The Effect Of Cross-Border And Domestic Acquisitions On Shareholder Wealth: Evidence From Brics Acquirers

Abstract

Svetlana A. Grigorieva National Research University The Higher School of Economics grigorievasa@mail.ru
 The topic devoted to cross-border M&A performance has received wide attention in academic literature.Most existing studies examine wealth effects of international M&As in developed countries. Wecontribute to existing research by examining the market reaction to the announcements of M&As initiatedby companies from BRICS countries over 2000–2012. We assess the long-term performance ofM&A deals along with the short-term one and provide a copmarative analysis of company wealth gainsin cross-border and domestic M&As. Based on the sample of 117 cross-border deals and 247 domesticM&As we find that the stock market reacts favorably and statistically significant to the announcementsof domestic deals in the short run. Returns to foreign acquirer shareholders are also positive and statisticallysignificant. Comparing the effects of M&As on firm value in the short term for foreign anddomestic acquisitions we reveal that the latter outperform the cross-border M&As. Our analysis basedon the buy-and-hold abnormal return method shows the opposite result. We also find that the crossborderM&A deals increase the downside risk level of acquirers in the long term. According to ouranalysis, the key determinants of short- and long-term performance of M&A deals are the acquirer’sFCFF, percentage change in the acquiring country’s exchange rate against the target country currencyduring the acquisition year, and the level of international diversification of acquirers.