An Event Study Analysis of Merger and Acquisition in the Indian Banking Industry

In the present globalised economy, merger and acquisitions (M&A's) are being increasingly resorted to by the whole world, for improving the competitiveness of the enterprises through enhancing their market share, widening the portfolio to minimize business risk, for penetrating new markets and gaining access to economies of scale, etc. In this paper an attempt is made to analyse the impact of merger announcement in the Indian banking sector on the wealth of the shareholders of the acquiring banks through event study analysis. For this purpose a sample of 10 commercial banks mergers were studied where the merger announcement dates were during the period 1st April, 2000 to 31st March, 2012. It comprised of both public and private sector banks. T test is being applied to determine the significance of the cumulative average abnormal return (CAAR). It was found that CAAR is statistically significant on most of the days in the event window period which provides an indication of the fact that the announcement of merger is making an impact on the wealth of the shareholders.