Currency Appreciation Shocks and Shareholder Wealth Creation in Cross-Border Mergers and Acquisitions

61 Pages Posted: 31 Jul 2013 Last revised: 23 Nov 2014

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems

Beibei Shen

Shanghai University of Finance and Economics

Date Written: September 2014

Abstract

Using a comprehensive sample of cross-border mergers, we find that acquirers from countries experiencing large currency appreciations realize higher abnormal announcement stock returns during both the announcement period and the post-merger period. Importantly, this shareholder wealth creation effect mainly comes from those acquirers in countries with strong shareholder rights and those acquirers with better corporate governance. We further find that acquirers from countries with weak shareholder rights tend to overpay a foreign target following a currency appreciation. Collectively, this evidence suggests that the interaction of currency appreciation and agency conflicts plays an important role in acquirer shareholder value creation.

Keywords: Cross-border mergers and acquisitions, Currency appreciation, Investor protection, Corporate governance, Shareholder wealth

JEL Classification: G34, F31

Suggested Citation

Lin, Chen and Officer, Micah S. and Shen, Beibei, Currency Appreciation Shocks and Shareholder Wealth Creation in Cross-Border Mergers and Acquisitions (September 2014). 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: https://ssrn.com/abstract=2303630 or http://dx.doi.org/10.2139/ssrn.2303630

Chen Lin (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

Beibei Shen

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

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