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

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