Informatics Publishing Limited

Pinky Mall ¹, Kapil Gupta ¹

Affiliations
1 Department of Management, I.K. Gujral Punjab Technical University, Kapurthala, Punjab, IN

Abstract

Present study examines the impact of merger events on stock returns of acquiring firms. The sample size is composed of 428 merger events that took place during 2008 to 2015 other than financial sector and agricultural mergers. Event study methodology has been applied by using seventeen days event window i.e. -8 to +8 days stock returns. Results indicate that merger deals do not bring any abnormal changes in stock returns pre and post event date, which implies that traders are not able to gain abnormal returns in pre-post event period. These findings are consistent with Bradley et al., (1988); Servaes, (1991); Mulherin and Boone, (2000), Khan (2011), Kemal (2011), Khanal et al. (2014). The findings obtained from this research may be helpful for researchers, fund managers, market regulators, investment managers etc.

Keywords

Merger, Acquisition, Stock Return, Event Study Analysis, Average Abnormal Return, Cumulative Average Abnormal Return.

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Pinky Mall ¹, Kapil Gupta ²

Affiliations
1 Department of Management I.K. Gujral Punjab Technical University, Kapurthala, Punjab, IN
2 Department of Management I.K. Gujral Punjab Technical University, Kapurthala, Punjab,, IN

Abstract

This study examines the wealth effects of merger announcements on acquirer firms in India, by primarily focusing on two stock characteristics i.e. stock return and stock volatility. Sample of 429 merger announcements in India from 2008 to 2015 are examined and an event window of 21 days is taken to analyses the impact of such announcements on acquirer’s stock return and stock volatility. It is found that there is change in return and a jump in spread of returns after event day, and it continues up to two days post event. These findings imply that shareholders of acquirer firms generate average abnormal returns from merger events during and after announcement and returns become negative in long run in context to India. These results are similar with the results by Rani et al. (2013); Karels et al. (2011); Khanal et al. (2011); Mulherin and Boone (2011). In case of return volatility, a sharp increase in fluctuations is observed on the day of merger announcement. These findings are consistent with the findings by studies conducted by Kamerschen; (2008); Bharath and Wu (2005); Langetieg et al. (1980).

Keywords

Shareholder’s Wealth, Volatility, Stock Return, Average Abnormal Return, Event Study.

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Pinky Mall ¹, Kapil Gupta ²

Affiliations
1 Doctoral Student, Department of Management, I.K. Gujral Punjab Technical University, Kapurthala, Punjab, IN
2 Assistant Professor, Department of Management, I.K. Gujral Punjab Technical University, Kapurthala, Punjab, IN

Abstract

The primary objective of present study is to examine the impact of merger and acquisition announcements during 2000-2018 on stock returns and intraday volatility of banks listed on National Stock Exchange in India. The sample of 383 mergers and acquisitions events has been analyzed with the help of event study methodology. Findings suggest that consolidation in Indian banking sector leads to positive average abnormal returns and wealth creation for acquirer bank’s shareholders. These findings are in agreement with Onikoyi et al. (2014), Kumar et al. (2011), and Anand and Singh (2008), and contrary to the evidence provided by Sim (2015), Asimakopoulos and Athanasoglou (2012), and Cybo-Ottone and Murgia, (2000). Further, results show that merger and acquisition in banking sector lead to curvy jumps in volatility around announcement date, which implies that disclosure of restructuring events in the banking sector affects return variability. These results confirm the observations by Pessanha et al. (2016), Kamau (2016), and Louhichi (2008).

Keywords

Acquisition, Merger, Stock Return, Average Abnormal Return, Volatility, Event Study Analysis.

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