	0.676	0.004	−0.200	0.842
[−20, −1]	−0.001	−0.044	0.965	0.005	0.304	0.761	0.006	−0.223	0.824
[1, 5]	−0.012	−1.043	0.297	0.002	0.184	0.854	0.013	−0.909	0.366
[1, 10]	0.005	0.302	0.763	0.003	0.241	0.810	−0.002	0.123	0.902
[1, 20]	−0.018	−0.634	0.526	0.016	0.895	0.371	0.035	−1.066	0.289

Note: *, ** denotes statistical significance at the 0.05 and 0.10 levels, respectively.

presents the results of the cumulative average abnormal return (CAAR) for domestic and cross-border mergers and acquisitions. Additionally, we compared the announcement of the effects of domestic and cross-border M&As for different window periods. For the observation periods in a pre-announcement period, the CAAR was found to be higher in domestic mergers than in cross-border mergers and acquisitions. During the observation period around the announcement period, the CAAR was found to be higher in domestic mergers than in cross-border mergers and acquisitions in the short-window period. The CAAR for the announcement date is 0.20% (t-stat = 0.447) for domestic M&As and −0.37% (t-stat = 1.089) for cross-border M&As. For the observation periods in the post-announcement window period [1, 5] and [1, 20], the CAAR is higher in cross-border M&As than in domestic M&As, but statistically insignificant. We conducted a mean difference of the CAARs between the domestic and cross-border M&As for the pre-announcement, post-announcement, and around-the-announcement period. We did not find any significant difference in the CAARs for domestic and cross-border M&A. The findings from Table 3 highlight differences in reactions of markets to domestic and cross-border M&As. In the case of the CAAR for cross-border M&As, there are both positive and negative returns depending on the event window, and domestic M&As have less volatility but a lower CAAR. The mixed findings indicate that cross-border transactions may lead to additional complications due to several factors including cultural differences, regulatory bottlenecks, and exchange rate changes leading to investor disbelief. On the contrary, local M&As are considered as less risky due to familiarity with domestic conditions.

It is also important to note that there is a significant negative CAAR in the [−1, 0] window for cross-border M&A’s deals. The results indicate the possibility of market trepidation before announcements are made. On the contrary, during the post-announcement periods ([1, 5] or [1, 10]), in the case of cross-border M&As, there is a more positive trend, suggesting that clarity of the details of the deal after the announcement can improve shareholders’ returns. The above findings on cross-border effects are consistent with the findings of other studies abroad, such as Lowinski et al. (2004) and Campa and Hernando (2004). These findings are contrary to earlier Indian studies, such as Rani et al. (2014).

The results are also depicted in Figure 2. As shown in Figure 2, both domestic and cross-border M&As showcase an initial decline in the CAAR before the event date. However, the cross-border M&As show a greater positive trend following the event date compared to domestic M&As, suggesting a more favorable market perception in the medium term for cross-border M&As. Further, the CAAR displays significant volatility, but cross-border M&As recoup strongly post-announcement, whereas domestic M&As remain in a negative trajectory for a longer duration. It is also observed thar cross-border M&As showcase a significant upward trend, peaking towards the end of the window, indicating that investors anticipate long-term benefits of these cross-border M&As.

4.2. Influence of Advisor Services on Wealth Effects Through Mergers and Acquisitions

Mergers and acquisitions (M&As) are technical and complex issues. Most of the time, the organization prefers to use the services of advisory firms while going for M&As. In this section, we test whether the inclusion of an advisor in the process of M&A’s transactions creates value. We assume that the inclusion of advisory services creates more wealth for the acquiring company’s shareholders. In this section, we analyze the wealth effect of advisory services in M&A’s transactions. To do so, we analyzed the effects of M&As on the shareholder wealth of firms with and without advisors for different window periods. We conducted the mean difference t-test between the CAAR merger deals conducted with an advisor and without advisor services for the various event windows.

