Abstract

In mergers and acquisitions, information asymmetry models show that merger returns for the bidder are significantly negative when the choice of payment method is stock. However, studies in the banking industry show that that merger returns for the bidder are positive in the case of cash offer, stock offers and combined offers i.e. they contradict the information asymmetry models. Recent studies on mergers in the Indian banking industry also show similar results. We present the first case of a banking merger where merger returns for the bidder are significantly negative when the method of payment is stock i.e. we present support for informational asymmetry models in the banking industry. We study the ICICI Bank - Bank of Rajasthan merger and show that the loss for ICICI shareholders was 4.29%, while the gain for Bank of Rajasthan shareholders was 44.86%.

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