Analyzing the impact of mergers on stock prices in the banking sector: An implication for strategic merger planning and stakeholder communication

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Abstract

This research delves into the intricate effects of mergers and acquisitions (M&A) on stock prices within the Saudi Arabian banking sector, employing the event study methodology (ESM) to examine both short-term and long-term impacts on stock valuations. The study meticulously calculates expected and abnormal returns (ARs) around merger events, shedding light on the significant influence these corporate actions exert on market perceptions and investor behavior. The methodology encompasses an analysis of daily stock price data before and after merger events, providing a detailed view of market reactions. Key findings reveal an immediate positive market response to merger announcements, driven by the anticipation of synergistic benefits, alongside diverse long-term stock price effects that underscore the complex relationship between initial expectations and actual merger outcomes. The research concludes that strategic merger planning and effective communication with stakeholders are crucial for realizing the anticipated benefits of mergers. By offering new insights into the sector-specific and regional dynamics that affect M&A outcomes, this study enhances understanding of the significant implications for investors, financial institutions, and policymakers engaged with the Middle Eastern financial markets.

Keywords: Mergers and Acquisitions, Stock Prices, Banking Sector, Saudi Arabian Financial Landscape, Event Study Methodology, Abnormal Returns, Comparative Analysis, Middle Eastern Banking Trends

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G14, G21, G34, N25

Received: 10.01.2024
Accepted: 03.10.2024
Published online: 07.10.2024

How to cite this paper: Sayed, O. A. (2024). Analyzing the impact of mergers on stock prices in the banking sector: An implication for strategic merger planning and stakeholder communication. Corporate & Business Strategy Review, 5(4), 112–120. https://doi.org/10.22495/cbsrv5i4art10