Market Misreaction? Evidence from Cross-border Acquisitions.

Abstract

Using a dataset of cross-border mergers and acquisitions (M&A) entailing U.S. acquirers over the period 1990-2013, we document detailed descriptive statistics and find that the operating efficiency of the acquirers decreases around the acquisition, and up to three years after. However, contrary to findings in some of the extant literature, the announcement-period acquirer abnormal stock-price return is not significantly associated with acquirer’s operating efficiency post-acquisition. Therefore, investors should be careful interpreting the announcement-period stock-price reaction in cross-border mergers and acquisitions as indicative of merger efficiency gains. We find that target nation’s religiosity and governance features are also not significantly associated with the acquirer’s operating efficiency post acquisition; however, the acquirer’s financial features and the target nation’s macroeconomic features are.

Keywords: Mergers and Acquisitions, Cross-Border M&A, Merger Efficiency, Operating Efficiency, Abnormal Returns, Bootstrap-DEA, Difference-in-Difference Analysis, Misreaction

JEL Classification: G14