The Wealth Effects of Takeover Announcement for Firms in the Financial Services Sector in India

Abstract

Using the parametric and non-parametric tests, this study aims to understand the wealth effects of shareholders of bidder, target and combined firms on the announcement of takeovers. The sample for the study consists of targets from financial sector which are listed in Bombay Stock Exchange (BSE) and listed (in BSE) corporate bidders of the aforesaid targets. The period covered by the study begins with the new millennium from January 2001 and extends to December 2007. The findings suggest that the shareholders of target firms earn significantly positive abnormal returns on takeover announcements, but further analysis reveals that the positive returns was the contribution of only 19 firms, while, for the remaining 48 firms, there was no market reaction on takeover announcements. Apparently, there was some evidence that bidders experienced post-event positive wealth effects on takeover announcements. But this was not true for the majority as the significant findings were the outcome of the reaction of only two firms. On analysis of the combined returns, positive results were observed, but this was again largely because of two pairs of companies generating significantly positive results. Overall, these results seem to suggest that except for a few cases, which show positive returns, takeovers in the financial services sector in general do not evoke market reaction.