Acquiring Control in Emerging Markets: Evidence from the Stock Market
54 Pages Posted: 21 Oct 2004
Date Written: October 2004
When firms from developed markets acquire firms in emerging markets, market-capitalization-weighted monthly joint returns show a statistically significant increase of 1.8%. Panel data estimations suggest that the value gains from cross-border M&A transactions stem from the transfer of majority control from emerging-market targets to developed market acquirers - joint returns range from 5.8% to 7.8% when majority control is acquired. Announcement returns for acquirer and target firms estimate the distribution of gains and show a statistically significant increase of 2.4% and 6.9%, respectively. The evidence suggests that the stock market anticipates significant value creation from cross-border transactions that involve emerging-market targets leading to substantial gains for shareholders of both acquirer and target firms.
Keywords: FDI, cross-border mergers and acquisitions, emerging markets, surplus value, majority control
JEL Classification: D23, F21, F23, G34
Suggested Citation: Suggested Citation