The Impact of Merger and Acquisition on Karachi Stock Exchange–Testing Semi-Strong Efficient Market Hypothesis

This paper particularly addresses the impact of mergers and acquisition (M&A) announcements on share prices in Pakistani stock market from 2006 to 2014. It uses event study method for a sample of 32 M&A announcements from both financial and non-financial sectors. The result shows that M&A declarations do not signal any significant information to Pakistani market. Therefore, the findings show statistically insignificant abnormal returns on announcements of M&A, however a significant positive abnormal return just before proclamation of merger and acquisitions is noted. Similarly, the bidder firms show significant share price reaction and also some gains before the announcement which may be because of leakage of information (Khan, 2011). While after the declaration both target and bidder firms experience losses but overall conclusion detects that the target companies get fewer abnormal earnings as compared to acquirer firms in case of acquisitions. The insignificant unexpected returns on announcement date of M&A do not support semi-strong form of EMH. The findings of this study help investors in devising their investment strategies based on the timing of important announcements by companies such as M&A.