An Impact of Mergers and Acquisitions on Stock Price Behaviour of Acquiring Pharmaceutical Companies

Abstract

In India, Pharma sector has been witnessed an acceptable growth in terms of mergers and acquisitions deals. In past few years, Indian Pharma companies have adopted the trend of mergers and acquisition deals between Foreign companies and domestic and firms. This study analyses the impact of mergers and acquisitions on profitability and stock price behaviour of acquiring companies by applying 27 days event window, the impact of such decision on the acquiring companie’s share price. The data of share price at market price are collected for a period of 6 years [-3, 0, +3] event period. This study examines the effect on the share price by finding the abnormal return of the share price of acquiring companies using a 27 days [-13, 0, +13] day and 7 days [-3, 0, +3] event period. The expected return on the stock for each day was calculated using the CAPM Model. To analyze the stock price behavior “Autoregressive Conditional Heteroscedasticity” (ARCH) Model is used. Results reveals that, there has not been any remarkable effect of the abnormal return, performance of the market price developments are not only affected by the present figures but also, relates to several past information and future expectations of the share price. However, a fall in Cumulative Abnormal Return (CAR) has been noted which might be because of the fear of the failure of the acquisition in the minds of the shareholders.