Long-Term Abnormal Returns during Pre and Post Merger: Evidence from India

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.

Market Mispricing Timing and Post-acquisition Performance: Evidence from Chinese A-share Firms

“…BHAR reflects the return to an investor if they bought an acquiring firm's stock on acquisition announcement to a specified later date. The long-term returns are calculated monthly, compounding 36 months after the M&As, adjusted by the benchmark return, consistent with prior studies [38,44,45]:…”