Firms of a Feather Merge Together : Caste Proximity and M&A Outcomes

Using data from India, we show that shared caste identities between two firms' directors increase the likelihood that they enter a merger and acquisition (M&A) deal. Target and acquirer shareholders receive smaller gains in such deals relative to others. Negotiation outcomes and long-run firm performance are no better either. These deals represent a misallocation of resources away from shareholders and firms towards dealing firms' directors who extract significant rents. This inefficiency survives in equilibrium amid poor corporate governance