Are Cross Border Acquisitions More Profitable, or Do They Make Profit More Persistent, than Domestic Acquisitions? UK Evidence

Abimbola Adedeji,Maha D Ayoush

doi:10.5539/ibr.v10n6p178

Abstract

Cross border acquisitions were relatively more popular than domestic acquisitions in the UK and many other countries during late 1990s and the beginning of this century (Martynova and Renneboog, 2008, among others). Apart from attributing it to the wave of globalisation that occurred at the time, hardly any other reason has been given for this phenomenon in the literature. In this paper, we check whether cross border acquisitions were more profitable than domestic acquisitions to bidders, or whether cross border acquisitions made the profitability of bidders to be more persistent than domestic acquisitions, during the period referred to above. Evidence observed from a sample of 199 cross border, and 174 domestic, acquisitions made by firms in the UK during 1996-2003 shows that the cross border acquisitions were significantly less profitable, and that they did not make the profitability of the bidders significantly more persistent, than the domestic acquisitions. These indications are similar to those of the US evidence reported by Moeller and Schlingemann (2005) and raise questions about why cross border acquisitions were relatively more popular than domestic acquisitions during the period referred to above.

Highlights

Evidence reported by previous studies shows that cross border acquisitions were relatively more popular than domestic acquisitions in the UK and other parts of the world during late 1990s and the beginning of this century (Goergen and Renneboog, 2004; Moeller and Schlingemann, 2005 – hereafter, M&S; Conn, et al, 2005; and Martynova and Renneboog, 2008; among others)
Whilst the evidence is not surprising, because this was a period of rapid globalisation, it makes one to wonder whether there was any rational economic reason behind this phenomenon. One such reason could be that cross border acquisitions were more profitable than domestic acquisitions to bidders and another could be that cross border acquisitions made the profitability of bidders to be relatively more stable than domestic acquisitions
We conclude that the greater popularity of cross border acquisitions than domestic acquisitions in the UK during the 1990s and the beginning of this century was not because cross border acquisitions were more profitable, or made the profitability of bidders significantly more stable, than domestic acquisitions

Summary

Introduction

Evidence reported by previous studies shows that cross border acquisitions were relatively more popular than domestic acquisitions in the UK and other parts of the world during late 1990s and the beginning of this century (Goergen and Renneboog, 2004; Moeller and Schlingemann, 2005 – hereafter, M&S; Conn, et al, 2005; and Martynova and Renneboog, 2008; among others). Whilst the evidence is not surprising, because this was a period of rapid globalisation, it makes one to wonder whether there was any rational economic reason behind this phenomenon. One such reason could be that cross border acquisitions were more profitable than domestic acquisitions to bidders and another could be that cross border acquisitions made the profitability of bidders to be relatively more stable than domestic acquisitions. A way to find out whether cross border acquisitions had either, or both, of these benefits over domestic acquisitions during the period referred to above is to compare the impacts of the two types of acquisitions on the profitability, and stability of the profitability, of bidders during the period. “Persistence” of the profitability of bidders is the extent to which the level of profitability of bidders after they make acquisitions is related to their level of profitability before they make the acquisitions (Healy, Palepu and Ruback, 1992)

Methods

Results

Conclusion