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

2018 ◽  
Vol 22 (1) ◽  
pp. 22-31
Author(s):  
P. A. Padmanabhan
Keyword(s):  
Stock Market ◽  
Event Study ◽  
Abnormal Returns ◽  
Corporate Restructuring ◽  
Market Model ◽  
Extensive Literature ◽  
Event Window ◽  
Increasing Trend ◽  
Indian Stock Market ◽  
The Impact

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.

An Empirical Study of Stock Split Announcements of Select BSE Sectors Using Event Study Methodology

2015 ◽  
Vol 6 (1) ◽  
pp. 1 ◽  
Author(s):  
Asha Nadig
Keyword(s):  
Health Care ◽  
Stock Market ◽  
Event Study ◽  
Abnormal Returns ◽  
Market Model ◽  
Stock Splits ◽  
Consumer Durables ◽  
Stock Market Reaction ◽  
Stock Split ◽  
Indian Stock Market

This study examines the stock market reaction to stock splits between 2002 and 2013 of 6 sectors of BSE-Auto, Bankex, Consumer Durables, FMCG, Health Care and IT sectors to find out if the Indian stock market is semi-strong efficient or not. The methodology used is event study under the market model. Samples of 14 stock splits are considered spread across 6 sectors. The results indicate that there are significant positive abnormal returns prior to split announcements. On the day of split announcement, 1 sector reacts positively (Health Care-3.3%) and the 5 react negatively (Auto -1%, Bankex -0.9%, CD -0.3%, FMCG -1%, and IT-1%). The results indicate that the null hypothesis, H<sub>0</sub>1, that there is no significant AAR around the stock split announcement dates is accepted.

scholarly journals Market Efficiency of Indian Capital Market: An Event Study Around the Announcement of Results of Lok Sabha Election 2019

2020 ◽  
Vol 12 (1) ◽  
pp. 60
Author(s):  
Nazreen Parveen Ali ◽  
Ashit Saha
Keyword(s):  
Stock Market ◽  
Market Efficiency ◽  
Stock Prices ◽  
Public Information ◽  
Market Model ◽  
Event Window ◽  
Share Prices ◽  
Indian Stock Market ◽  
The Impact ◽  
Adf Test

Market efficiency categorizes a stock market into three sections based on the reaction of share prices to private and public information. This paper mainly deals with reactions of stock market dynamics to information in political events considering the impact of result announcement of the Lok Sabha Elections 2019 on the Indian Stock market as reflected in the behaviour of share prices. Taking BSE 100 as the proxy market, daily closing stock prices of the 30 companies listed in BSE SENSEX was used. An estimation window of 120 trading days was taken prior to the event window. The standard Market model was applied to calculate the AAR and CAAR during the event window of 21 days. Further the Augmented Dickey Fuller (ADF) Test for unit root is applied to measure the stationary of the variables and the presence of ARCH/GARCH effect is tested to understand the volatility during the study period. The Runs Test was used to test the randomness of AAR and the paired sample t test was applied to check the impact of the event on the volume of trading. Consistent negative returns were observed following the event. But the absence of volatility and the insignificant results indicated that market efficiency Indian Stock Market is in a semi strong form.

Impact of Stock Splits and Rights Issue Announcements on Market Price: Evidence from India

2016 ◽  
Vol 7 (2) ◽  
Author(s):  
Babitha Rohit ◽  
Prakash Pinto ◽  
Shakila B.
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Exchange ◽  
Market Price ◽  
Abnormal Returns ◽  
Market Model ◽  
Stock Splits ◽  
Indian Stock Market ◽  
Rights Issue ◽  
The Impact

The current paper studies the impact of two events i.e stock splits and rights issue announcement on the stock returns of companies listed on the Bombay Stock Exchange. The study consists of a sample of 90 announcements for stock splits and 29 announcements for rights issue during the period 2011-2014. Market model is used to calculate the abnormal returns of securities. Positive Average Abnormal Returns were observed for the two events on the day their announcements, however they are not statistically significant. The study concludes that the Indian stock market is efficient in its semi-strong form.

