Journal of Entrepreneurship & Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Impact of Merger and Acquisition Announcements on Stock Returns and Intraday Volatility:Evidence from Indian Banking Sector


Affiliations
1 Doctoral Student, Department of Management, I.K. Gujral Punjab Technical University, Kapurthala, Punjab, India
2 Assistant Professor, Department of Management, I.K. Gujral Punjab Technical University, Kapurthala, Punjab, India
     

   Subscribe/Renew Journal


The primary objective of present study is to examine the impact of merger and acquisition announcements during 2000-2018 on stock returns and intraday volatility of banks listed on National Stock Exchange in India. The sample of 383 mergers and acquisitions events has been analyzed with the help of event study methodology. Findings suggest that consolidation in Indian banking sector leads to positive average abnormal returns and wealth creation for acquirer bank’s shareholders. These findings are in agreement with Onikoyi et al. (2014), Kumar et al. (2011), and Anand and Singh (2008), and contrary to the evidence provided by Sim (2015), Asimakopoulos and Athanasoglou (2012), and Cybo-Ottone and Murgia, (2000). Further, results show that merger and acquisition in banking sector lead to curvy jumps in volatility around announcement date, which implies that disclosure of restructuring events in the banking sector affects return variability. These results confirm the observations by Pessanha et al. (2016), Kamau (2016), and Louhichi (2008).

Keywords

Acquisition, Merger, Stock Return, Average Abnormal Return, Volatility, Event Study Analysis.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Abbas, Q., Hunjra, A. I., Azam, R. I., Ijaz, M. S., & Zahid, M. (2014). Financial performance of banks in Pakistan after Merger and Acquisition. Journal of Global Entrepreneurship Research, 4(1), 1-15.

  • Adnan, A. T. M., & Hossain, A. (2016). Impact of M&A announcement on acquiring and target firm's stock price: An event analysis approach. International Journal of Finance and Accounting, 5(5), 228-232.

  • Aik, N. C., Hassan, M. K., Hassan, T., & Mohamed, S. (2015). Productivity and Spillover effect of merger and acquisitions in Malaysia. Management Research Review, 38(3), 320-344.

  • Altunbaş, Y., & Marqués, D. (2008). Mergers and acquisitions and bank performance in Europe: The role of strategic similarities. Journal of Economics and Business, 60(3), 204-222.

  • Anand, M., & Singh, J. (2008). Impact of merger announcements on shareholders' wealth: Evidence from Indian private sector banks. Vikalpa, 33(1), 35-54.

  • Athanasoglou, P., & Asimakopoulos, I. (2012). Revisiting the merger and acquisition performance of European Banks. International Review of Financial Analysis, 29, 237-249.

  • Auerbach, A. J., & Reishus, D. (1987). The impact of taxation on mergers and acquisitions. In Mergers and Acquisitions (pp. 69-86). University of Chicago Press.

  • Bannette, C. (2016). Stock Volatility and the economic performance of a country. The Economics Times, India.

  • Barclay, M. J., Litzenberger, R. H., & Warner, J. B. (1990). Private information, trading volume, and stockreturn variances. The Review of Financial Studies, 3(2), 233-253.

  • Becher, D. A. (2000). The valuation effects of bank mergers. Journal of Corporate Finance, 6(2), 189-214.

  • Berger, A. N., Demsetz, R. S., & Strahan, P. E. (1999).

  • The consolidation of the financial services industry: Causes, consequences, and implications for the future.Journal of Banking & Finance, 23(2-4), 135-194.

  • Bharath, S. T., & Wu, G. (2005). Long-run volatility and risk around mergers and acquisitions. University of Michigan, Department of Finance. 1-43. Retrieved from https://pdfs.semanticscholar.org/0750/ c87c78abd1f9682f06e58aa89 a3bbc614b36.pdf

  • Boon Tan, H., & WooiHooy, C. (2004). Bank merger and bank stock volatility: a post-announcement analysis. Managerial Finance, 30(4), 29-47.

  • Camargos, M. A., & Barbosa, F. V. (2009). Fusões e aquisições de empresasbrasileiras: Criação de valor e sinergiasoperacionais. RAE-Revista de Administração de Empresas, 49(2), 206-220.

  • Campa, J. M., & Hernando, I. (2006). M&A's performance in the European financial industry. Journal of Banking and Finance, 30, 3367-3392.

  • Cetorelli, N., & Goldberg, L. S. (2011). Global banks and international shock transmission: Evidence from the crisis. IMF Economic Review, 59(1), 41-76.

