Do Demerger Announcements Impact Shareholders Wealth? An Empirical Analysis Using Event Study

Abstract

Corporate restructuring has been on an increasing trend in India over the past two decades, and demergers are emerging as one of the important forms of corporate restructuring. While there is extensive literature on demergers abroad, there is limited literature on demergers in the Indian context. In this study, the impact of demerger announcements on shareholders’ wealth is analysed using event study. Demerger announcements made by 63 companies spread over 11 years from 2003 to 2014 are taken up for the study. Two different models, namely, mean-adjusted returns model and market model, are applied. Log returns are used in the study. The efficiency of the Indian stock market is also tested in the study. The results show positive abnormal returns during the event window under both mean-adjusted returns model and market model. The results also indicate that the Indian stock market exhibits semi-strong form efficiency.