Stock Market Reaction to Mergers and Acquisitions Announcements: An Event Study of Indian Acquirer Firms

Abstract

The Indian corporate sector has shown remarkable growth in mergers and acquisitions (M&As) since the liberalization policies of 1991. This paper investigates the short-term market reaction to merger announcements of 40 acquirer firms listed on the Bombay Stock Exchange (BSE) between 2009 and 2018. Using the event study methodology with both the market model and the marketadjusted model, abnormal returns (AR), average abnormal returns (AAR) and cumulative abnormal returns (CAR) were calculated for event windows ranging from -20 to +20 days. The findings reveal that the announcement date (day 0) consistently generates positive and significant abnormal returns, indicating that investors perceive M&As as wealth-creating opportunities. Furthermore, shorter event windows (-1, +1 and -2, +2) show significant cumulative abnormal returns, suggesting lucrative short-term trading possibilities for investors. However, nearly half of the event days reported negative abnormal returns, underlining the mixed perception of the market towards such announcements.