  • Choi, S., & Murtagh, J. P. (2004). Bank mergers in south Korea: Does government intervention add value?. Research in Banking and Finance, 5, 169-193.

  • Choi, S., Francis, B. B., & Hasan, I. (2010). Cross-border bank M&As and risk: Evidence from the bond market. Journal of Money, Credit and Banking, 42(4), 615-645.

  • Chong, B., Liu, M., & Tan, K. (2006). The wealth effect of forced bank mergers and cronyism. Journal of Banking and Finance, 30(11), 3215-3233.

  • Chronopoulos, D. K., Girardone, C., & Nankervis, J. C. (2013). How do stock markets in the US and Europe price efficiency gains from bank M&As?. Journal of Financial Services Research, 43(3), 243-263.

  • Claessens, S., & Van Horen, N. (2014). Foreign banks: Trends and impact. Journal of Money, Credit and Banking, 46(s1), 295-326.

  • Cornett, M. M., McNutt, J. J., & Tehranian, H. (2006). Performance changes around bank mergers: Revenue enhancements versus cost reductions. Journal of Money, Credit and Banking, 38(4), 1013-1050.

  • Cybo-Ottone, A., & Murgia, M. (2000). Mergers and shareholder wealth in European banking. Journal of Banking & Finance, 24(6), 831-859.

  • Dilshad, M. N. (2013). Profitability analysis of mergers and acquisitions: An event study approach. Business and Economic Research, 3(1), 89-125.

  • Fama, E. F (1976). Foundation of finance, basic books. New York, NY.

  • Ferretti, R. (2000). Le acquisizionibancarie e la reazione del mercatoborsistico: le analisi in Usa, Europa e Italia. Bancaria, 56(10), 26-33.

  • French, K. R., & Roll, R. (1986). Stock return variances: The arrival of information and the reaction of traders. Journal of Financial Economics, 17(1), 5-26.

  • Furlong, F. (1994). The performance of commercial banks in post-consolidation period in Nigeria. An Empirical Review, 13, 5-12.

  • Gathecha G. G. (2013). The Information Content of Mergers and Acquisition Announcement for listed Companies at the NSE, project, University of Nairobi.erepository.uonbi.ac.ke/bitstream/handle/ 11295/58582/Gitau_The%20Information%20 Content%20Of%20Mergers%20And%20Acquisition.pdf?sequence=3

  • Geppert, G., & Kamerschen, D. R. (2008). The effect of mergers on implied volatility of equity options. International Review of Financial Analysis, 17(2), 330-344.

  • Ghosh, A. (2004). Increasing market share as a rational for corporate acquisitions. Journal of Business Finance and Accounting, 31(1-2), 209-247.

  • Goyal, K. A., & Joshi, V. (2012). Merger and acquisition in banking industry: A case study of ICICI Bank Ltd. . International Journal of Research in Management, 2(2), 30-40.

  • Greene, J. T., & Watts, S. G. (1996). Price discovery on the NYSE and the NASDAQ: The case of overnight and daytime news releases. Financial Management, 19-42.

  • Greve, H. R. (1999). Branch systems and nonlocal learning in populations. Advances in Strategic Management, 16, 57-80.

  • Hannan, T. H., & Pilloff, S. J. (2009). Acquisition targets and motives in the banking industry. Journal of Money, Credit and Banking, 41(6), 1167-1187.

  • Harada, K., & Ito, T. (2011). Did mergers help Japanese mega-banks avoid failure? Analysis of the distance to default of banks. Journal of the Japanese and International Economies, 25(1), 1-22.

  • Hawkins, J., & Mihaljek, D. (2001). The banking industry in the emerging market economies: Competition, consolidation and systemic stability: An overview. Bank for International Settlements, Paper No.4, pp.1-44.

  • Hennart, J. F., & Slangen, A. H. (2015). Yes, we really do need more entry mode studies! A commentary on Shaver. Journal of International Business Studies 46(1), 114-122.

  • Houston, J. F., James, C. M., & Ryngaert, M. D. (2001). Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders. Journal of Financial Economics, 60(2), 285-331.

  • Hughes, J. P., & Mester, L. J. (1998). Bank capitalization and cost: Evidence of scale economies in risk management and signaling. Review of Economics and Statistics, 80(2), 314-325.

  • Imala, O. I. (2005). Challenges of banking sector reforms and banks consolidation in Nigeria. Bullion Publication of CBN, 29(2), 25-36.

