TITLE

MARKET PERFORMANCE OF ACQUIRING COMPANIES

AUTHOR(S)

Mogla, Monika; Singh, Fulbag

PUB. DATE

January 2010

SOURCE

Paradigm (09718907);2010, Vol. 14 Issue 1, p72

SOURCE TYPE

Academic Journal

DOC. TYPE

Article

ABSTRACT

This paper examines the market reaction to merger announcements for acquiring companies. Since the cost Accounting data contain many errors market data have been used for calculating wealth gains arising from merger activity. As the actual merger activity in India started after 1994, there is a dire need to understand its wealth impact on shareholders. With consideration of mergers taking place after 1990, the study is confined to 123 Indian acquiring companies. Total sampled cos. have been divided into four sub-samples i.e. group mergers, non-group mergers, related mergers and unrelated mergers. Daily market returns have been computed for 21 days around merger announcement. Standard event study methodology has been applied to find out market reaction. Significant negative abnormal returns (ARs) of -1.24 percent are being noticed on day -1 for acquiring cos. Thus, acquiring shareholders lost at the time of merger announcement. Market response is particularly bitter for the mergers taking place between non-group companies and unrelated cos. Non-group companies experienced significant negative cumulative abnormal returns (CARs) of -11.21 percent over 21 day event window while unrelated cos. exhibited significant negative returns of -3.18 percent during the same time.

ACCESSION #

80443370

 

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