Journal Press India®

 
www.journalpressindia.com
  1. Home
  2. Our Journals
  3. DELHI BUSINESS REVIEW
  4. Archives
  5. Vol 16 , Issue 2 , July - December 2015
  6. 10.51768/dbr.v16i2.162201516
Submit Manuscript Login / Register Subscribe
Home Page
Editorial Board Members
Mission, Aims & Scope
Current Issue
Archives
Peer-review Process
Ethics policy
Submission Guidelines
Call for Reviewer
DELHI BUSINESS REVIEW
Vol 16 , Issue 2 , July - December 2015 | Pages: 19-36 | Research Paper

Impact of Merger and Acquisitio N Announcement on Shareholders’ Wealth an Empirical Study Using Event Study Methodology

https://doi.org/10.51768/dbr.v16i2.162201516

Published Online: November 27, 2015

Author Details ( * ) denotes Corresponding author

1. * Timcy Sachdeva, Assistant Professor, Gitarattan International Business School, Delhi, India (timcy9@gmail.com)
2. Neena Sinha, Professor, University School of Management Studies, GGS Indraprastha University, Delhi, India
3. K.P. Kaushik, Professor, National Institute of Financial Management, Faridabad, Haryana, India

One of the primary motives behind any strategic corporate decision is to maximize shareholder value. The present paper examines the announcement effect of 85 merger and acquisition on Indian acquiring firm shareholders wealth in the shortnrun during 1991-2010. The paper seeks to assess the impact of merger announcement on the wealth of the acquiring company’s shareholders in India.
Design/Methodology/Approach: This paper applies an event study methodology to empirically test the effect of announcement of M&A using daily stock returns. The study applies regression analysis with secondary data examining 85 acquirers. In order to obtain robust results, one non-parametric, Generalized sign test has also been applied.
Findings: The results indicate that the acquiring company shareholders generated negative but insignificant returns post merger announcement in the short run. The empirical results obtained from the event study methodology suggest that acquiring companies’ shareholders receive a substantial significant and positive average abnormal return around the announcement day of merger and acquisition only.
Originality/Value: This study provides a detailed analysis of M&A performance in India during post liberalization period. A lot of work has been conducted mostly in developed nations on their firms; the authors best of their knowledge have conducted exhaustive study in India by taking substantially large period with different event windows.

Keywords

Mergers and Acquisitions, Abnormal Return, Cumulative Abnormal Returns (CAR), Event Study, Media Announcement, India.

