A study of mergers and acquisitions in India during post liberalization period 1991 to 2007

Abstract

The past two decades have witnessed remarkable growth in the merger and acquisition newlineactivity in India. Merger and acquisition have been a key strategy to consolidate business. newlineThey provide solution to reduce costs, reach global size, take benefit of economies of scale, newlineincrease investment in technology for strategic gains, desire to expand business into new newlineareas and improve shareholder value. Yet a good number of mergers and acquisitions fail newlinebecause of various factors including cultural differences and flawed intentions. Very often newlinecompanies sign the agreement with the hope of higher capital gains due to synergetic effect newlineof combination of two organizations. This belief is not always true as conditions in the newlinemarket and economy often rules the operation and functioning of any company. In this newlinethesis, an attempt has been made to investigate the impact of merger and acquisition newlineannouncement on acquiring firm s shareholders wealth and corporate value creation, in newlineIndia during post liberalization period i.e. 1991-2007.The findings of the study indicate that on an average, an uptrend is seen in the cumulative newlineabnormal return few days prior to the announcement. During post merger announcement the newlinecumulative abnormal return is negative. It is noticed that the shareholders have benefitted by newlinevi newlinetrading in shares of acquirer companies during event window around the date of newlineannouncement only. It has emerged from the study that after merger there is insignificant newlineeffect on the return of merging companies but has significant effect on risk position of newlinemerging companies. It is noticed that the firms have improved performance as a result of newlinegain arising from merger and acquisition in the long run but they failed to generate newlineshareholders wealth in short run. However, different industry sectors in India, showed newlinedifferential impact of merger and acquisition.