Abstract
The growing trend of merging and acquisition (M&A) investments from emerging to developed market economies over the last two decades motivates the question on the long-run effects of M&A on the wealth of emerging markets. This paper contributes to the current literature on cross-border M&A (CBMA) by focusing on the long-term effects of this event on the bidder’s stock return in emerging markets. To address the challenges of finding an accurate measure for the effects, this study applies the propensity score matching framework in tandem with difference-in-differences (DID) on a comprehensive dataset over the 1990–2010 period. The analyses show evidence of systematic detrimental impacts of cross-border M&A on shareholders’ welfare in the long run, to a certain extent, diverging from the existing literature, which mainly highlights the positive effects for certain types of M&A. The striking finding is that such strong negative effects remain persistent even when various factors previously known as capable of suppressing underperformance are considered. Our study is in line with the growing landscape of cross-border mergers and acquisitions from the “poor” to the “rich” countries.
Highlights
With the arrival of Industry 4.0 and the shifting landscape of entrepreneurial finance in recent years, cross-border mergers and acquisitions (CBMA) have recorded growth in both values, as well as in the number of deals across different regions in recent years (OECD 2017)
The DIDs’ estimates illustrate significant negative wealth effects in the course of three, four, and five years after the effective date of the CBMA transaction, and the evidence is consistent for all sensitivity analyses on a 2%, 5%, and 10% trimming level
The strong evidence of detrimental wealth effect indicates that the potential synergies in CBMA from emerging to developed nations have never been materialized, or the relating frictions outweigh the synergies of the merging and acquisition (M&A) in the long run
Summary
With the arrival of Industry 4.0 and the shifting landscape of entrepreneurial finance in recent years, cross-border mergers and acquisitions (CBMA) have recorded growth in both values, as well as in the number of deals across different regions in recent years (OECD 2017). More impressive in this development is the embedded growth of international acquisitions from emerging to developed countries. Given that firms from emerging and developed markets face asymmetries in corporate governance, institutional environments, and financial practices (Boateng and Huang 2017; Chari et al 2009; Young et al 2008), extending the literature on the wealth effects of acquirers from less-developed markets could consolidate the current cross-border M&A trend, especially in the wake of computational entrepreneurship (Vuong 2019)
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