Impact of Regulatory Shocks and Consolidation on the Stock Market Reactions of Previously Merged firms in the Indian Automobile and Banking Sectors

Abstract

The study examines the short-run stock market impact of major environmental and regulatory shocks on firms that had previously undergone mergers in the automobile and banking sectors and systemic consolidation in the Indian banking sector. The study aims to determine whether markets perceived (a) regulatory shocks, i.e., the ban on >2000 cc diesel vehicles in NCR (16 December 2015) and the enforcement of BS-VI emission norms (19 February 2016) as value-destroying or stabilizing for previously merged automobile firms, and (b) the August 30, 2019 announcement of the 10 PSBs merged into four major entities as a signal of enhanced stability for previously merged banks. To test this, the study employs a ±7-day event window to analyze average abnormal returns (AAR) and cumulative average abnormal returns (CAAR), using both parametric and non-parametric statistical tests, including the t-test, Patell’s test, Wilcoxon signed-rank test, Sign test, Corrado test, and BMP test. The results indicate that the market did not view these regulatory events as major shocks. The findings have implications for policymakers, bank management, and investors regarding how merger history and anticipated stability influence stock valuation during periods of structural change.