The effect of mergers and acquisitions announcement on share prices - evidence on the Nairobi Stock Exchange

Abstract

The mam objective of this study was to evaluate market efficiency in relation to information content of merger announcement by companies quoted on the NSE. The study covered 11 companies quoted on the NSE from 1997 - 2006, a period of 10 years. The methodology used is event study. The event in question was merger& acquisition announcements made by the firms during the study period. The market model approach was used in the event study. For testing whether there was significant variation in stock returns after the merger announcement, cumulative abnormal returns(CAR)graphs were constructed and t-tests used to establish whether the CAR were significant. The findings of the study indicate that majority of the companies' stock returns did not experience a significant reaction to merger announcement which is not typical of stock markets in developing countries. The mam conclusion drawn from the study was that the reaction to the merger announcements was not significant .Some reactions to the merger announcements were positive while some were negative. Thus given that the market is efficient, investors can not expect significant variations in the stock prices/returns after merger announcement by firms.