Emerging Country Cross-Border Acquisitions: Characteristics, Acquirer Returns and Cross-Sectional Determinants

44 Pages Posted: 22 Apr 2011

See all articles by Sanjai Bhagat

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance

Shavin Malhotra

Carleton University - Eric Sprott School of Business

Peng Cheng Zhu

University of the Pacific - Eberhart School of Business

Date Written: April, 17 2011

Abstract

What are the important characteristics of cross-border acquisitions (CBAs) by firms from emerging countries and do these acquisitions create market value for the acquirers? Using a unique and a manually collected dataset, we identify 698 CBAs made by emerging country firms during the period January 1991 through December 2008. Targets tend to be small (by U.S. transaction value measures) – the median ranging between $10 million to $40 million (in 2008 dollars). However, from 2000 to 2008, 24 acquisitions were worth more than a billion dollars each. Emerging country acquirers experience a positive and a significant market response of 1.09% on the announcement day. Additionally, in the cross-section, acquirer returns are positively correlated with (better) corporate governance measures in the target country. The positive announcement return and the cross-sectional relation between these returns and governance measures are consistent with Martynova and Renneboog’s (2008) and Khanna and Palepu’s (2004) bootstrapping hypothesis: The acquirer voluntarily bootstraps itself to the higher governance standards of the target – resulting in a positive valuation impact for the acquirer.

Keywords: Cross border acquisitions, corporate governance, emerging market acquirers, acquirer returns, bidder returns

JEL Classification: G34

Suggested Citation

Bhagat, Sanjai and Malhotra, Shavin and Zhu, Peng Cheng, Emerging Country Cross-Border Acquisitions: Characteristics, Acquirer Returns and Cross-Sectional Determinants (April, 17 2011). Available at SSRN: https://ssrn.com/abstract=1813202 or http://dx.doi.org/10.2139/ssrn.1813202

Sanjai Bhagat (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)

Shavin Malhotra

Carleton University - Eric Sprott School of Business ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S SB6
Canada

Peng Cheng Zhu

University of the Pacific - Eberhart School of Business ( email )

3601 Pacific Ave.
Stockton, CA 95211
United States
209-946-3904 (Phone)
209-946-2586 (Fax)

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