Wealth Effects of Bank Mergers: Evidence from Shareholder Returns

The objective of this study is to measure the merger announcement effects on the wealth of shareholders of bidder banks, target banks, and combined banks. This article employs event study methodology and Paired-samples t-test to evaluate the impact of merger announcement on shareholders wealth. It is found that the bidder bank shareholders enjoy significant wealth gains of 4.14% in a 41-day event window period, whereas the target and combine bank shareholders do not. The voluntary mergers bestow significant wealth gains of 8.637% for the shareholders of bidder bank, whereas in case of forced merger the shareholders have witnessed nominal wealth loss. The redistribution of shareholder wealth on the merger announcement in India seems to be found in other studies. Managers may have to factor-in the impact of the type of merger before deciding the pairs of mergers. This article adds to knowledge about wealth effects of merger announcement and influence of the type of merger in the Indian context. TOPICS:Security analysis and valuation, statistical methods, performance measurement, emerging