Do mergers and acquisitions create shareholders wealth in India? Event study methodology on banking and manufacturing sectors

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Lalan, Niraj
Issue Date
MSc International Accounting and Finance
Dublin Business School
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The main aim of this research is to find out how M&A create shareholders wealth in Indian banking and manufacturing sectors. The sample comprised of ten companies listed on BSE at the time of announcement (or approval) from both the banking and manufacturing sectors. They included Bank of Baroda, State Bank of India, Kotak Mahindra Bank, ICICI Bank, State Bank of India, Motherson Sumi Systems, Reliance Industries, United Breweries, Tata Steel Ltd. and TVS Srichakra. The event window that was chosen for the observation was 11 day when the M&A approval was made. The data for each company was collected using a data observation sheet. Name of the bank; event dates surrounding the approval, approval date (event date), share price index, and average share price. An event study methodology was used to determine the effects of M&A on shareholders wealth (Brown and Warner, 1985). The model of the market was used to determine whether or not M&A have a significant effect on the participants. From this, the research could be able to determine whether the shareholders' wealth is enhanced by the mergers. The study produced the two main findings: First, the past Indian M&A were not creating wealth to the shareholders. Secondly, there were no significant changes in the share prices for the 11-day event window. Key findings of the study were two-fold. First, the study established that the share prices of the six sampled firms did not exhibit significant changes within an 11-day event window. The recent studies seem to concur with the findings. The conclusion drawn from the study is that the shareholders' bidder companies do not gain in terms of wealth in the short run while the target gains wealth. The study recommends that management should be careful when investing in M&A.