  1. Agarwal, M. (2002). Analyses of mergers in India, M. Phil Dissertation, Delhi: University of Delhi.
  2. Agarwal, M., & Bhattacharya, A. (2006). Mergers in India: A response to regulatory shocks, emerging markets finance and trade, 42(3), 46-65.
  3. Agrawal, A., Jaffe, J.F., & Mandelker, G.N. (1992). The post-merger performance of acquiring firms: A re-examination of an anomaly. Journal of Finance, 47(4), 1605-1621.
  4. Akben-Selcuk, E. & Altiok-Yilmaz, A. (2011). The impact of mergers and acquisitions on acquirer performance: Evidence from Turkey, Business and Economics Journal, 2011: BEJ-22.
  5. Anand, M., & Singh, J. (2008), Impact of merger announcements on shareholders wealth: Evidence from Indian private sector banks, Vikalpa: Journal for Decision Makers, 33(1), 35-54.
  6. Asquith, P. (1983). Merger bids, uncertainty, and stockholder returns, Journal of Financial Economics, 11, 51-84. 
  7. Asquith, P., Robert, F.B., & David, W.M., Jr., (1983). The gains to bidding firms from merger, Journal of Financial Economics, 11(1-4), 121-139.
  8. Banerjee, P., Banerjee, P., De, S., Jindra, J., & Mukhopadhyay, J. (2014). Acquisition pricing in India during 1995–2011: Have Indian acquirers really beaten the odds? Journal of Banking & Finance, 38, 14-30.
  9. Basant, R. (2000). Corporate response to economic reforms, economic and political weekly, 35(10), 813-822.
  10. Barari, P., & Mohanty, P. (2010). Short term performance of Indian acquirers – Effects of mode of payment, Industry Relatedness and Status of Target, Available at SSRN: http://dx.doi.org/10.2139/ssrn.1697564.
  11. Beena, P.L. (2000). An analysis of merger in private corporate sector in India. Working paper 301, Centre for Development Studies, Thiruvanthapuram. Kerala: India.
  12. Beena, P. L. (2004). Towards understanding the merger wave in the Indian corporate sector – A comparative perspective, working paper 355, CDS, Trivandrum.
  13. Beena, P. L. (2008). Trends and perspectives on corporate mergers in contemporary India, Economic and Political Weekly, 43(39), 48-56.
  14. Brown, S.J., & Warner, J.B. (1980). Measuring security price performance, Journal of Financial Economics, 8(3), 205-258.
  15.  Canina, L. (2001). Acquisitions in the lodging industry: Good news for buyers and sellers, Cornell Hotel & Restaurant Administration Quarterly, 42(6), 47-54.
  16. Chandrasekhar, C.P. (1999). Firms, markets and the State: An analysis of Indian oligopoly, in A.K. Bagchi (Eds), Economy and organization- Indian institutions under neo liberalized regime, New Delhi: Sage Publications.
  17. Christopoulos, A., & Vergos, A. (2008). The effects of acquisitions on the market value of the banking sector: An empirical analysis from Greece, European Journal of Scientific Research, 24(3), 410-419.
  18. Chakraborty, M. (2010). The wealth effects of takeover announcement for firms in the financial services sector in India, Journal of Emerging Market Finance, 9(2), 199-227.
  19. Cowan, A.R. (2007). Non-parametric event study tests, Review of Quantitative Finance and Accounting, 1(4), 343-358. Cybo-Ottone, A., & Murgia, M. (2000). Mergers and shareholder wealth in european banking, Journal of Banking and Finance, 24(6), 831-859.
  20. Das, N. (2000). A study of the corporate restructuring of Indian industries in the post-new industrial policy regime – The issue of amalgamations/mergers, unpublished Ph.D. thesis, Calcutta: University of Calcutta.
  21. Dasgupta, P. (2004). Establishing an effective competition policy system: The challenges facing India in implementing its new competition law, presentation made at the WTO/UNESCO/ASCI regional seminar for asia and facific economies on competition policy, development and the multilateral trading system, Hyderabad: India, 6-8 October.
  22. Davidson, W.N., Dutia, D., & Cheng, L., (1989). A re-examination of the market reactions to failed mergers, The Journal of Finance, 44(4), 1077-1083.
  23. DeLong, G. (2003). Does long-term performance of mergers match market expectations? Evidence from the US banking industry, Financial Management, 32, 5-25.
  24. Dodd, P. (1980). Merger proposals, management discretion and stockholder wealth, Journal of Financial Economics, 8(2), 105-137.
  25. Dodd, P., & Richard, R. (1977). Tender offers and stockholder returns: An empirical analysis, Journal of Financial Economics, 5(3), 351-373.
  26. Dilshad, M.N. (2013). Profitability analysis of mergers and acquisitions: An event study approach. Business and Economic Research, 3(1), 89-125.
  27. Draper, P., & Krishna, P. (2006). Acquisitions: Private versus public, European Financial Management, 12(1), 57-80. Drymbetas, Evangelos, & Kyriazopoulos, George (2014). Short-term stock price behaviour around european cross-border bank M&As. Journal of Applied Finance and Banking, 4(3), 47-70.
  28. Duso, T., Gugler, K., & Yurtoglu, B. (2006). Is the event study methodology useful for merger analysis?: A comparison of stock market and accounting data, Discussion paper 163. University of Mannheim.
  29. Dube, Sema, & Glascock, John L. (2006). Effects of the method of payment and the mode of acquisition on performance and risk metrics, International Journal of Managerial Finance, Emerald Group Publishing Limited, 2(3), 176-195.
  30. Fama, Eugene F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
