Abstract

In this paper, we examine if M&A announcements and methods of financing these deals affect stock returns. Data is used for BRICKS from the period 2005-2009 and standard event study methodology is used for this purpose. We find significant pre-event returns for 5 out of 6 sample countries. This indicates possible leakages in the information system, which may not be surprising, given the emerging nature of these markets. Three of the BRICKS countries, i.e. India, South Korea and China provide significantly negative post-event returns while strong positive returns are observed in case of South Africa. The extra normal post-event returns defy semi-strong efficiency for majority of sample markets. We further find that M&A announcements do not significantly alter the trading liquidity and pricing efficiency of the sample stocks. However, return volatility does decline on post event basis. It is also observed that while stock financed mergers are value creating, cash financed mergers seem to be value destroying in the short run. The study is extremely relevant for common shareholders, global fund managers as well as financial regulators. The present research contributes to corporate restructuring as well as market efficiency literature, especially for emerging markets.

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