Lookup NU author(s): Dr Rekha Nicholson
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND).
In this paper, we investigate the effect of euphoria on returns derived by Indian companies in their cross-border acquisitions. Cognitive legitimacy generated at the country level facilitated firms in deriving higher value from internationalization. In addition, overoptimism after the legitimacy-building event led to euphoria in financial markets and short-term abnormal returns. Hence we argue that the springboard effect created by legitimacy is short-lived, as euphoria fades away over time. Using cross-border and domestic acquisitions by Indian companies during 1999–2009, and controlling for fundamental factors, both financial and non-financial, we find support for our euphoria hypothesis. Because of overoptimism, Indian companies experienced short-term abnormal returns in their cross-border acquisitions in the few years following the legitimation process, but not in later years.
Author(s): Rao-Nicholson R, Ayton J
Publication type: Article
Publication status: Published
Journal: Research in International Business and Finance
Print publication date: 01/09/2016
Online publication date: 14/07/2016
Acceptance date: 08/07/2016
Date deposited: 08/10/2016
ISSN (print): 0275-5319
ISSN (electronic): 1878-3384
Publisher: Elsevier Inc.
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