  31. Flanagan, D.J. (1996). Announcements of purely related and purely unrelated mergers and shareholder returns: Reconciling the relatedness paradox. Journal of Management, 22(6), 823-835.
  32. Franks, J.R., & Harris, R.S. (1989). Shareholder wealth effects of corporate takeovers - The UK experience 1955-1985, Journal of Financial Economics, 23(2), 225-249.
  33. Franks, J., Harris, R., & Sheridan, T. (1991). The post-merger share-price performance of acquiring firms. Journal of Financial Economics, 29(1), 81-96.
  34. Goddard, J., Molyneux, P., & Zhou, T. (2012). Bank mergers and acquisitions in emerging markets: Evidence from Asia and Latin America. The European Journal of Finance,  1(58), 419-438.
  35. Goergen, M., & Renneboog, L. (2003). Shareholder wealth effects of european domestic and cross-border takeover bids, European Financial Management, 10(1), 9-45.
  36. Gopalaswamy, A.K., Acharya, D., & Malik, J. (2008). Stock price reaction to merger announcements: An empirical note on Indian markets, Investment Management and Financial Innovations, 5(1), 95-103.
  37. Hassan, M., Patro, D.K., Tuckman, H., & Wang, X. (2007). Do mergers and acquisitions create shareholder wealth in the pharmaceutical industry?. International Journal of Pharmaceutical and Healthcare Marketing, (11), 58-78.
  38. Healy, P.M., Palepu, K.G., & Ruback, R.S. (1992). Does corporate performance improve after mergers?, Journal of Financial Economics, 31(2), 135-175.
  39. Hsu, L., & Jang, S. (2006). Post-merger financial performance of the lodging industry, Proceedings of the 2006 11th annual graduate education and graduate student research conference in hospitality and tourism, January 5-7, 2005, Seattle, USA. 11-20.
  40. Jarrell, G.A., & Poulsen, A.B. (1989). Stock trading before the announcement of tender offers: Insider trading or market anticipation. Journal of Law, Economics and Organization, 5(2), 225-248.
  41. Kale, J.R., Kini, O. & Ryan, H.F. (2003). Financial advisors and shareholder wealth gains in corporate takeovers. Journal of Financial and Quantitative Analysis, 38(3), 475-501.
  42. Kang, N.H., & Johansson, S. (2000). Cross-border mergers and acquisitions: Their role in industrial globalisation. STI working papers. DSTI/DOC(2000).
  43. Karels, Gordon V., Lawrence, Edward., & Yu, Jin. (2011). Cross-border mergers and acquisitions between industrialized and developing countries: US and Indian merger activity, International Journal of Banking and Finance, 8(1), 35-58.
  44. Kashiramka, S., & Rao, N.M. (2013). Shareholders wealth effects of mergers and acquisitions in different deal activity periods in India. European Journal of Business and Management,
  45. Khanna, S. (1997). Industrial deregulation and corporate restructuring: Understanding India’s first merger wave, Mimeo, Calcutta: Indian Institute of Management.
  46. Khemani, R.S. (1991). Recent trends in merger and acquisition activity in Canada and selected countries. Paper presented at the investment Canada conference, corporate globalization through mergers and acquisitions, Toronto.
  47. Kumar, N. (2000). Mergers and acquisitions by MNEs: Patterns and implications, Economic and Political Weekly, 35(32),2851-2858.
  48. Kumar, B.R., & Paneerselvam (2009). Mergers, acquisitions and wealth creation: A comparative study in Indian context, IIMB Management Review, 21(3), 222-244.
  49. Laabs, J.P., & Schiereck, D. (2008).    The long-term success of M&A in the automotive supply industry: The correlation of event and accounting studies, Working paper, department of finance, accounting and real estate, European Business School.
  50. Lee Siew, Peng, & Mansor, Isa (2012). Long-term share performance of Malaysian acquiring firms. Managerial Finance, 38(10), 958-976.
  51. Leeth, J.D., & Borg, J.R. (1994). The impact of mergers on acquiring firm shareholder wealth: The 1905-1930 experience. Empirica, 21(2), 221-244.
  52. Lepetit, L., Patry, S. & Rous, P. (2002). Diversification versus specialization: An event study of M&As in the european banking industry, Applied Financial Economics, 14(9), 663-669.
  53. Locke, Stuart, Dupati, Geeta Rani, & Laurence, Stewart (2011). Market reactions to foreign investments in mergers and acquisitions: An empirical study of Indian Corporates, International Conference on Economics and Finance Research IPEDR, 4, IACSIT Press, Singapore.
  54. Loderer, C., & Martin, K. (1992). Post-acquisition performance of acquiring firms, Financial Management, 21(3), 69-80.
  55. Louhichi, W. (2008). Adjustment of stock prices to earnings announcements: Evidence from euronext Paris, Review of Accounting and Finance, (17), 102-115. 
  56. Loughran, T. & Vijh, A.M. (1997). Do long-term shareholders benefit from corporate acquisitions?, Journal of Finance, 52(5), 1765-1790.
  57. Lowinski, F., Schiereck, D., & Thomas, T.W. (2004). The effects of cross-border acquisitions on shareholder wealth: Evidence from Switzerland, Review of Quantitative Finance and Accounting, 22(4), 315-330.
  58. Mackinlay, C.A. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13-39. 
  59. Mallikarjunappa, T., & Nayak, Panduranga (2013). A study of wealth effects of takeover announcements in India on target company shareholders, Vikalpa, 38(3), 23-50.
  60. Mann, B.J.S., & Kohli, R. (2009). Impact of mode of payment and insider ownership on target and acquirer’s announcement returns in India, Vikalpa, 34(4), 51-66.
