Do Cross-Border and Domestic Target Firms Perform Differently? Evidence on Motivations for Partial Acquisitions

Posted: 19 Aug 2014 Last revised: 12 Aug 2015

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: October 22, 2014

Abstract

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

Dang, Man and Henry, Darren, Do Cross-Border and Domestic Target Firms Perform Differently? Evidence on Motivations for Partial Acquisitions (October 22, 2014). 27th Australasian Finance and Banking Conference 2014 Paper, Available at SSRN: https://ssrn.com/abstract=2482080

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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