Essay on Merger and Acquisition in India

Abstract

In this research, we study the effect of an announcement of mergers and newlineacquisitions (MandA) on return to shareholders of both acquiring and target firms newlinein India. We have considered 788 acquiring firms and 175 target firms in newlinedomestic and non-financial sectors, which are listed and permitted for the period newlinefrom 2001 to 2016 for our research. We have used event study, which provides newlineshort-term returns on MandA announcement. The variables in our research newlineinclude the daily closing price of the security and stock market indices. The data newlinehas been collected from Bloomberg database and Capital line plus (CNX 500). newlineCNX 500 is considered to be a good indicator of stock market indices for the newlineresearch; moreover, it is the first broad-based stock market index for India. newlineAdditionally, it may be noted that we have used the market model method with newlinelog return to estimate AR, AAR and CAAR, as the market model is known to newlinetake explicit account of the risk associated with the market and mean returns. newlineThe uniqueness of this study lies in the fact that it provides a complete newlineconsolidated research, encompassing a period from 2001 to 2016. It covers both newlineacquiring and target firms, with four major variables (i.e., mode of payment, newlinestatus of listing in stock exchange, status of industry relation and cross-border newlinestatus). The detailed theories, associated literatures along with the findings and newlineexplanations are provided to give a holistic insight. The results may be useful newlinefor business investors, corporate management, market regulators and research newlinescholars, whereby they would be able to appreciate market behavior post 2001. newlineLargely, our findings indicate that the shareholders-return to MandA newlineannouncement for both acquirers and shareholders of target firms are positive; newlinehowever, the shareholders returns of target firms are comparatively high. These newlinehigh returns are reflected in a pre-event day window, but subsequently declines newlinein a post-event day window for shareholders of both acquiring and target firms. newline