Country-Level Determinants, Takeover Decisions, and Target Firms’ Gains: Evidence from South and East Asian Markets

Posted: 19 Aug 2014

See all articles by Man Dang

Man Dang

Danang University of Economics

Darren Henry

La Trobe University - Department of Economics and Finance; Financial Research Network (FIRN)

Date Written: August 18, 2014

Abstract

The principal aim of the paper is to examine the impact of country-level factors on acquisition activity, and then explore the characteristics as well as the determinants of the takeover choice decision and the gains to target firms across South and East Asian economies. Consistent with the literature, the results show that the target shareholders gain positive announcement returns in both domestic and cross-border acquisitions. Also, the value gained in domestic acquisitions is significantly less than that from cross-border acquisitions. Further, the results of logistic analysis indicate that the likelihood that a completed deal is cross-border rather than domestic is higher if target firms are located in countries with weaker quality of government, poorer investor protection, stronger restrictions on capital controls, and lower corporate tax rates relative to the bidder country. We also find that bid-specific elements, namely method of payment and relatedness, have potential impacts on cross-border acquisition propensity. In terms of the gains to target firms, the cross-sectional regression results document that method of payment, percentage of shares acquired, target size, pre-bid target firms’ leverage and performance (Tobin’s Q), have significant influences on targets’ gains in takeovers. More importantly, this paper adds to the literature that target shareholders tend to experience greater returns if target firms are based in countries with stronger government quality, better investor protection mechanism, improved economic freedom, lower corporate tax rate, and more appreciated currency.

Keywords: Mergers and Acquisitions; Target Firm; Government Quality; Investor Protection Regime; Level of Economic Openness; Corporate Tax Effect; Exchange Rate Effect

JEL Classification: G32; G34; G38

Suggested Citation

Dang, Man and Henry, Darren, Country-Level Determinants, Takeover Decisions, and Target Firms’ Gains: Evidence from South and East Asian Markets (August 18, 2014). Available at SSRN: https://ssrn.com/abstract=2482058

Man Dang (Contact Author)

Danang University of Economics ( email )

71 Ngu Hanh Son
Ngu Hanh Son
Danang City, Danang City 0511
Vietnam
+84905132054 (Phone)

Darren Henry

La Trobe University - Department of Economics and Finance ( email )

Department of Economics and Finance
La Trobe Business School
Bundoora 3086 Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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