The Impact of Mergers on Stock Prices in the Pakistan Stock Exchange

Abstract

This research paper focuses on investigating the impact of mergers on share prices behaviour of Pakistan Stock Exchange listed firms (PSX). The study analysed long-term stock price reactions to a merger activity based on firm-level panel data, including 2005-2021 period. The research uses descriptive statistics, correlation analysis, regression, and T comparison tests in order to assess the hypothesis that merger announcements and post-integration result in a quantifiable increase in shareholder value. The results show that the direct effect of merger activity is not statistically significant on the PSX stock prices. Rather, firm-specific factors, especially firm size and leverage are of more significance in explaining the stock price changes. The findings indicate that the information around the mergers is either quickly absorbed by the prices or that synergies after a merger are not always achieved in new markets like Pakistan. The research findings can be added to the body of literature on mergers in emerging economies and can have significant implications on investors, managers, and policymakers.