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Euphoria in financial markets: How Indian companies generate value in their cross-border acquisitions

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.

Publication metadata

Author(s): Rao-Nicholson R, Ayton J

Publication type: Article

Publication status: Published

Journal: Research in International Business and Finance

Year: 2016

Volume: 38

Pages: 494–508

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.


DOI: 10.1016/j.ribaf.2016.07.022


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