Do Cross-Border and Domestic Target Firms Perform Differently? Evidence on Motivations for Partial Acquisitions
Posted: 19 Aug 2014 Last revised: 12 Aug 2015
Date Written: October 22, 2014
Target firms are typically delisted from the stock market after full takeovers; therefore, it is nearly impossible to examine the post-bid performance of the full-ownership acquired firms. Unlike full takeovers, partially-acquired firms remain independent after the bid. This paper examines the pre- and post-acquisition financial characteristics and operating performance of partially-acquired firms in domestic and cross-border acquisitions across South and East Asian markets, where merger and acquisition activities outperform other developing and emerging regions during the last decade. To achieve this research objective, we implement appropriate difference-in-difference estimation techniques in association with a propensity score matching procedure. Our observed results provide evidence in support of the motivations behind domestic and cross-border partial acquisitions. Specifically, consistent with the corporate control motivation for acquisitions, poorly-performing firms are more inclined to be acquired in domestic acquisitions. In contrast, cross-border bidders tend to takeover good-performing firms at the time of the takeovers, suggesting cross-border partial acquisition being used as a method of strategic market entry into a foreign market. In terms of long-term stock performance, we find results consistent with the efficient market hypothesis, in that both domestic-acquired firms and cross-border acquired firms do not experience significant gains in the stock prices before and after the takeovers, though they achieve positive abnormal returns around the acquisition announcement month.
Keywords: Partial acquisitions, Partially-acquired firms, Market for corporate control, Strategic market entry, Propensity score matching, Difference-In-Difference Approach
JEL Classification: F21, F23, G34
Suggested Citation: Suggested Citation