Open Offers and Shareholders Earnings: Evidence from India
27 Pages Posted: 21 Feb 2011 Last revised: 29 Oct 2014
Date Written: November 19, 2011
Purpose: Mergers and acquisitions (M&A) have become a popular vehicle for domestic as well as international companies to rapidly access new markets, assets and capabilities. This motivates us to study the impact of open offers on shareholders returns in the Indian context.
Design/Methodology/Approach: The study computes simple stock returns (R), market returns (M), abnormal returns (AR), security returns variability (SRV) and apply the analysis of variance (ANOVA – one way) to locate any significant differences among the means of stock returns during pre and post substantial acquisition offer announcement.
Findings: The findings indicate that there exist significant negative returns during post announcement period. Though, positive returns observe in short period after the immediate acquisition of shares. In contrast, we also observe that AAR & CAR notices lower returns and security returns variability (SRV) becomes proportionate to AAR and CAR.
Research limitations: The research period 2007-10 is not long enough, so the acquisition effect if any, on target firms would not be apparent. During global financial crisis, the market sentiments and investor perception towards stocks have not favorable and do not considered.
Practical implications: The research work may helps stock brokers, M&A advisory and regulatory bodies while designing takeover and open offer policies.
Originality/Value: We compute SRV along with abnormal returns to find any correlation sets during pre and post acquisition period. This is an original contribution undertake open offers and shareholders earnings in the emerging markets era, say India.
Keywords: mergers, acquisitions, takeovers, open offers, earnings management, event study
JEL Classification: G34
Suggested Citation: Suggested Citation