ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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A Comparative Analysis of India and the United States

Hostile Takeovers

The number of mergers and acquisitions has boomed in India since liberalisation, but few hostile takeovers have succeeded, primarily because of the concentration of promoter shareholding in companies and because takeover regulations favour promoters. Hostile takeovers would facilitate M&A growth, and the success of hostile takeovers is essential to facilitate corporate competence and foster capital market development. To be effective, the anti-takeover mechanisms in India should be practised as a protectionist measure and the takeover regulations must adopt a lenient approach towards hostile takeovers, as in the United States.

 

In recent times, India has seen a rampant increase in mergers and acquisitions (M&A) (Economic Times 2019), attributable to the paradigm shift in the way business is conducted today (for empirical data on the increase in takeover activity worldwide, see Weston et al [2004] and Chakrabarthi et al [2007]). This increase has been proven to have a positive impact on the growth of the Indian economy (Pahuja and Samridhi 2016), but the emergence of a “market for corporate control” (Manne 1965; Kouloridas 2008) has led to a scenario wherein alternate owners place bids to manage underperforming companies, and shareholders are allowed to sell their shares to the highest bidders (Sankaran and Vishwanath 2008).

It is often contended that the fight for the control of poorly governed companies can improve governance (Clarke 2010), and the threat of a hostile takeover is seen as a recourse to the “agency problem,” as it keeps the management in check (Bedier 2018). Farrar et al (1998) suggest that a hostile takeover is an expensive, inefficient way to ensure good corporate governance. Hostile takeovers are attempted mostly in listed companies in India, and this paper studies such attempts. Hostile takeovers are regulated differently in developed economies than in developing economies, and few signs show that developing economies converge around global best practices in their approach to hostile takeovers; however, the evolutionary dynamics that underlay and fostered the development of hostile takeover regimes in developed capital markets such as the United States (US) are likely to surface in emerging markets like India eventually (Armour et al 2011).

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Updated On : 13th Feb, 2021

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