Impact of Merger Announcements on Stock Price of Participating Banks

Mergers and Acquisitions are one of the most effective approaches toward horizontal growth and expansion of businesses especially in the banking sector. Merger events come hand in hand with a plethora of information that affects the stock price behavior of participating firms. Although the impact of such events has been widely studied in developed economies, not many studies have been conducted in the Gulf region or, more specifically, in Qatar. This study explores the effect of merger announcements by Masraf Al-Rayan (Bank) and Khaliji Bank by using the event study method for two different events, i.e. the announcement regarding entering merger negotiations and the announcement regarding the finalization of the merger deal. Market Model has been used to calculate the abnormal returns and cumulative abnormal returns for examining the effects of the merger announcement on stock prices of both banks. The results present mixed findings as to the behavior of the shareholders and the stock price performance of both the banks after the merger announcements. The study reflects that stocks of Masraf Al-Rayan have performed negatively after the merger announcements. In contrast, stocks of Khaliji Bank showed significantly positive performance after event 1 and remained almost insensitive after event 2.