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Title: A new order of financing investments: Evidence from acquisitions by India's listed firms
Authors: Jindal, Varun
Seth, Rama
Keywords: Business groups
Corporate control
Financial constraints
Investment financing
Mergers and acquisitions
Issue Date: 2019
Publisher: SCOPUS
Journal of Corporate Finance
Elsevier B.V.
Series/Report no.: 58
Abstract: We propose a new order of financing investments based on the considerations of control and financial constraints in a market with the presence of business groups. We base our analysis on a sample of acquisitions, one of the largest forms of investments, made by India's publicly listed firms from 1997 through 2016. We test the relative propensity of group-affiliated firms, as well as that of standalone (non-affiliated) firms, to finance their investments with stock on the one hand, and either cash or debt on the other. We find that group-affiliated bidders have the greatest propensity to finance their investments with stock when taking over firms affiliated with the same business group (within-group acquisitions), followed by standalone firms making acquisitions (standalone acquisitions). Finally, group-affiliated bidders acquiring either standalone firms or firms not affiliated with their group (outside-group acquisitions) have the lowest propensity to finance their investments with stock. The evidence of higher stock-financing of within-group acquisitions is robust to alternative explanations of tunneling and propping up in business groups.
Description: Jindal, Varun, Finance and Control Group, Indian Institute of Management Calcutta, India; Seth, Rama, Finance and Control Group, Indian Institute of Management Calcutta, India, Department of Finance, Copenhagen Business School, Denmark
ISSN/ISBN - 09291199
DOI - 10.1016/j.jcorpfin.2019.04.007
Appears in Collections:Finance and Control

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