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An Appraisal of Mergers and Acquisitions by Tata

Group of Companies.
AMIT SHARMA (Research Scholar)
CSJM University, Kanpur
Event Study Analysis
Abstract An event study attempts to measure the valuation effects of a
Mergers and acquisitions are a high risk form of corporate event, such as a merger or earnings announcement,
business activity involving the collective annual investment by examining the response of the stock price around the
of millions of rupees and affecting the working lives of announcement of the event. One underlying assumption is
millions of employees and the share holders wealth. It has that the market processes information about the event in an
been suggested that in the long term between 50-80 per efficient and unbiased manner. Thus, we should be able to
cent of all mergers are considered to be financially see the effect of the event on prices.
unsuccessful (Marks, 1988b), and in terms of financial The event that affects a firm's valuation may be: 1) within the
return, represent at best an each way bet (Lorenz, 1986). firm's control, such as the event of the announcement of a
Although mergers and acquisitions frequently fail to stock split. 2) Outside the firm's control, such as a
achieve the financial synergy or 2 + 2 = 5 effect (Hovers, macroeconomic announcement that will affect the firm's future
1973) initially expected, the popularity of this form of operations in some way.
business activity has not diminished (Farrent, 1970; Event Study Design
Jemison & Sitkin, 1986; Bruckman & Peters, 1987). Time-line The time-line for a typical event study is shown
below in event time: - The interval T0-T1is the estimation
This study presents the effect of Merger and period - The interval T1-T2 is the event window - Time 0 is the
event date in calendar time - The interval T2-T3 is the post-
Acquisition done by the Tata Group on its stock prices and
event window - There is often a gap between the estimation
economic and non-economic parameter. As the Tata and its and event periods.
group of companies have done more than 74 National and
International mergers and acquisition in which approx 30 Estimation window Event Window Post Event Window

percent mergers are national and 70 percent are international.

To capture the impact of M&A on economic and non
economic parameter and on stock prices of the Tata group as a
result we will use different methodology like event study To T1 0 T2 T3
(Brown and Warner, 1980, 1985; and MacKinlay, 1997).
Single-factor model and two factor model of the study will We have to first decide on the event that we wish to investigate,
help to test the Hypothesis. and then collect data of company that had went through such
an event. The data that we need includes the merger date (eg.
The Aim of this study is to determine whether M&A date of a merger and acquisition event), the stock prices of the
announcement have a similar impact on the share prices of company before and after the event (eg -140(To - T1), -10(T1 - 0),
Tata group of companies. This study used the daily share 0 (Event day), +10(0 - T2)).
return data to test the hypothesis. The test involves
computation of abnormal return and cumulative abnormal .
return on the shares held by the shareholders for the event KeywordsMerger & Acquisition, Event Study insert
period surrounding the announcement of the merger and
acquisition done by the Tata group.