Impact of merger on stock returns and economic value added (EVA) of the acquiring firms: a study from Indian corporate sector

Abstract

Purpose

This paper attempts to examine the impact of merger on the stock returns and economic value added (EVA) of acquiring firms to know if the mergers are successful corporate restructuring strategies for the firms.

Design/methodology/approach

In total, 108 Indian firms are studied using paired sample t-test and Wilcoxon signed rank test for comparing the EVA of acquiring firms in short, medium and long term after merger. The effect of merger announcements on stock returns is analyzed by way of event study. An event window of −20 to +20 is taken and an estimation window of 256 (-276 -20) days is used in the study.

Findings

The authors find that mergers lead to significant improvement in the EVA of acquiring firms. However, the increase in financial performance and EVA is witnessed only in long term. The authors did not find any significant impact of merger announcement on the stock returns of acquiring firms.

Originality/value

The study is a first of study's kind, which evaluates both short-term (using event study methodology) and long-term (using EVA) impact of value addition to an acquirer after Merger & Acquisition (M&A). The study contributes to existing literature on the signaling theory of announcement of M&As and synergy gain theory of completed M&As by providing evidence from the context of an emerging market like India.

Citation

Gulati, P.A. and Garg, S. (2024), "Impact of merger on stock returns and economic value added (EVA) of the acquiring firms: a study from Indian corporate sector", International Journal of Emerging Markets, Vol. 19 No. 3, pp. 649-664. https://doi.org/10.1108/IJOEM-11-2021-1694