Abstract

Mergers and Acquisitions are considered as one of the useful strategies for growth and expansion of businesses. The trend of M&A’s started by the late nineteenth century. These strategies have widely been adopted in developed economies while are quite often practiced in developing countries like Pakistan. This study aims to explore the effect of Mergers and Acquisitions on market performance of banking sector in Pakistan by using event study analysis for the period of 2002 to 2022. Market Study Method was used to compute the abnormal and cumulative abnormal returns for analyzing pre and post events effect of the phenomenon on share prices. The objective is whether the purchased or merged bank will eventually enhance and maximize Market performance when banks are involved in M&A deals.  The new study adds to the body of literature in three different ways. First this study examines the effect of M & A’s announcement on shareholder’s wealth of acquiring banks in Pakistan. The study uses event study to investigate the unusual returns for shareholders of the acquiring banks during M&A announcement. Secondly the present study examines the overall significant determinants that affect shareholder’s wealth of the Acquiring banks during M & A’s announcement period at Firm-level, economics-level, and country level in Pakistan. The current study utilizes descriptive statistics, diagnostics test, and regression analysis to estimate the relation between dependent and independent variables. The study found that the significant determinants based on OLS models are Capital adequacy, Inflation, Exchange rate, Regularity quality, Control of Corruption, Rule of law. This study support the information asymmetry and signaling hypothesis in explaining the shareholder's wealth of the Acquire banks at country-level. It is recommended that policy makers reconsider their merger decisions and create and execute efficient regulations aimed at enhancing the combined banks' performance in Pakistan.