Run-up in Stock Prices Prior to Merger & Acquisitions Announcements: Evidence from India (original) (raw)
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Impact of Mergers on Stock Performance and Risk of Acquiring Firms: Evidence from India
Drishtikon: A Management Journal, 2019
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).
Asian Journal of Managerial Science
This study makes an attempt to estimate the impact of horizontal mergers and acquisitions that have taken place in eight selected banks/companies of five Indian private sectors. An event study methodology has been used to explore the effects on the investments of shareholders of the selected company mergers that have taken place during the period 2010 to 2018. This study of stock market valuation and estimation of effective, abnormal and cumulative average abnormal returns in the context of Indian horizontal mergers has shown interesting findings. The results indicate that the mergers and acquisitions in the banking sector have shown a positive impact on the investors of both Kotak Mahindra bank, the bidder bank and ING Vysya bank, the target bank. Further, in the case of pharmaceutical sector the M&A has shown a positive impact on the investors of both bidder company (Torrent Pharma) and the target company (Unichem Laboratories Ltd). In case of first merger considered under the ste...
Relationship of Mergers and Acquisitions with Financial Performance: Indian Evidence
Journal of Economics, Management and Trade
In this paper an attempt has been made to investigate the level of relationship between acquisitions/mergers and operating financial performance by making the pre and post-merger comparison of operating financial performance. The researchers have studied various aspects such as Return on Capital Employed (ROCE), Debt Equity Ratio, Return on Net worth (RONW), Net Profit Margin (NPM), Operating Profit Margin (OPM), Gross Profit Margin (GPM), Earning per Share (EPS) and Price to Earnings Ratio (P/E) so as to ascertain the relationship between pre and post-merger operating financial performance of the acquirers. For this purpose two industries are taken into consideration such as, aviation industry and oil and gas industry. The reference period of five years has been taken for every firm. The findings put forth by the study affirm that the inorganic growth decisions have not gone well, particularly, in the aviation industry for the financial performance has gone from bad to worse, howev...
Afro-Asian J. of Finance and Accounting, 2019
This paper examines the effect of mergers and acquisitions announcements on short-term gain for the acquiring firm's shareholders using the event study method. The study analyses 332 acquiring firms in post-financial crisis era (2009-2015). We report positive wealth effect leading to and on announcement. The effect reverses subsequently. Positive abnormal return leading to announcement indicates leakage of information before the formal announcement. Results of this study is consistent with similar other studies in developed as well as emerging markets.
The Impact of Domestic Mergers and Acquisitions on Acquirer Shareholders’ Wealth in India
Global Journal of Flexible Systems Management, 2012
This paper examines the share price performance of domestic mergers and acquisitions in India during the period [2003][2004][2005][2006][2007][2008]. The focus of the paper is on the shareholders of acquiring firms. The present work performs a disaggregated analysis for sub-samples based on the status of the target firm acquired. The sample is divided into two categories: (i) acquisition of target firm to be totally absorbed with the acquiring firm (ii) target firm remains as subsidiary (51-100 %). The study further investigates the effect of method of financing (cash or stock) employed in the acquisition and the form of the target firm (listed or unlisted) acquired on the stock returns of the acquiring companies' shareholders. The results indicate that acquisitions generate 1.60 % (statistically significant) cumulative average abnormal returns (CAAR) during the event window of 5 days (-2, ?2) for the entire sample. The major finding of disaggregated analysis is that when target remains as a domestic subsidiary, the acquirer earns 2.82 % CAAR (statistically significant) over pre-event window of 19 days (-20, -2). In contrast, the acquirer shareholder loses 0.41 % CAAR when the target firm is absorbed with the acquiring firm during the same period. The acquisitions financed with cash generate positive abnormal returns. The positive abnormal returns are not observed in the case of acquisitions financed with stock. The acquirer of unlisted domestic target firms experience higher return than the acquirers of listed domestic target firms. However, the acquirers experience
Corporate mergers and financial performance: a new assessment of Indian cases
Nankai Business Review International, 2013
PurposeIt is worth mentioning that mergers and acquisitions (M&As) have become a popular vehicle for emerging‐markets firms to rapidly access new opportunities and market capabilities. Indeed, privatization and multi‐nationalization have given a greater shore up in raising global and domestic merger deals. Motivated by these factors, the purpose of this paper is to investigate “do mergers produce abnormal returns around the announcement; conversely, do they improve financial performance in the long‐run?”Design/methodology/approachThe study applies earnings management approach (event study) to compute average abnormal returns (AAR) around the merger announcement for select Indian M&A cases. Further, accounting ratios are considered to assess the long‐run financial performance. Thereafter, t‐stat is applied for testing the proposed hypotheses. In particular, it has performed a later test to the means of financial ratios and variables for both services and manufacturing sectors in acco...
