Domestic and Cross-Border Effect of Acquisition Announcements: A Short-Term Study for Developed and Emerging Countries

Abstract

By using a multi-country set of acquirers from 14 different markets, this paper aims to develop a global understanding of the impact of acquisition announcements on developed - and emerging-market acquirers. We adopt an empirical event-study approach to investigate the effect of acquisition announcements on the share price of bidding firms. Our sample contains 624 acquisition announcements with target firms located throughout the world between 1997 and 2015. The results contradict the conventional wisdom that developed-market acquirers generally experience losses. Both emerging-market and developed-market bidders gain significantly in the short term. Moreover, for developed-market acquirers, the announcement of cross-border acquisitions (CBAs) yields higher abnormal returns than the announcement of domestic acquisitions. On the other hand, emerging-market bidders gain from announcing domestic acquisitions, and lose substantially when publishing news about CBAs. In addition, the level of institutional environment in the target country is found to have an impact on acquirer returns.