india going global.indd - The IIPM Think Tank

RESEARCH
economies of scale are exhausted has registered an increase.
From Table 4, one can observe that in respect
of all the firms taken together the
coefficient of βQt is negative. It means that on an
average, scale economies have increased over time in case
of merged firms. That is the size of minimum efficient
firm has increased. The finding shows that when firms
merge, they are able to increase the range of output over
which they can reduce their long run average cost. That is
they can enjoy positive scale economies over an expanded
output range. βQt is negative in case of Indian and
Malaysian firms but is positive for Brazil. It means that
in case of Brazilian mergers scale economies is declining
over time and the range of output over which minimum
long run average cost can be achieved is falling.
Let us now examine the rate of technical change. The
coefficients of the rates of technological change are also
presented in Table 8. The estimates are arrived at in
accordance with equation (18). In respect of the total
sample the rate of technical change is .00176. That is
there is a decrease in total cost at a rate of 0.17% per
annum. Similarly positive rates of technological change
are observed in case of individual countries also. The
estimates clearly show that M & A result in technical
change across countries. To gain further insight into
the nature of technological change, input bias in it can
be measured according to equation (19). The coefficients
of input bias are presented in Table 8. It can be observed
that the coefficients are negative in case of labour and
capital of total sample which means there are factor saving
technological advancements in respect of labour and
62 Need the Dough July-October - 2007
capital. The positive coefficient in respect of materials
indicates that the technological advancement is material
using. In case of Indian firms the technological advancement
is labour and materials saving but capital using and
in case of Brazil it is labour saving but materials and
capital using. In Malaysia technological advancement
is factor saving on account of labour, capital as well as
materials.
Lastly, we examine whether technological change increases
scale economies or decreases these as per equation
(20). It can be seen from Table 8 that the coefficient
of technological scale bias is positive in case of overall
sample as well as India and Malaysia. It is negative in
case of Brazil. This implies that the technological change
is increasing the economies of scale, that is the increase
in output level at which long run average cost will be
minimum, is expanding due to technological innovations.
This finding indicates that merged firms are likely
to introduce technological innovations.
In conclusion, it can be stated that M & A activity leads
to structural shift in the profitability after merger as well
as economies of scale and technological innovations. The
economies are factor saving and increase the range of
output over which the economies can be availed. Technological
innovations also contribute to these economies.
The study thus supports the hypotheses that mergers
lead to both improvement in internal management and
unlock synergy.
References:
● Baumol, W.J. (1967) Business Behavior, Value, and
Table 8
Resuls of Analysis of Scale Economies and Technological Change
Growth. Harcourt, Brace, and World:
New York, NY.
● Bhuyan, Sanjib (2002) Impact Of Vertical
Total Sample India Brazil Malaysia
Mergers On Industry Profitability: An
Coefficient
1.29095 1.38558 1.09188 1.21024 Empirical Evaluation, Review of Industrial
of Scale
Elasticity
Organization (20),61-79.
● Blair, R.D., Kaserman, D.L.(1978) Vertical
Integration, Tying, And Antitrust
Coefficient 0.00176 0.03219 0.00508 0.00669
Policy, American Economic Review 68,
of Rate of
397-402.
Technological Change
● Carlton, D. W.(1979) Vertical Integration
In Competitive Markets Under
Input Bias
in Technological
Change
Labour -0.00612 -0.03398 -0.00363 -0.00660
Uncertainty,Journal of Industrial Economics
27, 189-209.
● Christiano, L.J. (1992) Searching for a
Capital -0.01100 0.00152 0.01379 -0.00097 Break in GNP, Journal of Economic and
Materials 0.04560 -0.00032 0.01366 -0.00535
Business Studies,10, 237-250.
● Coase, R.H.(1937) The Nature Of The
Technological
Scale Bias ( -βQt ) -(-0.07590) -(-0.00194) 0.01032 -(-0.01387)
Firm, Economica 4, 386-405.
● Copeland, Tom, Kotler, Tim & Jack
Murrin. (1990) Valuation, Measuring And