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The wealth effects of acquiring foreign divested assets

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  • Jory, Surendranath R.
  • Ngo, Thanh N.

Abstract

We compare the wealth effects of acquiring assets from a divesting firm (i.e., acquisitions of divested assets) with the acquisitions of an entire organization (i.e., acquisitions of non-divested targets) abroad. We hypothesize that the ability to select the most valuable assets and leave the unwanted ones behind affords bidders greater flexibility in acquisitions of assets as opposed to acquisitions of non-divested targets. We apply event study methodology on a sample of 2137 cross-border M&As from 1986 to 2009 to test our hypothesis. Consistent with our proposition, we find that bidders fare better in acquisitions of divested assets. Our various market-based measures of performance are overwhelmingly in favor of these kinds of acquirers. Consistent with the wealth effects, we also find that the cost of capital charged to buyers of divisions/subsidiaries/assets of an organization is lower compared to buyers of whole/parent corporations abroad. Overall, our findings suggest that bidders who are in a position to bid for specific divisions or subsidiaries or assets of a foreign corporation rather than acquire the whole corporation can extract larger benefits.

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  • Jory, Surendranath R. & Ngo, Thanh N., 2015. "The wealth effects of acquiring foreign divested assets," International Business Review, Elsevier, vol. 24(2), pages 235-245.
    • Handle: RePEc:eee:iburev:v:24:y:2015:i:2:p:235-245
    DOI: 10.1016/j.ibusrev.2014.07.013
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    Cited by:

    1. Surendranath Rakesh Jory & Thanh Ngo & Ca Nguyen, 2021. "Debt covenants and asset versus equity acquisitions," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(1), pages 145-177, April.
    2. Ryan W. Tang & Ying Zhu & Hongbo Cai & Jinrong Han, 2021. "De-internationalization: A Thematic Review and the Directions Forward," Management International Review, Springer, vol. 61(3), pages 267-312, June.
    3. Surendranath R. Jory & Thanh N. Ngo & Daphne Wang & Amrita Saha, 2015. "The market response to corporate scandals involving CEOs," Applied Economics, Taylor & Francis Journals, vol. 47(17), pages 1723-1738, April.
    4. Jory, Surendranath R. & Ngo, Thanh N. & Wang, Daphne, 2016. "Credit ratings and the premiums paid in mergers and acquisitions," Journal of Empirical Finance, Elsevier, vol. 39(PA), pages 93-104.

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    More about this item

    Keywords

    Asset selloffs; Divestiture; International mergers & acquisitions; Methods of payment;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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