The effect of cross-border mergers and acquisitions on the target firm shareholders

Abstract

The purpose of this paper is to investigate the effects of cross-border mergers and acquisitions on target firm shareholders in the Korea stock market. We provide empirical results on how cross-border M&A transactions differ from domestic M&A transactions based on stock and operating performance. Using a sample of 115 cross-border and domestic takeovers with Korean target companies, we find that target firm shareholders in cross-border takeovers gain significantly more in short term performance than targets in domestic takeovers. Consistent with the hypothesis, the average cumulative abnormal return in cross-border transactions around announcement date is larger than the wealth effect of domestic transactions. In the long run, acquirer firms of cross-border mergers show significantly stronger operating performance than acquirers of domestic mergers. We also estimate multivariate regression to analyze the determinants of target firm shareholders wealth effects for cross-border takeovers. Our analysis shows that the cash flow, price to book ratio, firm size, and capital expenditure are related to target firm shareholders wealth effects. With all these analysis, our results implies that there exist synergistic effect in cross-border M&As.