Impact of Mergers and Acquisitions on Financial Performance a study of Select Indian Companies
Adarsh Journal of Management Research, 2018
Many studies revealed the fact that Mergers and Acquisitions (M&A) are a risky business. The corporate evaluations show that most of the companies which completed M&A transactions disappoint to deliver on promised financial performance. But, it is an investment and the highest risks produce the highest resultswhether they're success or failure. The aim of this paper is to study the impact of M&A on the financial performance of select acquirer companies in India. The objective is to analyze the impact of M&A on profitability, growth and liquidity position. The analysis is done based on the financial performance of select Indian companies for five years pre-and post-merger. The selected ten Indian Companies which have undergone M&A during 2006-2016 is taken as sample size. The secondary data for five years pre-and post-merger collected from annual audited financial statements from 2000-2017. To assess the profitability, growth and liquidity position in the select companies,appropriate financial ratios have been used. The data analysis is made with the help of a statistical tool , for the data analysis paired t test used by SPSS software to test the significance level. The findings of this study show that there is no improvement in financial performance of acquirer companies after M&A.
Journal of Management Research and Analysis, 2020
Merger and Acquisition is the most effective ways to accelerate the growth implementation plan of companies. All industries has been using M&A as an aggressive strategy for growth. Merger and acquisition in is not a new concept and burst in M&A has given further space to companies to look for integration for their growth, market coverage or any other strategic requirement. The present research paper aims at studying the impact of mergers and acquisition on the financial performance of corporate sector in India. (On acquiring companies) For the purpose of analysis list of data of 6 companies has been considered from period 2012-2017. The result suggested that there is no significant change on the financial performance of corporate sector in India after merger.
Mergers & Acquisitions are one of the most successful scaling up and company development strategies. Despite being largely acknowledged in developed economies, these strategies are commonly employed in developing countries like India. The event study approach is applied in this study to assess the consequences of Mergers & Acquisitions (M&A) on the value of stocks performance in India's banking sector from 2013 to 2020. The market study approach has used to determine the Abnormal return (AR) and Cumulative abnormal return (CAR) in order to analyze how the phenomena affected share prices prior to and following the occurrence. Event window has been used for this purpose for 81 days (40, 40), whereas estimate window is 200 days. The findings show divergent results on the M&A activity influence the stock price performance. Research findings reveal that while few banks saw positive AR and CAR following the M&A, the bulk of banks experienced negative returns. Overall, the results reveal that the market's response to the recurrence of M&As in India's banking sector has unfavorable. Findings may be useful in providing managers and investors with new views while making investment-related decisions.
Abnormal Returns around Mergers and Acquisitions in the Nepali Stock Market
Prithvi journal of research and innovation, 2021
A merger includes two relatively equal entities that are combined to form one legal entity worth more than a sum of its two separate parts. In the last few years, many Nepali financial institutions have been consolidating through mergers and acquisitions. This paper aims to investigate how the stock market reacts when financial institutions announce mergers and acquisitions. This paper also examines the impact of crosssectional variables on the abnormal returns obtained around merger announcements. The study covers 22 successful merger deals that occurred among 48 financial institutions over the period of 2004 to 2013. This paper used the event study method based on the market model to derive abnormal returns associated around the merger announcement date. The event dates are specified as the dates on which the mergers and acquisitions were announced. The results show that leaving a very few exceptional cases, none of the merged financial institutions received significant cumulative abnormal returns on the merger announcements, regardless of the use of different event periods. The cross-sectional regressions show that the pre-merger performance of target and relative market value are the significant influencing variables on acquirers' cumulative abnormal returns. The finding implies that Nepali financial institutions merge merely to increase their capital base without producing any synergistic effect. Therefore, they need strategic plans for choosing the right partner and achieving other benefits like synergy effect, economies of scale and cost reduction from mergers and acquisitions.