The Impact of Domestic Mergers and Acquisitions on Acquirer Shareholders’ Wealth in India

This paper examines the share price performance of domestic mergers and acquisitions in India during the period 2003-2008. The focus of the paper is on the shareholders of acquiring firms. The present work performs a disaggregated analysis for sub-samples based on the status of the target firm acquired. The sample is divided into two categories: (i) acquisition of target firm to be totally absorbed with the acquiring firm (ii) target firm remains as subsidiary (51-100%). The study further investigates the effect of method of financing (cash or stock) employed in the acquisition and the form of the target firm (listed or unlisted) acquired on the stock returns of the acquiring companies' shareholders. The results indicate that acquisitions generate 1.60% (statistically significant) cumulative average abnormal returns (CAAR) during the event window of 5 days (-2, 2) for the entire sample. The major finding of disaggregated analysis is that when target remains as a domestic subsidiary, the acquirer earns 2.82% CAAR (statistically significant) over pre-event window of 19 days (-20, -2). In contrast, the acquirer shareholder loses 0.41% CAAR when the target firm is absorbed with the acquiring firm during the same period. The acquisitions financed with cash generate positive abnormal returns. The positive abnormal returns are not observed in the case of acquisitions financed with stock. The acquirer of unlisted domestic target firms experience higher return than the acquirers of listed domestic target firms. However, the acquirers experience (statistically significant) negative abnormal returns for the post-event window of 19 days (2, 20) in all acquisitions