Impact of Mergers and Acquisitions on Returns to Shareholders of Acquiring Firms :Indian Economy in Perspective

The paper examines the returns to shareholders of acquiring companies in India during the period 2003-08. The abnormal returns due to the announcement of mergers and acquisitions (M&A) and return on equity funds five years before and after M&A have been examined. The study also performs a disaggregated analysis for sub-samples based on the status of target firm acquired whether it remains as a wholly owned subsidiary (WOS) or gets absorbed with the operations of acquiring firm and investigates the effect of method of financing (cash or stock) employed in the acquisition and the type of the target firm (listed or unlisted) acquired on the stock returns of the acquiring companies’ shareholders. The results indicate that M&A generate statistically significant abnormal returns on the announcement as well as higher post M&A returns for shareholders of the acquiring firms. The M&A financed with cash, experience higher returns than the acquisitions financed with stock. Another notable finding is that acquirers acquiring listed firms experience positive abnormal returns) contrary to the pattern observed in developed countries.