  • Jayaraman, N., Mandelker, G., & Shastri, K. (1991). Market anticipation of merger activities: An empirical test. Managerial and Decision Economics, 12(6), 439-448.

  • Jawa, R. (2009). Mergers, acquisitions and corporate restructuring in India: procedures and case studies, New Century Publications

  • Kamau, B. (2016). The Effect of Mergers and Acquisitions Announcement on the Stock Return Volatility of the Commercial Banks Listed at Nairobi Securities Exchange, 1-57. erepository.uonbi.ac.ke/ bitstream/handle/11295/98588/Mergers%20Announcements%20and%20Stock%20volatility%20 Effects%20on%20Commercial%20Banks%20% 2 0 F i n a l % 2 0 % 2 0 D 6 1 % 2 0 7 4 7 8 7 % 2 0 2 0 1 4 . pdf?sequence=1&isAllowed=y

  • Kar, R. N. (2006). Mergers and acquisitions of enterprises: Indian and global experiences. New Century Publications.

  • Kaur, P. (2012). Mergers in India: Exploiting Financial Synergies. Academic Foundation, New Delhi.

  • Kemal, M. U. (2011). Post-merger profitability: A case of Royal Bank of Scotland (RBS). International Journal of Business and Social Science, 2(5), 157-162.

  • Khan, S. I. M. (2015). Bank efficiency in southeast Asian countries. International Business Management, 9(3), 239-250.

  • Kim, J. Y., & Finkelstein, S. (2009). The effects of strategic and market complementarity on acquisition performance: Evidence from the US commercial banking industry, 1989-2001. Strategic Management Journal, 30(6), 617-646.

  • Kumar, M., Kumar, S., & Deisting, F. (2013). Wealth effects of bank mergers in India: A study of impact on share prices, volatility and liquidity. Banks and Bank Systems, 8(1), 127-133.

  • Kumar, M., Kumar, S., & Morandiere, L. (2011). Relationship between merger announcement and stock.

  • Kumar, R. (2009). Post-merger corporate performance: An Indian perspective. Management Research News, 32(2), 145-157.

  • Langetieg, T. C., Haugen, R. A., & Wichern, D. W. (1980). Merger and stockholder risk. Journal of Financial and Quantitative Analysis, 15(3), 689-717.

  • Levy, H., & Yoder, J. A. (1993). The behavior of option implied standard deviations around merger and acquisition announcements. Financial Review, 28(2), 261-272.

  • Louhichi, W. (2008). Adjustment of stock prices to earnings announcements: Evidence from Euronext Paris. Review of Accounting and Finance, 7(1), 102-115.

  • Maksimovic, V., & Phillips, G. (2001). The market for corporate assets: Who engages in mergers and asset sales and are there efficiency gains?. The Journal of Finance, 56(6), 2019-2065.

  • Mall, P., & Gupta, K. (2019). Impact of merger announcements on stock returns of acquiring firms: Evidence from INDIA. Journal of Commerce & Accounting Research, 8(1), 46-53.

  • Mall, P., & Gupta, K. (2019). Impact of mergers on stock performance and risk of acquiring firms: Evidence from India. Drishtikon: A Management Journal, 10(1), 27-46.

  • Mantravadi, D. P., & Reddy, A. V. (2008). Post-merger performance of acquiring firms from different industries in India. International Research Journal of Finance and Economics, Issue 22, 192-204.

  • Micu, A., & Micu, I. (2016). Mergers and acquisitions in the banking sector during the financial crisis. SEAPractical Application of Science, 4(11), 385-392.

  • Mishra, P., & Chandra, T. (2010). Mergers, acquisitions and firms performance: Experience of Indian pharmaceutical industry. Eurasian Journal of Business and Economics, 3(5), 111-126.

  • Neely, W. P. (1987). Banking acquisitions: Acquirer and target shareholder returns. Financial Management, 66-74.

  • Olisaemeka, A. G. (2010). The meltdown of the Nigerian capital market: Causes and consequences Retrieved from https://www.nairaland.com/241080/ meltdown-nigerian-capital-market-causes.

  • Onikoyi, I. A., & Awolusi, O. D. (2014). Effects of mergers and acquisitions on shareholders wealth in Nigerian banking industry. British Journal of Marketing Studies, 2(4), 52-71.

  • Pandey, I. M. (2005). Financial management, (9th edition). New Delhi: Vikas Publishing House Pvt. Ltd.

