Using mergers and acquisitions to increase stock returns in the banking sector: A case study on the Indonesian stock exchange

Abstract

This study aims to determine the impact of merger and acquisition (mergers and acquisitions) activity in the banking sector on stock performance. It focuses on banking companies listed on the Indonesia Stock Exchange (IDX) that carried out mergers and acquisitions from 2019 to 2021. A 15-day period was observed, consisting of seven days before and seven days after the mergers and acquisitions event and the day of the event itself. The data was analyzed using market study methods and event studies. Stock price data was used to analyze the stock returns during mergers and acquisitions events, and market studies were used to measure the reactions through changes in stock prices after certain events. The results revealed that stock returns and abnormal stock returns increased across all events (E1, E2, and E3). Additionally, cumulative abnormal returns showed a positive effect on events E1 and E3, while event E2 showed a negative effect. Overall, the findings indicated that the market responded positively to mergers and acquisitions activity in the Indonesian banking sector, and the acquired banks performed well after the mergers and acquisitions. The study's results have implications for the internal management of companies, as it suggests that mergers and acquisitions could potentially lead to profit gains in the banking sector. Moreover, investors can use this insight to make more informed decisions when considering investments in the banking sector.