Impact of Mergers on Stock Return in Indian Stock Exchange with Reference to BSE

Abstract

Mergers, acquisitions and corporate control have emerged as major forces in the modern financial and economic environment. The mergers and acquisitions in India have changed dramatically after the liberalization of Indian economy. To assess the impact of an “event” announcement of a tender offer, share repurchase, amalgamation, and so on, on the gains and stock value of the shareholders, it is necessary to measure the total holding period gains around the day of announcement of the transaction. Therefore, to determine the impact of a merger the share price, it is to be ascertained if there is a gain from mergers. The present study is limited to a sample of companies which underwent merger during the period of 2002-2005 in Indian stock exchange namely BSE. It is proposed to analyze the share price reaction of the acquirer and target companies from the same industry during 20 days before and after the day of merger by using CAR analysis and t-test. The study found that the shareholders of the acquirer companies reacted positively after the merger event.

Keywords: Abnormal Return, acquirer, market adjusted model, market model, merger; target

JEL Classification: G34