Merger and Acquisition Announcements and Stock Price Anomalies: An Empirical Analysis of the Pakistan Stock Exchange

Abstract

This study investigates the stock price anomalies surrounding merger and acquisition (M&A) announcements on the Pakistan Stock Exchange (PSX) over 2019–2023. Employing an event study methodology, this research evaluates abnormal returns (AR) and cumulative abnormal returns (CAR) for 49 M&A events to assess whether these corporate transactions induce significant market reactions. The Capital Asset Pricing Model (CAPM) used to analyze the findings shows that M&A announcements create positive abnormal returns, especially one day before the event, revealing some information asymmetry and speculation by investors. The results reveal evidence for a strong short-run reaction to M&A announcements, with positive CARs in short windows around the announcement date but a subsequent reversal tendency indicating partial market underreaction over longer event windows. The findings on stock reaction to M&A announcements further highlight the importance of these events in the Pakistani emerging market and have important implications for investors, regulators and policymakers. To restore market efficiency and transparent market conditions via the prevention of information asymmetry enhancement between informed and uninformed parties, particularly during important corporate events in which speculating activities exist, high degrees of speculative transactions ought to be addressed through greater regulatory oversight.