"The Effects of Horizontal Mergers and Acquisitions: Evidence from India"

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This research project analyses the effects of horizontal domestic and international mergers and acquisitions (M&As) on efficiency, market power, product variety, and other outcomes of Indian firms. For the empirical analysis, we will use a rich firm-level data set that contains information from balance sheet and profit and loss accounts as well as information on quantities and sales prices at the product-level for more than 20,000 manufacturing firms in India for up to 25 years (1989-2014). In contrast to previous work, the data set used in this research project, combined with recent advances in econometric methods, allows estimating the effects of M&As on physical productivity for the whole manufacturing sector and to identify these effects separately from changes in markups. The data also allows studying effects of M&As on changes in the product mix of firms and product attributes. This research project is divided into three work packages. Work package 1 analyses the determinants of M&As and the characteristics of acquiring and target firms. In the second work package, we estimate the effects of M&As on the merged entity as a whole and on acquiring and target firms separately. Indirect effects of M&As on non-merging competitors, firms in vertically related industries and with geographical proximity to merging firms will be analysed in work package 3. In the econometric analysis, we will estimate production functions at the firm-product level to recover physical productivity, markups, marginal costs and proxies for product quality. We will use these variables along with other outcomes to analyse the performance of acquiring and target firms before and after M&As. To identify causal effects of M&As, difference-in-difference estimators will be applied to compare the performance of merging firms around M&A events to various control groups. Alternative control groups will be constructed from propensity score matching and reweighting and from withdrawn M&A deals. As an alternative identification strategy, we will use instrumental variable estimators. These are based on an investment liberalization in India, which lifted ownership caps and equity restrictions for foreign investors in several industries.