Neelam Rani

Market Response to the Announcement of Mergers and Acquisitions: An Empirical Study from India

The present article examines the short-run abnormal returns to India based mergers and acquisitions during 2003–2008 by using event study methodology. The present work is based on a sample of 623 mergers and acquisitions. We find that acquisitions by Indian companies significantly create short-term wealth on the announcement day to the shareholders of acquiring companies. Cumulative average abnormal return (CAAR) for Indian companies’ merger and acquisition activities is 2 per cent (significant at 1 per cent) over event window of 11 days (−5, +5). It seems the market perceives the merger and acquisition activities by Indian companies as efficiency enhancing. However, the results indicate presence of high event-induced variance in abnormal return. The present study reports a high event-induced variance in the abnormal return due to the announcement of mergers and acquisition in Indian context.

Impact of Mergers and Acquisitions on Shareholders’ Wealth in the Short Run: An Event Study Approach

Globalization and liberalization have led firms from emerging markets like India to become more aggressive and opt for mergers and acquisitions (M&A) to fight the competitive battle. The present study attempts to evaluate the impact of mergers and acquisitions on the returns in the short run using detailed event study methodology. The notable finding of the research is that a market starts reacting prior to the announcement. The moment the announcement information becomes public, investors start reacting and the stock price jumps high, providing positive abnormal returns (ARs) to the investors. However, post-announcement, a strong correction in the market price of the acquiring company takes place and positive ARs do not sustain.The findings of the study have the following implications for the investors:1. ‘Earlier he sells more he gains’ and ‘issuance of stock for M&A is not good news’. 2. An investor can also earn substantial returns if the shares of the acquiring company are purchased two days prior to the announcement day and sold two days after the announcement day. 3. The announcement of cross-border acquisitions provides much higher returns than that for domestic. In addition, the cumulative abnormal returns (CARs) in the case of cross-border acquisitions are permanent, while in the case of domestic acquisitions they are temporary.4. The announcement of complete acquisitions of the target firm as a wholly-owned subsidiary provides much higher returns than that for partial/majority control acquisitions. In addition, the CARs in the case of complete acquisitions are permanent, while in the case of partial/majority control acquisitions they are temporary. 5. The announcement of acquisitions financed with cash payment provides substantial returns. This research draws the attention of managers to consider cross-border as well as domestic acquisitions as an option to strengthen their competitiveness. They should think of cash as a mode of payment to finance mergers as issuance of shares is bad news. The management may acquire the target firm as a subsidiary and may absorb it with its own operations later on.

Do Mergers Destroy Value in India

The present chapter delves into ‘how market reacts to the corporate merger deals in India?’. The present work focuses on mergers concluded through absorptions only. The period of study is from 2003 to 2016. The empirical findings based on 150 cases of mergers in India are analysed. We find that shareholders of Indian acquiring companies adopting mergers through absorption experience negative abnormal returns over event window of 41 days (−20, +20). However, high event-induced variance is also observed in abnormal returns. The present study suggests that such high variances in abnormal returns can be explained by the effects of announcement period of mergers completed through absorption.

Has Financial Crisis Affected the Announcement Gains of Indian Cross-border Acquisitions?

The failure of an unparalleled large number of financial institutions during the global financial crisis of 2007–2008 resulted in a freeze of global credit markets. The financial crisis has affected the capital markets around the world. In contrast, the global financial crisis has facilitated the strategic asset-seeking ambitions of emerging market multinationals. The objective of the present article is to examine the market response to cross-border acquisition by Indian companies during 2003– 2015 by conducting event study. We have also compared the acquisition gains before and after the financial crisis. The acquisition gains for the event window (–1, 1) are 2.06 per cent for the entire period 2003–2015 for a sample of 430 announcements. Two-thirds of the acquisitions experienced positive abnormal returns. The abnormal returns are positive and significant for the entire event window of 41 days. The empirical findings also suggest that the CAAR on the event day for pre-crisis period is 4.28 per cent compared to CAAR of 1.70 per cent during post-crisis period. Results are statistically significant. It is evident that market response has muted after the financial crisis.

Mergers and Acquisitions: An Introduction

This chapter is aimed at providing brief outline of the research presented in this monograph. It has described the reasons underlying mergers and acquisitions (M&A), the theoretical perspectives, and motivations for adopting the strategy of mergers and acquisitions. Additionally, the chapter also describes the objectives, scope, need, significance of the study, research methodology (in brief), and the chapter plan of the research.

Impact of Corporate Governance Score on Abnormal Returns and Financial Performance

The present chapter provides the empirical evidence on relationship between corporate governance score and M&A performance in Indian context. The role of corporate governance has been explored on the measurement of the announcement effects on the acquiring firms. The empirical findings indicate that companies with high corporate governance score have positive abnormal returns in the short-term, better financial performance, and higher valuations post-M&A, while companies with lower corporate governance score have lower financial performance and lower valuations post-M&A.

Survey of Management View on Motives for Mergers and Acquisitions

The objective of this chapter is to investigate motives and trend of merger activities of Indian companies during the period 2003–15. A survey has been conducted in the present research work to understand the viewpoint of Indian managers regarding motives of undertaking mergers and acquisitions (M&A). The survey findings show that the primary motivation for mergers is to achieve operating synergies.

Development of Corporate Governance Index

The objective of this chapter is to discuss the development of corporate governance index. Inputs from questionnaire constitute the basis for preparing corporate governance index. The questionnaire focused not only on the transparency and disclosures but broader issues like management discipline and social recognition and responsibility. Corporate Governance Score (CGS) is based on the responses of the 67 issues, categorized under seven main aspects included in the questionnaire. The chapter also presents corporate governance score of the respondent companies.

Short-Term Performance of Mergers and Acquisitions

Mergers and acquisitions (MA via resource redeployment, they increase revenues and reduce cost. Stock market reactions to mergers and acquisitions announcements could help to predict mergers and acquisitions profitability. The present chapter attempts to examine the market response associated with mergers and acquisitions announcements using event study methodology. The effects of these announcements appear to be a good indicator of future success. The empirical research presents evidence that the market, usually, reacts positively to the M&A announcements that are not contaminated by any other contemporaneous firm-specific announcements. The study finds evidence that shareholders of acquiring Indian companies engaging in mergers and acquisitions experience a statistically significant positive abnormal return on announcement day as well as statistically cumulative abnormal returns over multiday event windows. The empirical findings suggest that mergers and acquisitions result in wealth creation for shareholders of the Indian acquirers.

Financial Performance Analysis of Mergers and Acquisitions

Mergers and acquisitions (M&A) have long been used as a strategy for corporate growth and expansion. But, does the financial performance of the acquiring firm (in long term) really improve following mergers and acquisitions? This chapter addresses the major questions related to the long-term performance of the acquiring firm.