Testing Hubris Hypothesis for Mergers in Pakistan: Using Event Study Technique

Abstract

 Hubris Hypothesis for mergers (Roll, 1986) is the benchmark for testing the effect of merger on the value of the firm. In this study, the Hubris Hypothesis has been tested for mergers in Pakistan by using the event study technique (MacKinlay, 1997). 42 events of mergers in Pakistani Stock Market during the period 2000-2012 have been considered for study purpose. The study concludes that the Average Abnormal Returns (AAR) tend to be positive in pre-merger period and negative in post-merger period but the Hubris Hypothesis does not sustain as true for mergers in Pakistan.