Stock Price Reaction to Mergers Announcement in short run: An Empirical Analysis to Indian Banking Industry

Abstract

The paper try to search is there any association between mergers and acquisition
and market performance in short run period. Mergers and acquisition has been accepted as
one of the important strategies of corporate finance to create value for shareholders. There
are plethora of studies in abroad pertaining to value creation to shareholders through mergers
and acquisition in short run by using event study methodology. The literature of mergers
indicate there is a mixed view considering wealth creation to shareholders. There is lack of
studies in Indian context whether mergers establish value to shareholders or not. This
motivates to explore whether there is any association of creating wealth to shareholders in
short run. The objective of this study to find out whether mergers generate abnormal return to
the shareholders of acquiring firms in Indian banking sectors in short run. The paper try to
inspect whether any positive return generated by firm because of mergers and acquisitions
announcement in short run by using event study methodology. The study has taken the
domestic merger for the period from 2004-2014 to analyse the effect merger on shareholder
wealth in short run by using BSE listed company in Indian banking sector. The results
indicate there is negative abnormal return to the shareholders of the acquiring firms in event
period of 41 days in Indian banking sector. The study also used both parametric and nonparametric test to establish statistical significance of abnormal return to the shareholder.