Impact of mergers and acquisitions on shareholders' wealth: a study of Telecom sector of Pakistan

Salar Hussain

doi:10.17485/ijst/v13i21.615

Abstract

Objectives: This study aims to investigate the impact of mergers and acquisitions related events on the shareholders\' wealth in Telecom sector of Pakistan. Statistical analysis: Event study methodology has been used to achieve this objective, in which, the short term and long term performance of firms are measured. For short term performance, Abnormal Returns (AR) and Cumulative Abnormal Returns (CAR) are measured while to determine long term performance, Buy-and-Hold Abnormal Returns (BHAR) are measured. Findings: The results revealed that the occurrence of these events has negatively affected the shareholders\' wealth and the financial market did not respond to these events in the telecom sector of Pakistan. Application: The study suggests that the telecom sector should choose different strategies to gain market share, to increase revenues, to gain a competitive edge and to diversify risk. Keywords: Mergers; acquisitions; event study; abnormal returns; cumulative abnormal returns; buy-and-hold abnormal returns

Highlights

Mergers and acquisitions (M&As) have gained considerable interest in academic research
The objective of this study is to find the impact of mergers and acquisitions on the stock market returns, which will be achieved with the help of event study technique as introduced Dodd and Warner [23] and Brown and Warner [24]and extended by Barber and Lyon [25]
Companies opt for M&As for the purpose of growth, cost reduction, acquiring assets and business expansion into new markets leading towards enhanced firm performance to achieve profitability and to improve shareholders’ wealth[4]

Summary

Introduction

Mergers and acquisitions (M&As) have gained considerable interest in academic research. Most of these studies focus on the short term impact of these events on the stock market returns. While some of the studies focused on the longer-term impact of these events on the stock returns. Motives behind the mergers and acquisitions (M&As) is to enhance the market share, to boost revenues, to gain competitive advantage, and to diversify risk and products [2]. Acquisition or takeover is mostly the purchase of capital shares of the company. M&As are important for companies to achieve growth, reduce costs, acquiring assets and to expand their markets resulting in higher profitability and returns[4]. Due to the global financial crises, the rate of M&As has increased just not because to gain competitive advantage

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Methods

Conclusion