Shareholders wealth effects of Mergers & Acquisitions in different deal activity periods in India

Abstract

It has been observed that Mergers and Acquisitions (M&A) occur with different intensity at different points of time; there are periods of high M&A activity as against other periods when deal activity remains low. The comparison of shareholders wealth effect of M&A announcements in these different periods of deal activity has attracted less attention. This paper attempts to analyze and compare the wealth impact of M&A announcements during different periods of deal activity in Indian Information Technology and Information Technology enabled Services (IT&ITeS) sector between 1999 to 2009.

The standard event study methodology was used for estimating abnormal returns for both acquiring and target firms in domestic M&A announced in this period . The results were tested and compared using parametric tests.  All the tests were conducted assuming that the Indian capital markets are efficient in semi-strong form. The results indicate that both the acquiring firms and target firm shareholders gained on acquisition announcement irrespective of the period of announcement of the deal; mergers on the other hand generate wealth losses for the acquiring firms across all periods.  It was also found that the overall movement in the stock market affects the magnitude of the gains/ losses of acquiring and target firms.

Key Words: Mergers, Acquisitions, Shareholders Wealth, Event Study Methodology, India.