Creating Wealth for Shareholders: Evaluating the Performance of Merging Companies

Abstract

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.