Impact of Mergers and Acquisitions on the Shareholder Wealth of the Select Acquirer Banks in India: An Event Study Approach

Mergers and Acquisitions (M&A) are considered to be on the fast track for increasing the size, expanding branch network, and enlarging business operations. The evolution of M&A has been long drawn. In this paper, an attempt has been made to determine the shareholder value addition consequent to merger announcements with respect to the six selected bank mergers during the post-liberalization period, i.e., 1991 to 2005. Suitable statistical tools were employed in the analysis of the data. The effect of merger announcements of the banks on their shareholders’ value was evaluated based on the Abnormal Returns (AR) and cumulative abnormal returns arrived at using Market Model (MM), Market-Adjusted Model (MAM) and Buy and Hold Abnormal Returns (BHAR) model for various event windows. The results of the study indicate that there is a decline in the shareholder wealth when the securities of the select banks are more prone to market risk, while there is an increase in the shareholder wealth when the systematic risks (market risks) of the select public and private sector banks are the same as that of the market (benchmark) portfolio.