Table 4. The CAAR for the acquiring companies with and without the advisor services.

Event Window	M&A’s with Advisor Service			M&A’s Without Advisor Service			Effect of Advisor Service
	CAAR	t-Statistics	Prob.	CAAR	t-Statistics	Prob.	${\mathit{C}\mathit{A}\mathit{A}\mathit{R}}_{\mathit{W}\mathit{I}}{-\mathit{C}\mathit{A}\mathit{A}\mathit{R}}_{\mathit{W}\mathit{D}}$	t-Statistics	Prob.
[−20, 20]	−0.003	−0.134	0.894	0.009	0.269	0.788	−0.013	−0.241	0.810
[−10, 10]	0.018	1.057	0.291	−0.016	−0.769	0.442	0.035	1.063	0.291
[−5, 5]	−0.013	−1.364	0.173	−0.015	−1.016	0.310	0.002	0.093	0.926
[−1, 1]	−0.001	−0.135	0.893	−0.002	−0.257	0.798	0.001	0.089	0.930
[0]	−0.002	−0.419	0.675	−0.002	−0.442	0.659	0.000	0.016	0.987
[−1, 0]	−0.003	−0.484	0.629	−0.004	−0.665	0.506	0.001	0.122	0.903
[−5, −1]	0.001	0.083	0.934	−0.014	−1.443	0.149	0.015	0.979	0.330
[−10, −1]	0.005	0.519	0.604	−0.012	−0.880	0.379	0.017	0.815	0.417
[−20, −1]	−0.003	−0.194	0.846	0.006	0.316	0.752	−0.009	−0.307	0.760
[1, 5]	−0.012	−1.265	0.206	0.001	0.094	0.925	−0.013	−0.840	0.403
[1, 10]	0.015	1.018	0.309	−0.002	−0.193	0.847	0.017	0.897	0.372
[1, 20]	0.001	0.059	0.953	0.005	0.222	0.824	−0.004	−0.106	0.916

presents the CAARs for the different window periods with the inclusion of advisor services and without the inclusion of advisor services in domestic and cross-border merger acquisitions. To analyze the effect of advisor services in M&As, we split the sample into two categories: M&As that leveraged the services of advisors and those that did not use any advisor services. We calculated the CAAR for both of the above conditions for different window periods. We observed a difference in the CAAR with or without the inclusion of advisor services for the [−20, 20] window period of −1.25% (t-stat = −0.241), which is negative and statistically insignificant. The observed difference in the CAAR with and without the inclusion of advisor services for the [−10, 10] window period is 3.45% (t-stat = 1.063), which is positive and insignificant, and for the [−5, 5] window period is 0.20% (t-stat = 0.0930), which is positive but insignificant. The CAAR has been found to be statistically insignificant with and without advisor services for the selected window period around the announcement date.

We observed a difference in the CAAR for the announcement day window period of 0.01% (t-stat = 0.016), which is positive and statistically insignificant. The observed difference in the CAAR for the pre- and post-announcement periods was found to be insignificant in the observed window periods with or without the inclusion of advisor services in M&A’s transactions, as presented in Table 4. Further, when we compare the deals in the two categories, i.e., with and without advisory services, it is clear that transactions with advisors yielded a more stable CAAR. The results provide preliminary evidence that although advisory services do not lead to higher shareholders returns, they can play an important role in reducing risks associated with mergers and enhance stakeholder confidence.

Thus, we can conclude that there is no significant difference in abnormal returns due to the inclusion of advisor services in M&A’s transactions. Thus, the inclusion of advisor services in M&A’s transactions does not create value, on average, for the shareholders of the acquiring firms. A possible explanation is that significant fees are paid to obtain the services of advisors in M&A’s transactions. The above findings on cross-border effects are consistent with the findings of other studies conducted in the internal context (Lowinski et al., 2004). These results are presented in Figure 3 wherein the line with M&As without advisory services showcases more volatility; especially, we see negative spikes before the event. The negative spikes and higher volatility indicate that M&A’s transactions without advisory services display greater variability in the CAAR. The graph highlights the importance of taking services of advisory firms as the stability of the blue line suggests that advisory firms can play an important role in enhancing market perception and reducing risk.

