Stock Market Reaction to Merger Announcements in Indian Public Sector Banking: An Event Study Approach

The study aims to analyze the stock market reaction to the merger and acquisitions announcement in the Indian Banking Sector.

The Event-Study methodology was used in order to check the short-term reaction of the investors over a 21-day event window. The market model was used for calculation of expected return with the benchmark index as Nifty 50. Statistical tests, including the Shapiro-Wilk test and t-tests (two-tailed), were applied to analyze whether the resultant Abnormal Return was significant.

The findings indicate that no bank has a significant abnormal return on Day 0. However, on Day +1, 4 banks have showcased abnormal returns. Indian Bank continued to show a reaction on Day +2, and Union Bank again on Day +6. However, Bank of Baroda did not show any market reaction. It suggests that investors either expected the news or quickly adjusted to it.

The study contributes to the growing literature on M&A by offering empirical insights into investor behavior and sentiment, and the semi-strong form of EMH in the Indian context.