scholarly journals Dividend Announcements and Market Trends

2021 ◽  
Vol 13 (10) ◽  
pp. 139
Author(s):  
Nagendra Marisetty ◽  
M. Suresh Babu
Keyword(s):  
Stock Market ◽  
Stock Markets ◽  
Abnormal Returns ◽  
Small Sample ◽  
Market Model ◽  
Market Capitalization ◽  
Dividend Announcements ◽  
Market Trends ◽  
Indian Stock Market ◽  
The Impact

This research primarily aims to study the impact of dividend announcements on the stock price of companies listed in the Indian stock market. Incidental to the study, it is necessary to understand whether the market trends have any role in affecting the changes in share prices due to dividend announcements. The companies listed on the stock market are diverse in terms of the industry, market capitalization, and performance. We analyze the S&amp;P BSE 500 index stocks, which declare cash dividend every year without fail for ten years from 2008 &ndash; 17. Total 1755 sample was tested for dividend announcement and sample divided into large, medium, and small sample sizes based on the market capitalization of the stocks to test the market trend effect. Event methodology market model used to calculate the abnormal returns on the dividend announcement day. The present research study examined the impact of dividend announcements on stocks in the Indian stock market. The results observe in twenty-four times based on market capitalization wise and market trend-wise dividend announcements. The results of the study are not the same for all dividend announcement observations. The study found positive abnormal returns on event day in most of the dividend announcement observations and it is similar to Litzenberger and Ramaswamy (1982), Asquith and Mullins Jr (1983), Grinblatt, Masulis, and Titman (1984), Chen, Nieh, Da Chen, and Tang (2009) and many previous research results studied in major developed stock markets and emerging stock markets. Full sample, large-cap, and small-cap final dividend average abnormal returns are positively significant only in bull market trend (period 2) similar to Below and Johnson (1996) and other market trends final dividend announcement abnormal returns are positive in most of the observations, but returns are not significant. Average abnormal returns are sensitive to market trends, especially abnormal small-cap returns more vulnerable to market trends.

An Event Study on the Effects of North Korea Risks on South Korea‘s Stock Market

2014 ◽  
Vol 22 (2) ◽  
pp. 251-284
Author(s):  
Inho Lee ◽  
Shiyong Yoo
Keyword(s):  
Stock Market ◽  
Event Study ◽  
North Korea ◽  
Weighted Average ◽  
Efficient Market Hypothesis ◽  
Economic Cooperation ◽  
Market Model ◽  
Substantial Impact ◽  
Significant Difference ◽  
The Impact

There have always been North Korea Risks in South Korea stock market since its opening. Some studies have concluded that it does not have a substantial impact on South Korea’s economy due to chronic geopolitical risks, while others have argued it has had an impact. However, in light of the Efficient Market Hypothesis (EMH) it can be argued that both opinions view that information about North Korea Risks affects stock markets and that stock prices react to it. This study analyzed the effects of North Korea Risks on South Korea’s stock market using event study methodology empirically, and it tested the semi-strong EMH-a market in which prices always fully reflect available information. The research results are following: First of all, North Korea Risks have an impact on South Korea’s stock market and the data was statistically significant. In particular, stock market already reflected information about the forewarned events like nuclear test. However, market also responded to information about sudden events such as the impact of Kim Jung-il’s death on the South-North economic cooperation stock. Portfolio analysis demonstrated that small capital stocks were affected more than large caps. These results cannot reject the EMH. Also, estimates of market model and that of Fama-French three-factor model did not show a statistically significant difference in different verification. There was no statistically significant difference between growth and value stock in large caps portfolio either. However, there was a statistically significant difference between defense stock and South-North economic cooperation stock, small caps and big caps, and weighted average and simple average. The significance of this study lies in that it conducted the event study by variety estimation model with objective standards for selecting events when measuring the effect of North Korea Risks.

