Informational Efficiency of Merger and Acquisitions: A Study of Indian Stock Market

Abstract

The present study is conducted is to measure the change in share prices after the merger announcement date by using event study methodology and is based on a database consisting 515 sample companies taken from CMIE-Prowess for the period of five years i.e. 2005 to 2013. The standard event methodology using Sharpe Single Index and Capital Asset pricing Model (CAPM) is used to calculate abnormal returns. The t-test has been used to study the statistical significance of average abnormal returns (AARs). Capital market is said to be semi strong efficient if AARs are zero. The results shown in different tables depicts that AARs are significant for few days for all the five years but it is the year 2009-10 which is having significant abnormal return on event day. But positive AARs are less significant rather than negative AARs. For the year 2007-08 and 2008-09, it is clear that negative AARs are significant and also less in numbers with a comparison to other three years. Therefore, the presence of significant AARs make mandatory for the study that null hypothesis can’t be accepted for any one of the year. This indicates that delayed in share prices adjustment contradicts with the semi strong form of efficient market hypothesis.