  • Pautler, P. A. (2001). Evidence on Mergers and Acquisitions, Bureau of Economics, Federal Trade Commission. Working Paper No. 243, 25 September 2001. Retrieved from http://www.ftc.gov/be/workpapers/ wp243.pdf

  • Pessanha, (2016). Mergers and acquisitions and market volatility of Brazilian banking stocks: An application of GARCH models. Latin American Business Review, 17(4), 333-357.

  • Pilloff, S. J. (1996). Performance changes and shareholder wealth creation associated with mergers of publicly traded banking institutions. Journal of Money, Credit and Banking, 28(3), 294-310.

  • Resti, A., & Siciliano, G. (2001). Do bank acquisitions increase shareholders' wealth? A comparison between market-based and accounting-based performance indicators for some Italian banks returns: Evidence from Indian banking. Banks and Bank Systems, 6(4),23-32.

  • Rhoades, S. A. (1998). The efficiency effects of bank mergers: An overview of case studies of nine mergers. Journal of Banking & Finance, 22(3), 273-291.

  • Roll, R. (1986). The hubris hypothesis of corporate takeovers. Journal of Business, 59(2), Part-1, 197-216.

  • Scholtens, B., & Wit, R. D. (2004). Announcement effects of bank mergers in Europe and the US. Research in International Business and Finance, 18(2), 217-228.

  • Sharma, P., & Warne, D. P. (2012). Banks perspective inmergers: A case study on merger of Bank of Rajasthan Ltd with ICICI Bank Ltd. International Journal of Marketing, Financial Services and Management Research, 1(10), 101-110.

  • Siems, T. F. (1996). Bank mergers and shareholders wealth, evidence from 1995 mega merger deals. Financial Industry Studies, published by Federal Reserve Bank of Dallas, 1-12.

  • Sinha, N., Kaushik, K. P., & Chaudhary, T. (2010). Measuring post-merger and acquisition performance: An investigation of select financial sector organizations in India. International Journal of Economics and Finance, 2(4), 190-200.

  • Smith, B. F., White, R., Robinson, M., & Nason, R. (1997). Intraday volatility and trading volume after takeover announcements. Journal of Banking & Finance, 21(3), 337-368.

  • Somoye, R. O. C. (2008). The performances of commercial banks in post-consolidation period in Nigeria: An empirical review. European Journal of Economics, Finance and Administrative Sciences, 14(14), 62-73.

  • Stunda, R. (2014). The market impact of mergers and acquisitions on acquiring firms in the US. Journal of Accounting and Taxation, 6(2), 30-37.

  • Zahid, N., & Shah, M. (2011). Merger and acquisition in international business. European Scientific Journal, 1, 43-56.

  • Zhang, C., Li, D., & Ren, R. (2016). Pythagorean fuzzy multigranulation rough set over two universes and its applications in merger and acquisition. International Journal of Intelligent Systems, 31(9), 921-943.

  • Zhu, P., Jog, V., & Otchere, I. (2014). Idiosyncratic volatility and mergers and acquisitions in emerging markets. Emerging Markets Review, 19(c) 18-48.


Abstract Views: 337

PDF Views: 1




  • Impact of Merger and Acquisition Announcements on Stock Returns and Intraday Volatility:Evidence from Indian Banking Sector

Abstract Views: 337  |  PDF Views: 1

Authors

Pinky Mall
Doctoral Student, Department of Management, I.K. Gujral Punjab Technical University, Kapurthala, Punjab, India
Kapil Gupta
Assistant Professor, Department of Management, I.K. Gujral Punjab Technical University, Kapurthala, Punjab, India

Abstract


The primary objective of present study is to examine the impact of merger and acquisition announcements during 2000-2018 on stock returns and intraday volatility of banks listed on National Stock Exchange in India. The sample of 383 mergers and acquisitions events has been analyzed with the help of event study methodology. Findings suggest that consolidation in Indian banking sector leads to positive average abnormal returns and wealth creation for acquirer bank’s shareholders. These findings are in agreement with Onikoyi et al. (2014), Kumar et al. (2011), and Anand and Singh (2008), and contrary to the evidence provided by Sim (2015), Asimakopoulos and Athanasoglou (2012), and Cybo-Ottone and Murgia, (2000). Further, results show that merger and acquisition in banking sector lead to curvy jumps in volatility around announcement date, which implies that disclosure of restructuring events in the banking sector affects return variability. These results confirm the observations by Pessanha et al. (2016), Kamau (2016), and Louhichi (2008).

Keywords


Acquisition, Merger, Stock Return, Average Abnormal Return, Volatility, Event Study Analysis.

References