  61. Mantravadi, P., & Reddy, A.V. (2008). Post-merger performance of acquiring firms from different industries in India, International Research Journal of Finance and Economics, 22, 192-204.
  62. Martynova, Marina, Oosting, Sjoerd, & Renneboog, Luc (2006). The long-term operating performance of european acquisitions. International mergers and acquisitions activity since 1990: Quantitative analysis and recent research’, G. Gregoriou and L. Renneboog (eds.), Massachusetts: Elsevier, 1-40.
  63. Mitchell, M.L., & Stafford, E. (2000). Managerial decisions and long-term stock price performance. Journal of Business, 73(3), 287-329.
  64. Mitchell, M., Pulvino, T., & Stafford. E., (2002). Limited arbitrage in equity markets, The Journal of Finance, 57(2), 551-584.
  65. Nagano, M., & Yuan, Y. (2013). Cross-border acquisitions in a transition economy: The recent experiences of China and India. Journal of Asian Economics,    2646, -79.
  66. Ng, Lilian, Wu F., Yu, J., & Zhang, B. (2010). The role of foreign blockholders in stock liquidity: A cross-country analysis, Working paper.
  67. Oelger, Mehtap, & Schiereck, Dirk (2011). Cross-border M&A and international stock market integration – Evidence from Turkey, International Journal of Economic Research, 2(3), 40-55.
  68. Pandey, A. (2001). Takeover announcements, open offers and shareholders’ returns in target firms. Vikalpa, 26(3), 19-30.
  69. Panayides, M., & Gong, X. (2002). The stock market reaction to merger and acquisition announcements in liner shipping, International Journal of Maritime Economics, 4(1), 55-80.
  70. Patell, James M. (1976). Corporate forecasts of earnings per share and stock price behaviour: Empirical tests. Journal of Accounting Research, 14(2), 246-279.
  71. Pilloff S.J., & Santomero, A.M. (1996). The value of bank mergers and acquisitions, Working paper, Wharton School, University of Pennsylvania.
  72. Rani, N., Surendra, S., & Jain, P.K. (2011). Impact of mergers and acquisitions on shareholders’ wealth in short-run: An empirical study of Indian pharmaceutical industry, International Journal of Global Business and Competitiveness, 6(1), 40-52.
  73. Rani, N., Yadav, S.S., & Jain, P.K. (2013). Market response to the announcement of mergers and acquisitions: An empirical study from India.Vision: The Journal of Business Perspective,    1(17), 1-16.
  74. Ravenscraft, D.J., & Scherer, F.J. (1989). The profitability of mergers, International Journal of Industrial Organizations, 7(1), 101-116.
  75. Rhéaume, L., & Bhabra, H.S. (2008). Value creation in information-based industries through convergence: A study of US mergers and acquisitions between 1993 and 2005, Information & Management,   4(55), 304-311.
  76. Rosen, R.J. (2006). Merger momentum and investor sentiment: The stock market reaction to merger announcements, Journal of Business, 79(2), 987-1017.
  77. Roy, M. (1999) Mergers and takeovers: The Indian scene during the nineties, in A.K. Bagchi (Eds), Economy and organization- Indian institutions under neo liberalized regime, New Delhi: Sage Publications.
  78. Schwert, G. William (1996). Markup pricing in mergers and acquisitions, Journal of Financial Economics, 41(2), 153-192.
  79. Scholtens, B., & Wit, R.D. (2004). Announcement effects of bank mergers in Europe and the US, Research in International Business and Finance, 18(2), 217-228.
  80. Schiereck, D., Sigl-Grüb, C., & Unverhau, J. (2009). Investment bank reputation and shareholder wealth effects in mergers and acquisitions. Research in International Business and Finance,    2(33), 257-273.
  81. Seth, A., Song, K., Pettit, R. (2000). Synergy, managerialism or hubris? An empirical examination of motives for foreign acquisitions of US firms, Journal of International Business Studies, 31(3), 387-406.
  82. Sirower, M. (1997). The synergy trap: How companies lose the acquisition game, New York, NY: The Free Press.
  83. Shah, Aasif, & Deo, Malabika (2013). Bank mergers and shareholder value creation in India. International Journal of Business and Society, 14(2), 245-264.
  84. Sheel, A., & Nagpal, A. (2000). The post-merger equity value performance of acquiring firms in the hospitality industry, The Journal of Hospitality Financial Management, 8(1), 37-45.
  85. Shusterman, T.G., Norsworthy, J.R., & Bessler, W. (2000). Stock market reaction to the announcement of mergers and acquisitions in the US telecommunications industry, Institute of Electrical and Electronics Engineering, 1(1) 446-452.
  86. Sudarsanam, P.S. (1995). The essence of mergers and acquisitions. London: Prentice Hall. Venkiteswaran, N. (1997) Restructuring of corporate India: The emerging scenario, Vikalpa, 22(3), 3-13.
  87. Wilcox, H. Dixon, Chang, Kuo-Chung, & Grover, Varun (2001). Valuation of mergers and acquisitions in the telecommunications industry: A study on diversification and firm size, Information & Management, 38(7), 459-471.
  88. Yuce, Ayse, & Ng, Alex (2003), Wealth creation in the recent merger boom: The Canadian evidence, Journal of Business & Economics Research, 1(11), 7-11.
  89. Zhu, P.C., & Malhotra, S. (2008). Announcement effect and price pressure: An empirical study of cross-border acquisitions by Indian firms. International Research Journal of Finance, 13, 24-41.
Abstract Views: 5
PDF Views: 922

