Motives for Mergers and Takeovers in the Indian Mutual Fund Industry

Abstract

The Indian industry has seen a phenomenal consolidation through a spate of mergers and takeovers during the last decade. The mutual fund industry in India is no exception. It therefore becomes very important to understand the motives of mergers and takeovers in the Indian mutual fund industry. However, there is a significant difference between a corporate merger and the merger of a mutual fund. The present study uses various motives (variables) of corporate mergers and takeovers that fit in case of motives for mergers and takeovers of mutual fund schemes. As far as India is concerned, this is the first study of its kind; even in the international arena, limited research is available in this area. A two-stage multivariate procedure is used to identify the important factors that drive the merger of a mutual fund scheme from the viewpoint of an acquirer. The present study conducts a survey of 65 fund managers through a questionnaire containing fifteen statements to examine the motives behind the mergers and takeovers of mutual fund schemes. It checks the internal consistency and the reliability of the data using the Cronbach's Alpha. It performs an exploratory factor analysis using the fifteen statements in the questionnaire as different variables. Finally, it examines the important motives by conducting an ordinary least squares regression using the factors extracted from factor analysis. The results reveal the following: The factor analysis produces six broad factors, viz., attractive price, fund governance, expansion of marketing and management capabilities, expansion of asset size, benefits of diversification, and increase in the market share. These six factors are then subjected to multiple regression with increase in the market share as the dependent variable. The regression shows that three out of the five factors tested are significant. The findings of the study suggest that expansion of marketing and management capabilities, expansion of asset size, and benefits of diversification are the three most important motives behind mergers and takeovers of mutual fund schemes in India. The study is valuable to the financial economists, asset management companies, fund managers, unit holders, and the regulators in order to understand the important factors that influence mergers and takeovers of mutual fund schemes in India and their implications in order to make regulations for the mutual fund industry.