Skip to main content

Indian industry's 40% mergers caste-based, create lower value than caste-distant deals

By Rajiv Shah
Suggesting that India’s business class is still not out of its feudal culture, a recent study on merger and acquisition (M&A) deals of top Indian business houses, carried out jointly by scholars of the Indian Institute of Management-Bangalore, and Pomona College, Claremont, California, United States, has found that the “observed percentage of same-varna mergers” is 40.11%, which is at least “twice as high as” (15.47% to 20.34%) as M&A carried out with firms that do not have the same varna.
Identifying varna to mean five different castes, Brahmins, Kshatriyas, Vaishyas, Shudras, and “lowest”, Dalits, the study reaches “analogous results” when M&A is measured in terms of jati or sub-castes. It says, “While the observed percentage of same-jati M&A deals is 22.53%, as for other M&A deals, these were “less than half of that, ranging from 5.6% to 7.67%.”
A varna-wise breakup suggests that 48.6% out of 284 M&A deals by Brahmins were with Brahmins, 12.3% were with Kshatriyas, 23.2% with Vaishyas, 15.8% with Shudras, and none with Dalits. Similarly, of the 130 deals carried out by Kshatriyas, 30.8% were with Kshatriyas, 28.5% with Brahmins, 19.2% with Vaishyas, 21.5% with Shudras, and none with Dalits.
As for the Vaishyas, 55.4% of the 187 M&A deals were carried out only with Vaishyas, 21.3% with Brahmins, 12.2% with Kshatriyas, 10.5% with Shudras, and just 0.7% with Dalits. As for 189 deals by Shudras, 45% were with Shudras, 23.8% with Brahmins, 14.8% with Kshatriyas, 15.9% with Vaishyas, and only 0.5% with Dalits. And, of the two deals by Dalits, one was with a Dalit, and another one was with a Brahmin.
Based on M&As data from Thomson One SDC and Prowess, which are repositories of database of large firms, the study, titled “Firms of a Feather Merge Together: Cultural Proximity and M&A Outcomes”, by Manaswini Bhalla, Manisha Goel, VSK Teja Konduri, and Michelle Zemel, believes that these differences are “highly statistically significant”.
The study – which is based on an analysis of varna and jati of board of directors of 1,255 firms that entered into M&A deals for the period 2000- 2017 – reaches the drastic conclusion that “when the boards of directors of the target and acquirer have the same dominant varna (jati), the likelihood of merger between them increases by 11.4% (17.4%) relative to when boards of the firms do not have the same dominant varna (jati).”
Interestingly, however, the study refrains from naming the firms which it says it has analysed.
At the same time, the study states that, ironically, “Caste-proximate M&A deals create less value than caste-distant deals for both acquirer and target.” Thus, results of what are called “cumulative abnormal returns (CARs)” show that “caste-proximate deals create lower value than caste-distant deals for both acquirer and target, and consequently for the merged entity.” 
In fact, it insists, “The market penalizes merger announcements between firms whose directors have similar caste backgrounds.”
The study says, “When boards of directors of target and acquirer have the same dominant varna, the CAR of the acquirer upon announcement of the deal is 0.9% lower than if boards of directors of the two firms were not varna-proximate.” It believes, “This percentage difference in CARs between caste-distant and caste-proximate deals is large, given that the return is realized over a two-day announcement window. Thus, the stock market has a substantially worse reaction to caste-proximate deals than to others.”
Pointing out that a “similar result emerges on examining CARs of target firms around the announcement of M&A deals”, the study says, “Caste proximity between boards of acquirer and target firms reduces market’s valuation of the target.” It adds, “Target CARs are 2% lower in varna-proximate deals than in others.”
The study emphasises, “If the acquirer and target firm boards share the same dominant varna, then the announcement day CARs of the combined firm are on average 2.2% lower than for mergers in which the two boards do not share a dominant varna. For a one level increase in the hierarchal distance between the dominant varna of the acquirer and target boards respectively, the combined firm CAR increases 0.7%.”

Comments

TRENDING

Congress 'promises' cancellation of Adani power project: Jharkhand elections

Counterview Desk
Pointing out that people's issues take a backseat in Jharkhand's 2019 assembly elections, the state's civil rights organization, the Jharkhand Janadhikar Mahasabha, a coalition of activists and people’s organisations, has said that political parties have largely ignored in their electoral manifestos the need to implement the fifth schedule of the Constitution in a predominantly tribal district.

Ex-World Bank chief economist doubts spurt in India's ease of doing business rank

By Rajiv Shah
This is in continuation of my previous blog where I had quoted from a commentary which top economist Prof Kaushik Basu had written in the New York Times (NYT) a little less than a month ago, on November 6, to be exact. He recalled this article through a tweet on November 29, soon after it was made known that India's growth rate had slumped (officially!) to 4.5%.

Worrying signs in BJP: Modi, Shah begin 'cold-shouldering' Gujarat CM, party chief

By RK Misra*
The political developments in neighbouring Maharashtra where a Shiv Sena-NCP-Congress government assumed office has had a trickle down effect in Gujarat with both the ruling BJP and the Congress opposition going into revamp mode.

'Favouring' tribals and ignoring Adivasis? Behind coercion of India's aborigines

By Mohan Guruswamy*
Tribal people account for 8.2% of India’s population. They are spread over all of India’s States and Union Territories. Even so they can be broadly classified into three groupings. The first grouping consists of populations who predate the Indo-Aryan migrations. These are termed by many anthropologists as the Austro-Asiatic-speaking Australoid people.

History 'will remember' 2019 for silencing dissent, democracy, human rights

By V Suresh*
In the annals of contemporary Indian human rights history 2019 will be marked as the year when the Indian state – the Government of India – exhibited its near total disdain for human rights and rule of law by committing, not by individual or localized acts of human rights abuse alone; in a dramatic manner, the Government exhibited its might in a colossal, huge, collective and fearsome manner its utter disrespect for constitutional values and ethics and that it considered fundamental freedoms and human rights as mere scraps of paper.

Food security? Tribals rendered 'niraadhaar' without aadhaar in Gujarat's Adivasi belt

By Pankti Jog*
Government data on Universal Identity (UID) or aadhaar website may show a coverage of up to 95% till March 2019. But ground realities are not so glorious. In fact, villages of Devgadh Baria block of Dahod, a predominantly Adivasi district in Gujarat's eastern tribal belt, are facing the bitter truth: That you are virtually a niraadhar (orphan) without an aadhaar number.

Assam Foreigners Tribunals: How procedures, laws failed to consider gender discrimination

Counterview Desk
Even as criticising India's courts, especially the Supreme Court and the Guwahati High Court, for complicitity towards exclusion and abuse perpetuated through the Foreigners Tribunals set up across Assam to identify who all are "genuine citizens", well-known NGO Amnesty International in its recent  report, "Designed to Exclude: How India's Courts are Allowing Foreigners Tribunals to Render People Stateless in Assam" says,  the whole system has had harsh impact on the lives of women.