Impact of Merger and Acquisition on the Stock Returns and Volatility: Evidence from India

Abstract

This article examines the impact of mergers and acquisitions (M&A) on returns and volatility in Indian stock market. The article analyses daily stock price data of different companies representing varied sectors from April 2015 to February 2024. The study applies event study to investigate the impact on returns and autoregressive conditional heteroskedasticity (ARCH)–based models to measure the impact of M&A on volatility. The possibility of earning trading gains has been explored through t-test. The results reveal that though the average abnormal return was not significant during most of the days, there were statistically significant cumulative average abnormal returns during the post-window period. Further, short-term investments can generate intermediate gains in addition to the immediate cumulative profits. The ARCH-based models indicate that M&A had substantial influence on 16 stocks. The volatility came down in the case of 16 stocks after the announcement of M&A, and this effect was significant in 12 stocks. However, a significant positive impact on volatility was also observed in four stocks.The findings are useful for investors, corporates as well as market regulators to take appropriate decisions.