Country-Level Determinants, Takeover Decisions, and Target Firmss Gains: Evidence from South and East Asian Markets

Abstract

The principal aim of the paper is to examine the impact of country-level factors on acquisition activity, and then explore the characteristics as well as the determinants of the takeover choice decision and the gains to target firms in South and East Asian economies. Consistent with the literature, the results show that the target shareholders gain positive announcement returns in both domestic and cross-border acquisitions. Also, the value gained in domestic acquisitions is significantly less than that from cross-border acquisitions. Further, the results of logistic analysis indicate that the likelihood that a completed deal is cross-border rather than domestic is higher if target firms are located in countries with weaker quality of government, poorer investor protection, stronger restrictions on capital controls, and lower corporate tax rates relative to the bidder country. We also find that bid-specific elements, namely method of payment and relatedness, have potential impacts on cross-border acquisition propensity. In terms of the gains to target firms, the cross-sectional regression results document that method of payment, percentage of shares acquired, target size, pre-bid target firms’ leverage and performance (Tobin’s Q), have significant influences on targets’ gains in takeovers. More importantly, this paper adds to the literature that target shareholders tend to experience greater returns if target firms are based in countries with stronger government quality, better investor protection mechanism, improved economic freedom, lower corporate tax rate, and more appreciated currency.