A New Order of Financing Investments: Evidence from Acquisitions by India's Listed Firms

Varun Jindal, Rama Seth

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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.
TidsskriftJournal of Corporate Finance
Sider (fra-til)307-328
Antal sider22
StatusUdgivet - okt. 2019


  • Business groups
  • Corporate control
  • Financial constraints
  • Investment financing
  • Mergers and acquisitions