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Market Misreaction? Evidence from Cross-Border Acquisitions

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  • CNV Krishnan

    (Weatherhead School of Management, Case Western Reserve University, Cleveland, OH 44106, USA)

  • Jialun Wu

    (Weatherhead School of Management, Case Western Reserve University, Cleveland, OH 44106, USA)

Abstract

Our goal in this paper is to answer this research question: Do investors understand the longer-term value-implications of cross border mergers and acquisitions, as at the time of their announcements? We examine acquirers’ operating efficiencies around and after cross-border acquisitions and relate this to the announcement-period stock-market reaction. Using a dataset of cross-border mergers and acquisitions (M&A) entailing U.S. acquirers over the period 1990–2013, and using a bootstrapped-DEA (Data Envelopment Analysis) model because any one indicator may not reflect the whole performance of the merger, we find that the operating efficiency of the acquirers decreases around the acquisition, and up to three years after. However, we document evidence of stock market mis-reaction at announcement: the announcement-period acquirer abnormal stock-price return is not significantly associated with acquirer’s operating efficiency post-acquisition. Therefore, investors should be careful interpreting the announcement-period stock-price reaction in cross-border mergers and acquisitions as indicative of merger efficiency gains.

Suggested Citation

  • CNV Krishnan & Jialun Wu, 2022. "Market Misreaction? Evidence from Cross-Border Acquisitions," JRFM, MDPI, vol. 15(2), pages 1-19, February.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:2:p:93-:d:754484
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    Cited by:

    1. C. N. V. Krishnan & Vasiliy Yakimenko, 2022. "Market Misreaction? Leverage and Mergers and Acquisitions," JRFM, MDPI, vol. 15(3), pages 1-21, March.
    2. Viktoriya Gonchar & Oleksandr Kalinin & Olena Khadzhynova & Killian J. McCarthy, 2022. "False Friends? On the Effect of Bureaucracy, Informality, Corruption and Conflict in Ukraine on Foreign and Domestic Acquisitions," JRFM, MDPI, vol. 15(4), pages 1-14, April.
    3. Karolis Andriuškevičius & Dalia Štreimikienė & Irena Alebaitė, 2022. "Convergence between Indicators for Measuring Sustainable Development and M&A Performance in the Energy Sector," Sustainability, MDPI, vol. 14(16), pages 1-23, August.
    4. Jian Huang & Han Yu & Zhen Zhang, 2023. "External vs. In-House Advising Service: Evidence from the Financial Industry Acquisitions," JRFM, MDPI, vol. 16(2), pages 1-21, January.

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