Do Merger Announcements Enhance the Wealth of the Shareholders? Evidence from India Banking Sector

Abstract

The present study attempts to examine the impact of merger announcements on shareholders’ wealth of respective banks in the Indian banking sector. The study considers 13 mergers which include the merger of both public sector and private sector banks. Event Study Methodology has been used for the analysis purpose. The study uses both a one-factor model and a two-factor model to calculate the cumulative abnormal return in various time windows. The notable findings of the study demonstrate that the market reaction towards the merger announcement is negative in both the public and private sector banks. The impact on public sector banks is more compared to the private sector banks as the resulting Cumulative Abnormal Return (CAR) values are negative and significant. Contrary to the above findings, the shareholders of Kotak Mahindra Bank and ING Vyasa Bank have gained wealth as a result of the merger as the market has reacted positively to the merger announcement.