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

Mr. Timcy Sachdeva; Ms. Neena Sinha; Mr. K.P. Kaushik

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

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

Timcy Sachdeva, Neena Sinha, K.P. Kaushik

Vol 16 , Issue 2 , July - December 2015 | Pages: 19-36 | Research Paper

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.

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