Stock Behavior of Acquirer Firms in Hospitality Sector Around Merger and Acquisition (M and A) Announcements: Evidence from India

Abstract

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Purpose: On the basis of gaps in the existing literature on Mergers and Acquisitions in hospitality sector, present study aims to examine the stock behavior (return, volatility & liquidity) of acquirer firms after M&A announcement in the Indian hospitality sector from 1999-2018. Design/Methodology: Market model of event study methodology has been used to examine the change in stock behavior across total sample size of 94 M&A deals (containing 18 mergers and 76 acquisitions) in Indian hospitality sector during sample period. Findings: It is observed that shareholders of acquirer firms in India are able to generate average abnormal return two days before the announcement of M&A event, which indicates that efficient market hypothesis does not hold true in this sector. Whereas, results of stock volatility show that risk for shareholders increase in post-event window as returns are significantly volatile in post-announcement period. Liquidity analysis shows that average abnormal liquidity is significantly high during pre-announcement period. Practical Implications: These findings may contribute to the literature investigating the behavior of stock prices of acquirer’s performance in hospitality sector during restructuring events and literature of behavioral finance. Various deal consultants, market regulators, shareholders, research scholars may find these results helpful in understanding the performance of stocks of acquirers in Indian hospitality sector through stock movements around M&A announcements and design their investment strategies accordingly. Originality: The current study emphasized on the market reaction around M&A announcements by capturing stock behavior including stock volatility and liquidity in hospitality sector in India.

Keywords: Merger and Acquisitions, Hospitality Sector, Event Study Methodology, Stock Return, Stock Volatility, Stock Liquidity

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