Mergers in India. A Response to Regulatory Shocks

Recent empirical research shows that industry and regulatory shocks play a key role in determining merger activity in developed countries. We use this framework to analyze merger activity in India, using a comprehensive database spanning a thirty-year period, from 1973-74 to 2002-3. At the industry level, we identify clustering of merger activity in India, indicating that mergers may be a response to industry and regulatory shocks. At the firm level, the 1991 amendments to the Monopolies and Restrictive Trade Practices (MRTP) Act, which removed premerger scrutiny, are found to have a positive and significant effect on merger behavior of firms that had been under its purview. After the 1991 amendments, firms underwent mergers that would have been scrutinized by the MRTP Act otherwise. These mergers were undertaken for expansionary reasons.