THE FIRST INTERNATIONAL MERGER WAVE: DOES ACQUIRING FIRM WEALTH EFFECT PERSIST?

Abstract

ABSTRACT The immediate acquiring firm announcement wealth effect throughout the first international takeover wave have been unprecedented and encouraging. However, little attention has been paid to their shareholder values in the long run. It is not unreasonable to suspect that the prospect in the long haul might not be as promising in light of the evidence presented in most long-term post-merger domestic M&A research as well as the claim of global diversification discount in a number of the international M&A studies. The results shown in the present research have been consistent with the cross-border diversification discount in the long run regardless of the measuring models implemented. The somewhat more surprising aspect is the sheer volumes of the discounts due to an apparent mismatch between the investors' initial over optimism and the acquirers' seeming inability of substantiating their perceived global diversification benefits. Furthermore, the conventional International Business OLI paradigm appears to explain the immediate acquiring firm wealth effect reasonably well, albeit providing less than full explanation on the diversification discount in the short and relatively long haul. In general, the global diversification discount starts to show up within three months of the initial cross-border M&A announcements, or six months if measured by a modified methodology. That is, the unprecedented acquiring firm value gain during the first international merger wave does not last long. To escape from such long-term global diversification discount and avoid the winners' curse, it would not be ill-advised for the acquirers to efficiently implement their post-announcement cross-border acquisition strategies in order to keep investors' adverse sentiment in check, and the OLI framework seems to provide a blueprint in principle for their success. Keywords Globalization; Mergers and Acquisitions; M&A; Announcement Wealth Effect; Global Diversification; Cross-Border Diversification; Diversification Discount; International Merger Wave