Takeover Motives in a Weak Regulatory Environment Surrounding a Market Shock

Abstract

We examine the motives for takeovers in New Zealand surrounding the 1987 stock market crash and compare with the U.S. findings of Gondhalekar and Bhagwat (2003). There are a number of structural differences between the New Zealand and U.S. markets that could impact on merger motives. Compared with the U.S., New Zealand is a small capital market; with weak takeover regulation and the affect of the 1987 stock market crash was much more persistent. Consistent with U.S. research, we find evidence of synergy and hubris motivations in New Zealand takeovers although we find the synergy motivation is stronger. Contrary to expectations we find no evidence of agency motivated takeovers.

Keywords: Mergers and Acquisitions Motives, Regulation, Stock Market Crash

JEL Classification: G14, G34, G38