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

Savarkar 'criminally betrayed' Netaji and his INA by siding with the British rulers

By Shamsul Islam*
RSS-BJP rulers of India have been trying to show off as great fans of Netaji. But Indians must know what role ideological parents of today's RSS/BJP played against Netaji and Indian National Army (INA). The Hindu Mahasabha and RSS which always had prominent lawyers on their rolls made no attempt to defend the INA accused at Red Fort trials.

RSS supremo Deoras 'supported' Emergency, but Indira, Sanjay Gandhi 'didn't respond'

By Shamsul Islam*
National Emergency was imposed on the country by then Prime Minister Indira Gandhi on June 25-26, 1975, and it lasted for 19 months. This period is considered as ''dark times' for Indian democratic polity. Indira Gandhi claimed that due to Jaiprakash Narayan's call to the armed forces to disobey the 'illegal' orders of Congress rulers had created a situation of anarchy and there was danger to the existence of Indian Republic so there was no alternative but to impose Emergency under article 352 of the Constitution.

Letter to friends, mentors: Coming together of class, communal, corona viruses 'scary'

By Prof (Dr) Mansee Bal Bhargava*
COVID greetings from Ahmedabad to dear mentors and friends from around the world…
I hope you are keeping well and taking care of yourself besides caring for the people around you. I’m writing to learn how is the science and the society coping with the prevention and cure of the pandemic. I’m also writing to share the state of the corona virus that is further complicated with the long-standing class and communal viruses.

Hurried nod to Western Ghat projects: 16 lakh Goans' water security 'jeopardised'

Counterview Desk
Taking strong exception to "virtual clearances" to eco-sensitive projects in the Western Ghats, the National Alliance of People’s Movements (NAPM) in a statement has said urged for a review of the four-lane highway, 400 KV transmission line and double tracking of the railway line through the Bhagwan Mahavir Wildlife Sanctuary and Mollem National Park in Goa.

Disturbing signal? Reliance 'shifting focus' away from Indian petrochemical sector

By NS Venkataraman*
Reliance Industries Ltd (RIL), a large Indian company, has expanded and grown in a spectacular manner during the last few decades, like of which no industrial group in India has performed before. RIL is now involved in multi various activities relating to petroleum refineries, petrochemicals, oil and gas exploration, coal bed methane, life sciences, retail business, communication network, (Jio platform) media/entertainment etc.

India under Modi among top 10 autocratizing nations, on verge of 'losing' democracy status

By Rajiv Shah
A new report, prepared by a top Swedish institute studying liberal democracy, has observed that there has been a sharp “dive in press freedom along with increasing repression of civil society in India associated with the current Hindu-nationalist regime of Prime Minister Narendra Modi.” The report places India among the top 10 countries that “have autocratized the most”. Other countries that have been identified for rolling towards autocracy are -- Hungary, Turkey, Poland, Serbia, Brazil, Mali, Thailand, Nicaragua and Zambia.

Case for nationalising India's healthcare system amidst 'strong' private control

Counterview Desk
A draft discussion note, prepared by Dr Maya Valecha, a Gujarat-based gynecologist and activist, sent to the People's Union for Civil Liberties (PUCL) as also a large number of activists, academics and professionals as an email alert, is all set to create a flutter among policy experts for its strong insistence on nationalizing India’s healthcare system.

Oxfam on WB project: ICT 'ineffective', privatised learning to worsen gender divide

By Rajiv Shah 
A top multinational NGO, with presence in several developed and developing countries, has taken strong exception to the World Bank part-funding Strengthening Teaching-Learning and Results for States (STARS) project in six Indian states – Himachal Pradesh, Kerala, Rajasthan, Madhya Pradesh, Maharashtra and Odisha – for its emphasis on information and communication technology (ICT)-enabled approaches for teacher development, student assessment and digital platform for early childhood education.

Coal blocks for tycoons: Rinchi village tribals may be declared forest land encroachers

By Gladson Dungdung*
On June 18, 2020, the Government of India initiated the process for auctioning 41 coal blocks for commercialisation. These coal blocks are located in different states within India and most of them fall under Fifth Schedule areas. The Indian government claims that their decision to auction these coal areas is a big step towards making the country Atmanirbhar Bharat (self-reliant) in the energy sector.