Determinants of Firms' Liquidation and Acquisition in the Indian Electronics Industry

This study examines the determinants of firms' liquidation and acquisition in the Indian electronics industry during the period 1990-2006. It is argued that liquidation and acquisition are alternative modes of exit. Therefore, these modes of exit might have different determinants. To explore this possibility, a multinomial logistic (MNL) regression model is estimated using cross-sectional data of 540 firms. We find that the effects of age, size, leverage, innovative competence and profitability are significant for the likelihood of liquidation. In contrast, the effect of profitability was found insignificant for the likelihood of acquisition. Moreover, the effects of size and leverage are dissimilar across the exit modes, that is, large firms are more likely to be liquidated but less likely to be acquired, and high leverage firms are more likely to be liquidated but less likely to be acquired. The findings of this study show that the determinants of liquidation and acquisition modes of exit are different in the Indian electronics industry.