A Study of Wealth Effects of Takeover Announcements in India on Target Company Shareholders

2013 ◽  
Vol 38 (3) ◽  
pp. 23-50 ◽  
Author(s):  
T Mallikarjunappa ◽  
Panduranga Nayak
Keyword(s):  
Strategic Alliances ◽  
Stock Price ◽  
Statistical Significance ◽  
Abnormal Returns ◽  
Wealth Effect ◽  
Market Model ◽  
Wealth Effects ◽  
Event Window ◽  
Target Company ◽  
The Impact

The business strategy of inorganic growth is carried out by companies by resorting to actions which prominently include mergers, takeovers, and strategic alliances. There is a rapid growth of both mergers and takeovers in India subsequent to the economic liberalization. The companies consider takeover activity as the quickest means of corporate growth to enhance their size and face the domestic and global competition. In spite of several decades of vast research, researchers have not come to the final conclusion on the wealth effect of announcements of takeovers on the shareholders of participating companies. While some studies justify takeover as a socially productive activity which creates value for the shareholders, others provide contrary evidences to show that they destroy value for the shareholders. In India, only some studies have analysed the impact of M&A announcements on the stock return performance of companies involved and there is lack of evidences on wealth effects on shareholders. Therefore, this paper assesses the impact of takeover announcement on the stock price performance of target companies by taking a sample of 227 companies which received takeover bids during 1998–2007. The stock price reaction is examined for a period of 61 days surrounding the bid announcement day employing standard market model. BSE- 200 index is used as a proxy for the market. The regression co-efficient and the constant terms are estimated over a period of 250 days (-280 to -31) and the statistical significance of the results of the study is determined by non-standardized and standardized abnormal return methods. Both raw returns and log returns are examined. Results of the study show that target company shareholders experience substantial and statistically significant cumulative average abnormal returns (CAARs) of 27-37 percent — 37 percent when raw returns are employed and 27 percent when log returns are employed. The conclusions remain unchanged irrespective of the testing procedure used (i.e., non-standardized or standardized abnormal returns method) and even for several shorter event window periods within a broader event window of 61 days. The results for target companies are consistent with the evidence of extant research that major benefits from M&As accrue to target company shareholders. The practical implication of the study is that there is a large and significantly positive wealth effect on the target company shareholders in response to the announcement of takeovers. Takeovers offer an opportunity to shareholders of target companies and general investors to make profits both in the period before and after the announcement of the takeover bid.

scholarly journals Monetary Policy Announcements and Market Interest Rates in Pakistan: An Event Study Approach.

2011 ◽  
Vol 50 (4II) ◽  
pp. 821-839
Author(s):  
Habib-ur-Rahman Habib-ur-Rahman ◽  
Hasan M. Mohsin
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Event Study ◽  
Positive Impact ◽  
Abnormal Returns ◽  
Event Window ◽  
Significant Evidence ◽  
Study Approach ◽  
Arch Effect ◽  
The Impact

The objective of this paper is to analyse the impact of monetary policy (MP) announcements on market interest rates at different nine maturities (1/Week, 2/Week, 1/Month, 3/Months, 6/Months, 9/Months, 1/Year, 2/Years and 3/Years) in Pakistan. The Event window of 11 days and an estimation window of 250 days have been used for analysis. The study did not find significant evidence of ARCH effect in market interest rates at (1/Year, 2/Years and 3/Years) maturities. However, there is evidence of significant abnormal returns which shows a positive impact of monetary policy announcements on market interest rates at different nine maturities. Keywords: Monetary Policy, Market Interest Rates, Normal Rates, Abnormal Rates, GARCH, ARIMA

scholarly journals Abnormal Returns around Mergers and Acquisitions in the Nepali Stock Market

2021 ◽  
Vol 3 (1) ◽  
pp. 26-42
Author(s):  
Hari Prasad Pathak
Keyword(s):  
Stock Market ◽  
Mergers And Acquisitions ◽  
Financial Institutions ◽  
Economies Of Scale ◽  
Abnormal Returns ◽  
Market Model ◽  
Cross Sectional ◽  
Cumulative Abnormal Returns ◽  
The Impact ◽  
Merger Announcements

