Financial Market Integration and the Value of Global Diversification: Evidence from US Acquirers in Cross-Border Mergers and Acquisitions

51 Pages Posted: 16 Oct 2007 Last revised: 23 Oct 2007

See all articles by Bill B. Francis

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management

Xian Sun

U.S. Department of Treasury - Office of Comptroller of the Currency

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Abstract

In contrast to the previously documented cross-border discount, we find that there is positive cross-border effect for U.S. acquirers during late 1990's and early 2000's. Especially those that acquire/merge with targets from segmented financial markets experience significantly higher positive abnormal returns than those with targets from integrated financial markets. Furthermore, firms acquiring segmented market targets are also characterized by significantly higher post-merger operating performance improvement. The results indicate that the observed positive cross-border effect is mainly due to the increase of the transactions involving targets from segmented markets, in which average firms experience financial constraints. We suggest that value is created by a combination of firms with different financial market integration status, in which funds are provided to high cost firms. Furthermore, the fact that the value creation is even higher within the group of firms with lower costs of capital supports our conjecture.

Keywords: Integration, Diversification, Cross Border Mergers and Acquisitions

JEL Classification: G15, G31, G34

Suggested Citation

Francis, Bill B. and Sun, Xian and Hasan, Iftekhar, Financial Market Integration and the Value of Global Diversification: Evidence from US Acquirers in Cross-Border Mergers and Acquisitions. Bank of Finland Research Discussion Paper No. 24/2006. Available at SSRN: https://ssrn.com/abstract=1019947 or http://dx.doi.org/10.2139/ssrn.1019947

Bill B. Francis

Rensselaer Polytechnic Institute (RPI) - Lally School of Management ( email )

Troy, NY 12180
United States

Xian Sun

U.S. Department of Treasury - Office of Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

Iftekhar Hasan (Contact Author)

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Register to save articles to
your library

Register

Paper statistics

Downloads
402
Abstract Views
1,690
rank
71,385
PlumX Metrics