Abstract:
Stock market reaction to mergers and acquisitions announcements is a topical issue in corporate finance.
Consequently, the topic has received attention in equal measure; however, the bulk of these studies are skewed
towards the developed financial markets. The foregoing evidence raises a fundamental question; is the empirical
evidence exhibited in developed financial markets applicable in the emerging markets? Using data from listed
firms in Eastern Africa securities market involved in mergers and acquisitions for the period 1996- 2015, we
computed cumulative abnormal returns for different holding period. Parametric t test was used to test the
significance of the abnormal returns. Our findings revealed that acquirer firm shareholders earned a significant
positive cumulative abnormal return during the entire event window that is [-20, +20]. On the other hand,
cumulative average abnormal return findings revealed that acquiring firms earned positive return immediately
after the acquisition announcement. However, the positive performance was short lived, four days after M&A
announcement returns declined sharply.
