Research

Working Paper

"Firms of a Feather Merge Together: Cultural Proximity and M&A Outcomes” with Manaswini Bhalla, Manisha Goel and Michelle Zemel

Abstract: 

Using data from India, we show that shared caste identities between two firms’ directors increase the likelihood of entering a merger and acquisition (M&A) deal. This may indicate directors’ reliance on caste as an informal information channel. But it may also be driven by their agency or overestimating synergies, leading to suboptimal deals. Indeed, we find that caste-proximate M&A deals create less value than caste-distant deals for both acquirer and target. The negotiation process and long-run performance also do not improve. Evidence strongly supports the presence of agency costs but not information gains or overestimation of synergies. 

Presented by co-authors at Early Career Women in Finance 2018, IIM Calcutta-NYU Stern India Research Conference 2018 at NYU Stern, at the NYU-NSE 2018 conference at the National Stock Exchange, Mumbai, at UC, Irvine, and University of Washington, Seattle. Presented by me at the Indian Institute of Management - Bangalore, and at the 14th Annual Conference on Economic Growth and Development, Indian Statistical Institute, Delhi Center.