A Wave of Mergers and Acquisitions: Are Indian Banks Going Up a Blind Alley?

Motivated by the paucity of empirical studies examining the impact of mergers and acquisition (M&A) announcements on the acquiring firms' rivals, we made an attempt to uncover the spillover effect of M&A announcements on the stock market reaction of acquiring firms' rivals. Using a sample of 97 M&A announcements during the period from April 2014 to March 2016 and 179 rivals of acquirers, we found that acquiring firms and acquiring firms' rivals react positively to the announcement of M&As. The results of the disaggregated analysis suggest that horizontal M&As do not result in a significant positive reaction of acquiring firms' rivals. Therefore, this study does not support the collusion theory. We also found negative (insignificant) stock market reaction of acquiring firms' rivals upon the announcement of cross-border M&As. However, overall results show that acquiring firms' rivals react positively to the announcement of M&As. This significant positive reaction of acquiring firms' rivals goes in line with signalling theory. Thus, we argue that M&A announcements signal information regarding the growth potential of rivals, which results in positive stock market reaction of acquiring firms' rivals upon the M&A announcements.

Section: Methodsmentioning

confidence: 99%

Spillover Effect of M&A Announcements on Acquiring Firms’ Rivals: Evidence from India

Ranju

Mallikarjunappa

2019

“…Mantravadi and Reddy (2008) investigated Indian acquiring firms and found that there are minor variations in terms of impact on operating performance following mergers, in different sectors of Indian industries. Kaur (2010) analysed 'why some firms acquire' and 'why some get acquired' with special reference only to the Drugs and Pharmaceutical Industry from 1993-1994to 2002-2003. Kalra et al (2013 examined the firm-specific factors impacting M&As for the Indian banking sector and found the absence of any significant impact of M&As on their financial performance.…”

Section: Overview Of Literaturementioning

confidence: 99%

M&A Movements: An Analysis of Patterns of Indian Trends

Kar

2021

Indian industrial landscape had been completely redrawn by the forces of globalization, deregulation and unprecedented technological advancements for the last three decades. Corporate enterprises have responded to the competitive pressures unleashed by these forces through extensive repositioning activities involving corporate restructuring in general and mergers and acquisitions (M&As) in particular. This article has carried out a survey of Indian M&As for different industry groups by creating a database of 1990–2011 to find the presence of M&As waves in India. Empirical construct revealed the trends of Indian M&As for 24 industry groups and identified three distinct waves of M&As. The survey of Indian M&As has revealed that there was a significant reduction of Indian M&As in international deals than domestic deals during the economic recession period (2008–2009). Using VAR and VECM model, it emerged that M&As waves for different sectors of Indian industry move in the same cyclical pattern. Their behaviour, apparently independent corporate decisions, are most likely affected by the conditions of the economy, which may be changed by various macroeconomic factors which are in line with the findings of several other studies. This study contributes towards finding the answer to this question by establishing the underlying common factors that cause the cyclical behaviour in all the M&A waves. This article also establishes the basic interdependence and co-movements between the waves, and how this interdependence changed over time.

“…The analysis is based on the event study which has been applied in different contexts by many researchers. The methodology has been applied to gauge, among others, the impact of mergers and acquisitions (Anand & Singh, 2008;Kalra, Gupta, & Bagga, 2013), share buyback announcements (Chatterjee & Mukherjee, 2015) and dividend announcements (Maitra & Dey, 2012). The methodology has been used to assess the impact of marketing-related decisions like celebrity endorsements (Jaikumar & Sahay, 2015;Liu & Brock, 2011) and brand extension announcements (Lane & Jacobson, 1995).…”

Section: Empirical Modelmentioning

confidence: 99%

Impact of Automobile Recalls on Stock Prices: A Study in the Indian Context

Singh¹

2017

Not so long ago, ‘product recalls’ in the Indian automobile sector were a novelty. The defective vehicles were repaired as part of the after-sales service. In the absence of a strong regulatory framework, the manufacturers were under no obligation to proactively initiate product recalls. The introduction of a voluntary code on product recalls by the Society of Indian Automobile Manufacturers (SIAM) in 2012 and introduction/amendments in the existing legal regimen of the country in recent years have led companies to take more than just baby steps towards product recalls. Product recalls are a case of management failure. There is a need for gauging the impact of this failure on the stock price of the manufacturers, especially in the Indian context where the recall phenomenon is poised to gain further momentum. The event study methodology is a widely used approach to assess the impact of a particular event/announcement on the stock price. This methodology was used in the present study to gauge whether abnormal stock returns accrued to the manufacturers during 13 product recall announcements made in the Indian automobile sector between 1 January 2010 and 31 December 2015. The study found that product recall announcements generated small and statistically insignificant cumulative abnormal returns (CAR) of –0.02 per cent in the (–1, +1) event window, 0.92 per cent in the (–2, +2) event window and 1.70 per cent in the (–5, +5) event window. The study found no substantial or statistically significant difference in the CAR generated during big recalls and small recalls. Furthermore, the study found little evidence that CAR generated during recalls where defective component(s) in the vehicle were repaired is positive as compared to CAR generated when such component(s) were replaced.