IIMB Chair of Excellence & Endowed Chair Seminar Series

The talk on ‘Firms of a Feather Merge Together: Caste Proximity and M&A Outcomes’ was based on a paper by Prof. Manaswini Bhalla, IIMB; VSK Teja Konduri, IIMB; and Michelle Zemel, Pomona College. In their work, Prof. Manaswini Bhalla and her co-authors attempt to understand the role of social and informal networks in economic outcomes like firm performance, and entrepreneurship. Dr Manaswini Bhalla discussed her paper, where she and her co-authors examine how high stakes corporate investment decisions, particularly mergers and acquisitions are influenced by agents’ shared identities. Using data from India, they show, in their paper, that shared caste identities between two firms’ directors increases the likelihood that they enter a merger and acquisition (M&A) deal. They point out that 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 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,” they observe in their paper.