Bidder Value Implications of Cross-Border vs Domestic Acquisitions: A Study of Dutch Firms

Ramadhan H Wicaksana

doi:10.20469/ijbas.6.10001-3

Abstract

This study aims to investigate the value implications of cross-border as well as domestic acquisitions which are undertaken by Dutch bidding firms. This study focuses on Dutch firms since the Netherlands is one of the worldâ€™s largest sources of cross-border investments, and cross-border acquisitions are a prime example. Past literature which focuses on different regions/countries discovered conflicting findings regarding value implications of cross-border and domestic acquisitions. Some recorded results which pointed towards value creation for cross border acquisitions while some found the opposite. This study utilizes the event study methodology to find out whether cross-border and domestic acquisitions create significant value right after the announcement of the acquisition. This is done by testing the significance of the Cumulative Average Abnormal Returns (CAARs) of 62 cases of acquisitions, comprised of 31 cross-border and domestic acquisitions, all involving a Dutch bidding firm. The significance tests yielded statistically insignificant results for all the groups of samples. However, the CAARs themselves were positive for the cross-border acquisitions and also positive but lower for domestic acquisitions. The unexpected results led to the conclusion that there is weak support towards the value creating nature of cross border acquisitions and that engaging in a domestic acquisition instead also does not guarantee value creation, while further inspection discovered that the firmsâ€™ strategy may also play a role in the Dutch acquisitionâ€™s value creation.

Highlights

In this globalized era, mergers and acquisitions are becoming exceedingly important
This research aims to contribute to the conflicting findings by investigating whether either value destruction or value creation is present in cross-border acquisitions made by Dutch firms
Prior literature is still inconclusive in establishing a general pattern on whether cross-border acquisitions create or destroy value

Summary

Introduction

Mergers and acquisitions are becoming exceedingly important. In 2018, the total global value of Merger & Acquisitions (M&A) transactions in the financial industry alone reached up to 862.9 billion U.S dollars (Szmigiera, 2019). A large amount of money is being spent on a daily basis by companies either merging into one firm, or buying majority shares of other companies. Despite these large expenses, not all M&As succeed. It is estimated that around 60%-80% of mergers and acquisitions result in value destruction (Puranam & Singh, 1999). Another interesting trend, is an increasing number of those M&As which are cross-border, increasing by 20% throughout 2016 (Davit, 2019; Grice, 1970)

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