Finally, we examine the factors that affect the performance of M&A’s transactions in domestic and cross-border M&As. The factors that have been tested include cross-border merger deals, advisor services, method of payment, and size of the acquirer, which is measured by market capitalization and the price-to-book value ratio. We used three dummy variables for cross-border merger deals, advice on investment, and method of payment. The descriptive statistics of these variables are presented in

Table 5. Descriptive statistics.

Variables	N	Mean	Median	Std. Deviation	Minimum	Maximum
Cross-Border Target	92	0.630	1.000	0.485	0.000	1.000
Advice of Investment bank	92	0.326	0.000	0.471	0.000	1.000
Method of Payment	92	0.446	0.000	0.500	0.000	1.000
log size (Market Capitalization)	92	9.884	9.865	2.153	4.723	14.864
Price-to-book value ratio	92	0.883	0.862	0.850	−1.926	3.426
CAAR, [−10, −1]	92	−0.007	−0.011	0.095	−0.298	0.329

.

Table 5 presents descriptive statistics of the variables used in the cross-sectional regression analysis. The explanatory variables include cross-border merger deals, advisor services, method of payment, size of the acquirer, and price-to-book value ratio. The cross-border deal indicates the identity of the target; if the target is from a foreign country, the variable is taken as one, and if the target is from the domestic country, it is zero. The variable for the inclusion of an advisor for the M&A’s transaction is taken as a one and without advisor services is taken as zero to analyze the impact of advisor services on the returns of the acquiring firm. The mode of payment was used to measure the acquiring firm’s returns. It takes the value of one if the acquisition is financed with cash and zero if it is financed with stock or otherwise. The size of the acquiring firm, measured by market capitalization, is considered one of the factors influencing the acquiring firm’s return. The price-to-book value ratio is used as one of the variables to analyze the impact of growth factors on the returns of the acquiring firm. The CAAR [−10, 1] is taken as one of the dependent variables for the cross-sectional regression analysis to identify the factors that influence the returns of acquiring firms.

Several factors influence the wealth creation process in domestic and cross-border M&As. To test these determinants, we run the regression model using Equation (5). In Equation (5), we regress the bidder’s CAAR [−10, 1] on various explanatory variables to capture the factors that influence performance.

$$\begin{gathered} {CAAR}_{t,t}=\alpha +{\beta }_1 Cross Border target+{\beta }_2 Payment method \\ +{\beta }_3 Advisor Service+{\beta }_4 In\left(Market Capitalisation\right) \\ +{\beta }_5 price to book value ratio+ϵ \end{gathered}$$

(5)

where ‘${CAAR}_{[t,t]}$’ is the dependent variable. This refers to the short-term abnormal return of the acquiring firm over the (−10 to 1) window period.

Table 6. Regression results on the determinants of the acquiring company’s shareholder wealth in domestic and cross-border mergers and acquisitions.

Variable	Coefficient
Constant	−0.014
Cross-border deals	−0.011
Advisor Services	0.025
Method of Payment	0.039 **
Log size (Market Capitalization)	−0.008
Price-book-value ratio	0.080 *
N	92
R Squared	0.125
Adjusted R-squared	0.074
Durbin–Watson statistic	2.029
F-Value	2.464
Probability (F-stat)	0.039 *

Note: *, ** denotes statistical significance at the 0.05 and 0.10 levels, respectively.

