The wealth effects of international acquisitions and the impact of the EEC integration

Abstract

The magnitude and division of gains from U.S. domestic acquisition activity has been extensively studied (e.g., Bradley, Desai, & Kim, 1988). The typical conclusion is that targets clearly gain from takeovers and that bidders at least do not lose (e.g., Jensen & Ruback, 1983), although the evidence about bidders is somewhat mixed. Evidence on domestic acquisitions in other countries generally supports these conclusions. For example, Franks and Harris (1989) study U.K. acquisitions and find that targets experience gains of 20 to 25 percent while bidders gain “zero or modest.” However, there is relatively little evidence about the wealth effects of international acquisitions on U.S. bidding firms. A recent study by Doukas and Travlos (1988) found that, as a whole, there are not significant wealth effects on U.S. acquiring firms over the period 1975 through 1983. However, they find positive abnormal returns for firms that make acquisitions in countries in which the firms had not previously been operating. The broad purpose of this paper is to provide additional evidence about the wealth effects of international acquisitions. Three specific lines of inquiry are pursued. First, we provide more recent evidence (up to 1989 from 1980) than is found in the extant literature. Second, we examine the gains from acquisitions in specific countries. Third, we explore the wealth effects of acquisitions of European firms that were impacted by the EEC integration. The paper is organized as follows. The next section discusses the data and methodology. Sections 3 and 4 report the findings. The paper ends with a brief summary.