A merger includes two relatively equal entities that are combined to form one legal entity worth more than a sum of its two separate parts. In the last few years, many Nepali financial institutions have been consolidating through mergers and acquisitions. This paper aims to investigate how the stock market reacts when financial institutions announce mergers and acquisitions. This paper also examines the impact of cross-sectional variables on the abnormal returns obtained around merger announcements. The study covers 22 successful merger deals that occurred among 48 financial institutions over the period of 2004 to 2013. This paper used the event study method based on the market model to derive abnormal returns associated around the merger announcement date. The event dates are specified as the dates on which the mergers and acquisitions were announced. The results show that leaving a very few exceptional cases, none of the merged financial institutions received significant cumulative abnormal returns on the merger announcements, regardless of the use of different event periods. The cross-sectional regressions show that the pre-merger performance of target and relative market value are the significant influencing variables on acquirers' cumulative abnormal returns. The finding implies that Nepali financial institutions merge merely to increase their capital base without producing any synergistic effect. Therefore, they need strategic plans for choosing the right partner and achieving other benefits like synergy effect, economies of scale and cost reduction from mergers and acquisitions.

The announcement and implementation reaction to China's margin trading and short selling pilot programme

2014 ◽  
Vol 10 (3) ◽  
pp. 368-384 ◽  
Author(s):  
Saqib Sharif ◽  
Hamish D. Anderson ◽  
Ben R. Marshall
Keyword(s):  
Stock Returns ◽  
Event Study ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Short Selling ◽  
Market Model ◽  
Short Sales ◽  
Content Type ◽  
Pilot Programme ◽  
The Impact

Purpose – The purpose of this paper is to investigate how the announcement and implementation of short sales and margin trading regulation affects Chinese stock returns and trading volume. On 31 March 2010, the Chinese regulators launched a pilot programme, allowing short sales and margin trading for 50 Shanghai Stock Exchange and 40 Shenzhen Stock Exchange stocks. Design/methodology/approach – This paper uses an event study approach to compare market model abnormal returns (ARs) of the pilot firms with two distinct matched firm samples. A volume event study is also conducted to examine abnormal trading activity surrounding the key events in the pilot stocks. Findings – Negative ARs follow both the announcement and implementation of short selling and margin trading. This suggests the negative impact of short sales dominates the positive impact of margin trading on an average. Volume also declines, which is consistent with uninformed investors’ seeking to avoid trading against informed traders. Originality/value – The paper appears to be the first to address the impact of both the announcement and implementation of short selling and margin trading rule changes on returns and liquidity using individual stock data.

scholarly journals Spatial tale of G-7 and BRICS stock markets during COVID-19: An event study

2021 ◽  
Vol 18 (2) ◽  
pp. 20-36
Author(s):  
Sanket Ledwani ◽  
Suman Chakraborty ◽  
Sandeep S. Shenoy
Keyword(s):  
Event Study ◽  
Stock Markets ◽  
Human Life ◽  
Abnormal Returns ◽  
Expected Returns ◽  
Observation Window ◽  
Event Window ◽  
Event Date ◽  
Study Methodology ◽  
The Impact

The unprecedented outbreak of COVID-19 has affected every aspect of the human life, be it health, social, or economic dimensions. The anxiety and uncertainty wobbled the economies of affected countries worldwide. This study attempts to quantify the impact of COVID-19 on the performance of major stock markets of G-7 nations vis-à-vis BRICS nations. An event study methodology is employed to capture the effect of the systematic event in the form of Buy and Hold Abnormal Returns (BHAR) and Average Buy and Hold Abnormal Returns (ABHAR). The study considers a 90-day observation window, consisting of six sub-event windows after the COVID-19 news up-doves the world, and 120 days prior to the selected event date to estimate average expected returns. BHAR values in the four event windows are statistically significant, covering stock markets from panic and nosedive to their correction and recovery. ABHAR values reported are significantly negative in the event window ranging from –0.15% to –38.43% for G-7 and –0.06% to –37.12% for BRICS nations. Despite similar ABHAR trends, the BHAR values and correlation matrix exhibit a diverse reaction in BRICS nations compared to the highly synchronized reaction in the G-7 group of nations in the COVID period.

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