Changes of shareholder wealth associated with cross-border mergers and acquisitions

Abstract

This empirical study tests the short-term stock abnormal returns associated with cross-border M&A announcements. Our countries of interest are the US and Japan. This thesis contains three empirical chapters. In the first two empirical chapters, we test the announcement effects of acquirers and targets according to acquirer and target industry characteristics and deal characteristics. We find that the factors that explicitly related to synergistic effects show significant explanatory power for the abnormal returns. In contrast, the explanatory power of the factors that are associated with agency motive tend to be mixed. In the third empirical chapter, we test the explanatory power of acquirer and target financial characteristics to the announcement returns. We find that some of the variation in the abnormal returns can be explained by the financial characteristics of the firms. Our test provides several contributions to the M&A literature. Firstly, we show that investors are more likely to be influenced by multiple factors in response to M&A announcements. In addition, investors can have inconsistent interpretation to the same information. Secondly, we employ F-F-C four-factor CAPM that has less misspecification problems for our test compared with the standard CAPM. Also, we use the adj. BMP t-statistic to overcome the potential upward bias associated with the BMP t-statistic. Inconsistent with previous studies, we find that cross-border M&As do not always generate positive ARs for acquirers. Finally, we find that the market shows inconsistent reaction to the M&A announcements made by the US and Japanese acquirers. However, when we control for the deal characteristics and financial characteristics of acquirers and targets, we find some common patterns of the abnormal returns.