Cash Reserves as a Catalyst for M&A Activity: An Empirical Analysis of Engagement and Success Rates Among Indian Companies

Focussing on Indian companies, this study investigates the role of cash reserves as a catalyst for mergers and acquisitions (M&A) activity. It finds that firms with large cash reserves are more likely to engage in M&A because of lower transaction costs and financing constraints. Although results differ greatly, value creation is ensured in large part by sector-specific dynamics and sound corporate governance. Cash reserves increased flexibility and bargaining power, especially in international transactions, but they also carry the risk of destroying value if overpayment results from managerial arrogance or poor governance. Sectoral analysis reveals that while capital-intensive industries struggle with operational synergies, technology and pharmaceutical companies experience greater post-merger profitability and innovation. The study emphasises how cash reserves play a dual role in M&A, promoting strategic growth while presenting inefficiency risks—and emphasises how crucial sound governance, behavioural aspects, and macroeconomic circumstances are in determining acquisition tactics. These observations aid in the comprehension of cash-financed M&A in developing nations such as India, where institutional and economic circumstances impact choices.