https://doi.org/10.53908/NMMR.300107
Volume 30, Issue-1, January 2022
Abstract:
Purpose: The present study measures the impact of merger on Indian acquiring
entities’ long term stock price performance. The study covers 109 acquiring entities
of merger deals undertaken during the period of 2000 to 2012, comprising of a study
period of 1997 to 2015.
Methodology: The same is measured through monthly CAR (Cumulative Abnormal
Return) and BHAR (Buy and Hold Abnormal Return) of selected acquiring entities
during the period of 12, 24 and 36 months post the merger and comparing it with 12,
24 and 36 months pre merger respectively. The Abnormal Return (AR) is computed as
the excess of acquiring entity stock’s monthly log return over the market’s (SENSEX)
monthly log return. A paired t-test has being applied to compare the pre and post CAR
and BHAR after eliminating outliers using box-plot technique and assuring normality
of variables.
Findings: The results show a significant reduction in post merger monthly CARs and
BHARs as compared to pre merger.
Practical Implications: CAR being based on arithmetic mean is useful to investors
who hold stocks for relatively short period of time around the merger month. BHAR
being based on geometric mean is useful to investors who hold stocks for the entire
holding period before and after the merger month.
Originality: Abnormal returns pre and post merger scenario in the long run are less
explored in the Indian context which this study aims at. The study also compares
the results of abnormal returns around long term time frame in India with that of the
global context as well.
Keywords: Mergers, Abnormal returns, Long-term, India
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