shows the results of the regression model. Regression analysis was conducted to identify the determinants of value creation. The CAAR for the window period [−10, 1] is taken as the dependent variable, and cross-border deal, advisor service, method of payment, log size, and price-to-book value ratio are taken as explanatory variables. It has been found from the result of the model that the coefficient of the cross-border deal (β = −0.11, t-stat = −0.522) is negative and statistically insignificant. The result indicates that cross-border deals have not generated more returns than domestic deals. These findings confirm earlier findings. The coefficient for the advisor service variable is positive and statistically insignificant (β = 0.025, t-stat = 1.667), indicating that there is no significant difference in the return of the acquiring firm when taking advisory services. The coefficient of the method of payment variable is positive and statistically significant (β = 0.039, t-stat = 1.959) at the 10% level. This signifies that a cash payment creates a positive and significant return to the acquiring firm’s shareholders compared to a stock payment. The coefficient variable size was negative and statistically insignificant (β = −0.008, t-stat = −1.631), indicating that small acquiring companies generate more returns than large acquiring companies. The coefficient of the price-to-book value ratio used as a proxy for the growth firm is positive and statistically significant (β = 0.08, t-stat = 2.407), indicating that the growth firm created a positive and significant return to the acquiring firm’s shareholders. The model $R^2$ explains the proportion of variation in the dependent variable explained by the independent variable. The $R^2$ in this model is 0.125, and the Durbin–Watson statistic is close to two.

5. Conclusions and Implications

This study empirically examines the wealth effects of M&As in the Indian capital market, focusing on cross-border M&As. This study has taken a sample of 58 cross-border M&As and 34 domestic M&As, specifically for cases in which more than 50 percent of shares were acquired by the acquiring companies for the period 2004–2019. We analyzed the wealth effects of cross-border M&As by applying the event study methodology. We also compared the performance of domestic and cross-border M&As. The wealth effects of the acquiring firm have been further analyzed with the inclusion of top advisor services and without the inclusion of advisor services in the process of merger and acquisition transactions. We also investigated the factors that influence domestic and cross-border M&As using regression analysis.

This result suggests that the cross-border wealth creation process for Indian acquiring companies has not created a significant positive return. There are no significant wealth gains for shareholders of acquiring companies in domestic and cross-border mergers and acquisitions. The results indicate probable disbelief among Indian investors towards cross-border M&A’s. The rising cynicism calls for a robust risk management strategy to be followed by managers before going for cross-border M&As. Management should employ resources to effectively communicate the objectives of going for cross-border M&As in order to minimize investor concerns.

We also find that the inclusion of top advisor services in the M&A’s process does not influence the acquiring firm’s wealth. We find no significant positive wealth effect on the acquiring firm with or without the inclusion of top advisor services in M&A’s transactions for the different observed window periods. However, our results also reveal that transactions with advisory services have a more stable CAAR. The results, therefore, underscore the importance of advisory services in stabilizing the CAAR which is crucial for any firm in the long run.

We also found strong evidence that the means of payment have a significant impact on the performance of the acquiring firm. The cash payment method has a positive impact compared with the stock method of payment. The price-to-book value ratio of the acquiring firm is a significant determinant of its returns. We find no evidence that size determinants influence the returns of acquiring firms in domestic and cross-border M&As.

These results have important implications for Indian market investors. Because international M&As have not generated significant shareholder wealth, investors should exercise caution when investing in firms engaged in cross-border M&A’s transactions. Moreover, the insignificant impact of advisory services suggests marginal benefits of such services, as such services reduce volatility but may have an additional financial burden on firms and, therefore, not contributing much to shareholders value creation.

Furthermore, the failure of international M&As to enhance shareholder wealth indicates that Indian companies may struggle to realize the expected synergies from cross-border deals. This can be attributed to integration challenges, policy uncertainty, or cultural differences.

Additionally, the positive impact of cash-based transactions suggests that investors should favor cash-financed deals over stock-based deals because the latter may signal overvaluation or dilution concerns.

Finally, future research should explore long-term impacts considering other factors that may influence shareholder wealth, including corporate governance variables, macroeconomic conditions, cultural differences, and economic policy uncertainty, which were not examined in the present study. Research should also examine the qualitative factors which have an impact on M&A’s transactions.