Abnormal Returns around Mergers and Acquisitions in the Nepali Stock Market

A merger includes two relatively equal entities that are combined to form one legal entity worth more than a sum of its two separate parts. In the last few years, many Nepali financial institutions have been consolidating through mergers and acquisitions. This paper aims to investigate how the stock market reacts when financial institutions announce mergers and acquisitions. This paper also examines the impact of cross-sectional variables on the abnormal returns obtained around merger announcements. The study covers 22 successful merger deals that occurred among 48 financial institutions over the period of 2004 to 2013. This paper used the event study method based on the market model to derive abnormal returns associated around the merger announcement date. The event dates are specified as the dates on which the mergers and acquisitions were announced. The results show that leaving a very few exceptional cases, none of the merged financial institutions received significant cumulative abnormal returns on the merger announcements, regardless of the use of different event periods. The cross-sectional regressions show that the pre-merger performance of target and relative market value are the significant influencing variables on acquirers' cumulative abnormal returns. The finding implies that Nepali financial institutions merge merely to increase their capital base without producing any synergistic effect. Therefore, they need strategic plans for choosing the right partner and achieving other benefits like synergy effect, economies of scale and cost reduction from mergers and acquisitions.

Market Pricing of Bank M&As and Efficiency in Europe

This study investigates the impact of bank mergers and acquisitions (M&As) on bank efficiency and how such efficiencies are expected to influence bank shareholder value upon merger announcements. It employs stochastic frontier analysis and event study methods along with regression analysis to account for the influences of pre-merger and post-merger efficiencies of bidders and targets in assessing their impact on bidder abnormal returns. Using data for a sample of large commercial bank M&As from 22 European countries, the authors find that bank bidders achieve short-term shareholder value gains from merger announcements, and this could be associated with the perceived efficiencies of bidders and targets. More generally, the evidence supports the view that bank profit efficiency has a positive influence on bidder returns from merger announcements, and therefore markets do take into account the importance of efficiency in value creation. This suggests that stock markets price operational efficiency of banks in predicting value gains from European Bank M&As.

Pre-announcement merger trading by investment bank-affiliated mutual funds

PurposeThis study examines whether mutual funds buy or sell the stock of merger targets advised by their investment bank affiliates in advance of merger announcements and withdrawals. Existing literature finds mixed evidence on whether financial conglomerates act on conflicts of interest across divisions.Design/methodology/approachAffiliations between investment banks and mutual funds are identified, and the incidence and characteristics of mergers where funds trade the stock of targets advised by affiliates are examined.FindingsMutual funds buy or increase holdings of merger targets advised by their investment bank affiliate in advance of merger announcements, capturing highly positive abnormal returns. Mergers with this pre-announcement trading by affiliates are more likely to be completed successfully. Furthermore, mutual funds are more likely to liquidate holdings of a target in advance of a merger withdrawal if the fund is affiliated with the target's investment bank advisor, thus avoiding negative abnormal returns surrounding merger withdrawals. Results are robust after controlling for potential sample selection bias.Originality/valueThese findings contribute to the literature on affiliations between investment banking and mutual fund management, M&A outcomes, and to the discussion of potential conflicts of interest within banks. Also, this study is the first to examine trading activities by mutual funds affiliated with merger investment bank advisors during value-sensitive periods beyond the pre-announcement phase, such as the time period leading up to merger withdrawals.

Creating Wealth for Shareholders: Evaluating the Performance of Merging Companies

Mergers and Acquisitions as business strategies are widely used to increase the wealth of shareholders and the corporate performance. Shareholders wealth may be influenced by many factors such as the corporate performance, deal type, geographic location of the company and so on. The study is conducted with three main objectives of assessing the impact of merger announcements on merging companies’ share prices, analyse the nature of shareholders’ returns of the merging companies and assess the determinants of shareholders returns. NSE listed companies which have made merger announcements during the period of 1st January 2012 to 31st December 2017 shall constitute the sample population for the research, while 40 merger announcements of computer software industry have been taken as sample size. Mean adjusted model has been used for calculating the abnormal returns while the statistical tools of paired samples t-test, ANOVA and multiple regressions have been used for analyzing data. Results of the research reveal that merger announcements exert significant impact on share prices. Further, shareholders wealth has witnessed an increase after the merger announcements. Finally, shareholders wealth has not been affected by the company’s performance.

Deal Initiation in Mergers and Acquisitions

We investigate the effects of target initiation in M&As. We find target-initiated deals are common and that important motives for these deals are target economic weakness, financial constraints, and negative economy-wide shocks. We determine that average takeover premia, target abnormal returns around merger announcements, and deal value to EBITDA multiples are significantly lower in target-initiated deals. This gap is not explained by weak target financial conditions. Adjusting for self-selection, we conclude that target managers’ private information is a major driver of lower premia in target-initiated deals. This gap widens as information asymmetry between merger partners rises.