Does Corporate International Diversification Destroy Value? Evidence from Cross-Border Mergers and Acquisitions

31 Pages Posted: 29 Feb 2004 Last revised: 19 Aug 2008

Marcelo Braga Dos Santos

McGill University - Desautels Faculty of Management

Vihang R. Errunza

McGill University - Desautels Faculty of Management

Darius P. Miller

Southern Methodist University (SMU) - Finance Department

Date Written: July 30, 2003

Abstract

This paper investigates the valuation effects of corporate international diversification by examining cross-border mergers and acquisitions of U.S. acquirers over the period 1990-1999. We find that, on average, acquisitions of "fairly valued" foreign business units do not lead to value discounts. Consistent with the industrial diversification discount literature, unrelated cross-border acquisitions result in a significant diversification discount of about 24 percent after accounting for the valuation of foreign targets. Furthermore, significant wealth gains accrue to foreign target shareholders regardless of the type of acquisition. Overall, our results suggest that international diversification does not destroy value while industrial diversification leads to discounts even after controlling for the pre-acquisition value of the target.

Keywords: Corporate international diversification, mergers and acquisitions, diversification discount

JEL Classification: F30, G30, G34

Suggested Citation

Braga Dos Santos, Marcelo and Errunza, Vihang R. and Miller, Darius P., Does Corporate International Diversification Destroy Value? Evidence from Cross-Border Mergers and Acquisitions (July 30, 2003). Available at SSRN: https://ssrn.com/abstract=502322 or http://dx.doi.org/10.2139/ssrn.502322

Marcelo Braga Dos Santos (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-3984000 (Phone)
514-3983876 (Fax)

Vihang R. Errunza

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada
514-398-4056 (Phone)
514-398-3876 (Fax)

Darius P. Miller

Southern Methodist University (SMU) - Finance Department ( email )

United States

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