An Appraisal of Mergers and Acquisitions - Sharma, Amit
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Questions have generally raised as to why the corporate entities go for mergers and acquisitions (M&As) as this may affect the shareholders of involved companies in different ways and this also influenced by various factors including the prevailing economic environment, size of the companies and more specifically the management of the merger process. This book is based on a study that analyses the impact of M&As on bidders' shareholder wealth and market risk through empirical evidence based on event study methods and cross-sectional regressions. The present study endeavors to analyses the…mehr

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Questions have generally raised as to why the corporate entities go for mergers and acquisitions (M&As) as this may affect the shareholders of involved companies in different ways and this also influenced by various factors including the prevailing economic environment, size of the companies and more specifically the management of the merger process. This book is based on a study that analyses the impact of M&As on bidders' shareholder wealth and market risk through empirical evidence based on event study methods and cross-sectional regressions. The present study endeavors to analyses the impact of mergers and acquisitions (M&As) on the shareholders' value creation both in short as well as during long-term. The short-term impact has investigated by examining the abnormal returns accruing to the shareholders of acquiring, target and the hypothetical combined entity in event period around the day of announcement of M&As using the market-adjusted model of the popular event study methodology. This study uses a sample of 55 Cases of TATA group of companies involved in M&As during the period January 1, 2000, to December 31, 2015. Analysis has been categorized into three different stages. Under the first stage analysis, all 55 cases have been analyzed one by one, using Market Model and Market Adjusted Model. Abnormal Return and Cumulative Abnormal return have been calculated under both the model. In second stage analysis researcher prepared result of Pre-Event (-10 day to -1 day), Event (0 days), and Post-Event (+1 to +10 day) analysis also provide an average return of pre or postevent. Second stage analysis concluded that overall, the top company i.e. Tata Sons firm faces loss in dealing with mergers and acquisitions. As the event study is classified in Pre-Event days, Event day, and Post-Event days. The conclusion of the were based on Market Model and Market Adjusted Model. After evaluating all 55 cases of mergers and acquisitions researcher find 31 negative and 24 positive cumulative abnormal returns around the pre-event day (t-10 to t-2) under Market Model, 30 negative and 25 positive cumulative abnormal return around the pre-event day (t-10 to t-2) under Market Adjusted Model. In third stage analysis Cumulative Average Abnormal Return across the various event windows have been calculated and check the t-test and P-Value to understand the outcomes. Cumulative Average Abnormal Return values across the various pre-announcement event window (-1, 0), (-5, 0) and (-10, 0) were positive but not significant. The CAAR during the event window (0, 0) were also positive but not significant. The CAAR Value during the post-event window of (0, +1), (0, +5) and (0, +10) there was a constant fall in the CAAR values. The analysis presents the results of t-test conducted to measure the CAAR of acquisitions on different event window Share prices of the Tata firm. On the day of the event is a reaction of the random surprise because of the Mergers and Acquisition announcement as well as the other firm-specific reaction affecting the share price of the firm. Estimation of abnormal returns of Tata firm's has greater variance around the event period than in the contiguous period. These results indicated that returns to bidder firms' shareholders is not appropriate at different event window hence we can say that the market, in general, reacts positive to Mergers and Acquisitions announcements. Later, a strong correction in the market price of the bidder firm's take place as almost all the CAAR values during the post announcements periods are negative. So, a conclusion that can be drawn from the above analysis for the Principal Holding Company also, for Mergers, Managerial Hubris theory seems to hold.