Impact of merger announcements on shareholder's wealth: An event case study of State bank of India

The banking sector has been witnessed a considerable growth in terms of Mergers & Acquisitions deals. The current study explores the implications of a merger announcement on shareholder's wealth by using the event case study of State Bank of India (SBI). SBI has been merged with two of its subsidiaries i.e. State Bank of Saurashtra and State Bank of Indore on August 13, 2008 and August 27, 2010 respectively. The effect of mergers has been analysed by calculating the abnormal returns earned by shareholders during the event period. The study concludes mixed evidences about the generation of shareholder's wealth after merger announcement. The significant abnormal returns for the merger of State Bank of Saurashtra around the event date infer the informational inefficiency. On the other hand, results for the merger of State Bank of Indore having less abnormal returns lead to conclude that the market price movements are not only affected by the current information, but also by how it relates to previous information and expectations.