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The impact of M&A transactions from private equity and hedge funds: Empirical evidence from Austria and Switzerland

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  • Gerhard Wörtche
  • Tristan Nguyen
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    Abstract

    Purpose – The purpose of this paper is to study the impact of merger and acquisition (M&A) transactions from private equity and hedge funds. Owing to the recent financial and economic crisis, there is a controversial discussion about the implications of M&As from private equity and hedge funds. It is argued that acquisitions, which are driven by financial investors (FIs) like private equity and hedge funds, have solely short-term profit interests and might be under certain circumstances a source for future financial crisis. Therefore, these FIs should be regulated more severely. Design/methodology/approach – This paper examines the implications of M&As from different types of investors (FIs versus non-FIs) by analysing the wealth effects of Austrian- and Swiss target companies. The authors use the event study methodology to analyze the effects of an merger announcement to see whether the financial markets believe the merger will create or destroy value. Findings – Considering the wealth effects of the different types of investors, the findings of this paper support the necessity of special regulations for FIs such as private equity and hedge funds. This is due to the fact that lower performance is linked to the disgraceful business conduct of an FI who is oriented toward short-term profit at the cost of the target company and their stakeholders. Originality/value – This paper provided an overview of different event study methods and examined the implications of different types of investors by analysing the wealth effects of Swiss and Austrian target companies. It is the first empirical study about the impact of M&A transactions from private equity and hedge funds in Austria and Switzerland.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

    Volume (Year): 19 (2011)
    Issue (Month): 1 (February)
    Pages: 45-57

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    Handle: RePEc:eme:jfrcpp:v:19:y:2011:i:1:p:45-57

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    Related research

    Keywords: Acquisitions and mergers; Austria; Hedging; Private finance; Regulation; Switzerland;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    2. April Klein & Emanuel Zur, 2009. "Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors," Journal of Finance, American Finance Association, vol. 64(1), pages 187-229, 02.
    3. José Manuel Campa & Ignacio Hernando, 2004. "Shareholder Value Creation in European M&As," European Financial Management, European Financial Management Association, vol. 10(1), pages 47-81.
    4. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    5. Becher, David A., 2000. "The valuation effects of bank mergers," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 189-214, July.
    6. Campa, José Manuel & Hernando, Ignacio, 2004. "Shareholder Value Creation in European M&As," CEPR Discussion Papers 4400, C.E.P.R. Discussion Papers.
    7. King, Michael R. & Maier, Philipp, 2009. "Hedge funds and financial stability: Regulating prime brokers will mitigate systemic risks," Journal of Financial Stability, Elsevier, vol. 5(3), pages 283-297, September.
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