Shareholder's wealth creation in mergers and acquisitions in Indian IT industry: A Fowler and Rorke model

The aim of this paper is to analyze if acquiring firm, target firm and combined firm shareholders ascertain positive or negative abnormal returns around Information Technology merger announcement. The study has employed event study methodology to estimate abnormal returns. The study includes sample size of 52 acquiring firm, 8 target firm and 8 combined firm mergers in Information Technology Industry from 2006- 2015. As daily stock data is used to ascertain abnormal returns, there is an issue of non-synchronous trading. The model like Fowler and Rorke are employed to ascertain unbiased beta and alpha value (model parameters). The research has employed a short event window of 61 days and focusses on the narrow 3- day window to capture significant effect of IT merger announcement on shareholders’ wealth. The findings suggest that target firm shareholders have gained a positive abnormal returns from the IT merger announcement, acquiring firm shareholders have gained a positive and insignificant abnormal return from information technology merger announcement and combined firm shareholders have gained positive abnormal return.