Related Articles
Does Structural Change Occur in Manufacturing Sectors? Cross-country Evidence with Special Reference to India
Dr. Sarbapriya Ray, Mr. Abhijeet Bag
Analyzing Structural Breaks in India’s Outward Foreign Direct Investment using Generalized Kinked Exponential Model
Mrs. Anindita Goldar
Relative Contribution of Knowledge Technology Towards Knowledge Capture
Prof. Mohnish Kumar
Global Stock Markets and COVID-19: A Case Study of Indian Stock Exchanges
Mr. Sanjib Banik, Dr. Arjun Gope, Dr. Sujit Deb
Impact of Globalization on Stock Market: Development in India
Ms. Kavita Goel, Mr. Rakesh Gupta
An Econometric Study of Export or Import Led Growth Hypothesis in India
Mr. Anand Shankar Paswan, Prof. S. N. Jha
Determinants of Investment in Special Economic Zones (SEZs): A Study with Special Reference to the State of Karnataka
Mr. Chandra Kant Parmar, Dr. Partha Pratim Ghosh
Circular economy: A Review of Global Practices and Initiatives with Special Reference to India
Dr. Kawal Gill, Ms. Iti Verma
Mapping the Cultural Landscape of Mergers and Acquisitions: A Bibliometric Analysis Revealing Key Themes and Prospective Research Avenues
Prof. Mahima Thakur, Ms. Mohini Yadav, Dr. Vinod Kumar, Dr. Sunil Budhiraja, Mr. Ashish Jangra

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.