Long-term Post-merger Share Price Performance of Indian Acquiring Firms

Mergers are viewed as long-run strategic decisions expecting to generate long-run benefits rather than short-run benefits. Therefore, studies which highlight only short-run merger results, more specifically in the form of event returns, are narrow in their approach and outlook. A positive reaction to merger announcement in the short-run need not indicate a satisfactory longrun performance. Several studies have been carried out measuring the longterm performance of acquiring firms on the basis of accounting and market variables. The market return based studies in general indicate that the shareholders of acquiring firms earn either negative long-run returns or no returns. The present study analyses the long-run performance of selected Indian mergers by computing the long-run CAR and buy-and-hold abnormal returns (BHARs). Though the 36-month long-run CAR is positive, we find a higher CAR in the first 12-month period than the 36-month CAR. The 36- month BHAR computed using market index as a reference portfolio is only 0.62%. On the other hand, the BHAR computed using control firms as a reference portfolio shows no additional returns to acquiring firms. The findings of the present study are similar to empirical evidence of US, UK and European mergers and vindicate the evidence that mergers in general do not create any additional wealth to the shareholders of acquiring firms.