Effect of Mergers and Acquisitions on Stock Returns: Evidence from a Frontier Market

This study examines the mergers and acquisitions on stock returns in the Sri Lankan context. The main objective of this study is to investigate the effects of mergers and acquisitions on stock returns of Sri Lankan companies and establish whether there is any relationship between mergers and acquisitions on stock returns. For the intended purposes, the impact of mergers and acquisitions on stock returns, the secondary data is used from 10 listed companies for the period from 2010 to 2019. The event study methodology is used to examine the reaction of investors to the announcement of mergers and acquisitions. The event window was 80 days, which is 40 days before and after the announcement date. The result indicates that mergers and acquisitions announcements generate positive significant Cumulative average abnormal returns (CAAR) at the event date. However, after the event date, acquirer companies exhibit very low CAAR close to zero or sometimes negative value and not statistically significant. Thus, findings suggest that the shareholders' reaction to the information content of mergers and acquisitions limited to event day. After the announcement date, the CAAR takes a gradual declining trend. Keywords: Acquisition, Colombo Stock Exchange, Event Study analysis, Merger, Stock Return