Impact of Merger and Acquisitions on Firm value in Financial Sector Firms of Pakistan

  • Muhammad Usman Qureshi COMSATS University of Islamabad, Vehari Campus, Vehari, Pakistan
  • Muhammad Azeem Bahauddin Zakariya Univeristy, Multan
  • Muhammad irfan Javed COMSATS University of Islamabad, Vehari Campus, Vehari
Keywords: Mergers and acquisitions, Shareholders returns, Firm value

Abstract

Mergers and acquisition are not only related to accounting measures of performance of firms but it also affects the wealth of shareholders either positively or negatively. According to Hubris hypothesis, the merger and acquisition announcement brings negative effect to shareholders wealth and decreases the abnormal return in post period. The present study took this analysis separate for long and short run period. To capture immediate effect on shareholders return study used Market Model to calculate abnormal returns and employed the t-test on it to check the significant differences in two sample data set. Out of 12 cases of M&A eight mergers showed negative abnormal returns for post period with statistical significance at 1% level, two at 5% and two acquiring firms reduced returns were not statistically significant. Overall on the basis of most M&A results, the study concluded consistent results with earlier studies. The long run analysis employed by using Ohlson (1995) model for firm value with introducing dummy variable for the pre and post period. The results indicated coefficient of dummy for merger was -0.52 with statistical significance at 1% level which is demonstrating negative effect on share price which ultimately reduces the returns. The study concluded that merger and acquisition announcement bring negative effect on shareholders return either for short run or long time period

Published
2020-12-31
How to Cite
Qureshi, M., Azeem, M., & Javed, M. (2020). Impact of Merger and Acquisitions on Firm value in Financial Sector Firms of Pakistan. South Asian Review of Business and Administrative Studies (SABAS), 2(2), 129-146. Retrieved from https://journals.iub.edu.pk/index.php/sabas/article/view/452