Merger Induced Volatility changes: Evidence from the Indian Banking Sector

Abstract

Indian Banking Sector is undergoing stress lately, with shortfalls in capital adequacy ratios and a steep rise in stressed assets. This led to mergers of various banks, either through private interventions or government interventions. This research aims to study the effect of these mergers on the volatilities of the acquiring firms. This study is essential as volatility affects valuation. The study aims to use panel data with 4 mergers. The study uses DCC-GARCH and modifications of GJR-GARCH to assess the volatility changes pre and post the merger. Cross-sectional techniques of abnormal volatilities show a significant increase in post-merger returns as compared to pre-merger returns.