The Impact of Merger and Acquisition Firms on Stock Market Bubble

Abstract

In this research, we have endeavored to ascertain how the Merger & Acquisition firms effect the Pakistani stock market (PSX) during all stages of bubble periods. The regression results of “transaction multiples” and “inverse transaction multiples” show that the trading of the securities of Merger & Acquisition firms has increased in all stages of bubble periods less crash period where they decreased. The regression results have also revealed that Pakistani investors in the stock market carry a “weak financial knowledge & financial risk distress management” & they prefer market manipulation for discounting & therefore, they are adversely hit market manipulations in the stock exchange while trading securities. Resultantly, managerial incentives, as well as cost of capital of Merger & Acquisition firms, stand increased with the help of relevance of accounting, Earnings manipulation & by exercise Investing Activities.

The Role of Financial Attributes of Profitable Firms on Stock Performance in Pakistan

“…In some cases, the KSE 100 index has crossed the 45000 index due to these firms, which other words could be considered market manipulation. Here are the basic factors that the present research has identified on this topic, which manifold the basic nature of our stock market abnormal returns (Khalid et al, 2019).…”

“…This research investigates to what degree profitable firm's equity transactions are influenced by respective firm's financial information to common stockholders with in stock market.We hypothesize that by providing firm's financial information, the returns and transactions of profitable firms have grown considerably during over and under market reactions. We also investigate whether the importance of financial data in explaining returns has shifted over time (Lys et al, 1999;Yosef et al, 2010;Yang et al, 2017;Muhammad &Ali 2018 andKhalid et al, 2019). As per empirical literature, the findings of these investigations are conflicting (Amir & Lev, 1996;Bartholdy & Peare, 2001;Hirschey et al, 2001;Drew et al, 2003;Venkatachalam et al, 2003;Nguyen & Swanson 2009;Callen et al, 2010;Yang et al, 2017;Neukirchen, 2022).…”

“…If investors spend money or invest regardless of cost-effectiveness and return-on-investment, they will not get desired results (Brown, 1968;Beaver, 1968;Zaheri & Barkhordary, 2015;Navdal, 2010). Risk and profitability are two elements of investment (Vennet, 1996;Muhammad & Ali, 2018;Khalid, Rehman & Kashif, 2019;Aharon, Gavious & Yosef, 2010). CAPM is method for measure the risk-return relationship.…”

“…Fama and French (1973) developed multi-factor model by including two variables, BM ratio and firms size which identify the risk significantly affect stock returns. Aharon, Gavious and Yosef (2010) and Khalid et al, (2019) applied various variables in the transaction multiples model to identify firm's profitability and risk factors and Brown (1968); Beaver (1968), andKeener (2011) has used relevance of accounting techniques to measure firm present and future prospect in term of firm profitability and returns. Intention of investors in company stock is to earn a logical return, and stock return is comprised of stock price movements and profit received in marketplace.…”

“…The main question, if there is any sig. relation-ship between firm's profitability indicators like (ROA, ROE, BM & PM), risk indicators (firm's size & leverage)and stock returns (Khalid et al, 2019).…”