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The performance of UK firms acquiring large cross-border and domestic takeover targets

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  • M. S. B. Aw
  • R. A. Chatterjee
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    Abstract

    This paper focuses upon cross-border acquisitions. A three-way comparison is made between the post-takeover performance of UK acquirers of domestic UK, US, and Continental European targets between 1991 and 1996. This study examines if UK firms acquiring large takeover targets experience cumulative abnormal returns significantly different from zero up to two years after the acquisition. This study finds that UK firms acquiring large takeover targets experience negative cumulative abnormal returns over the period examined, at various significance levels. Furthermore, the study finds that the post-takeover performance of UK firms acquiring UK targets is superior to that of UK firms acquiring US targets. In turn, the performance of UK firms acquiring US targets is better than that of UK firms acquiring Continental European targets. If this trend continues, the consequences for institutional investors and pension funds, which respond to a major takeover by increasing their holdings in the acquirer, could be serious. The shares they are buying are the very companies we show to be underperforming. And the particularly poor performance of UK companies acquiring in Europe suggests that this anomaly may become even more significant as European cross-border activity gathers pace.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 14 (2004)
    Issue (Month): 5 ()
    Pages: 337-349

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    Handle: RePEc:taf:apfiec:v:14:y:2004:i:5:p:337-349

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    1. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
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    3. Harris, Robert S & Ravenscraft, David, 1991. " The Role of Acquisitions in Foreign Direct Investment: Evidence from the U.S. Stock Market," Journal of Finance, American Finance Association, vol. 46(3), pages 825-44, July.
    4. Cakici, Nusret & Hessel, Chris & Tandon, Kishore, 1996. "Foreign acquisitions in the United States: Effect on shareholder wealth of foreign acquiring firms," Journal of Banking & Finance, Elsevier, vol. 20(2), pages 307-329, March.
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    6. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    7. Higson, Chris & Elliott, Jamie, 1998. "Post-takeover returns: The UK evidence," Journal of Empirical Finance, Elsevier, vol. 5(1), pages 27-46, January.
    8. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
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    Cited by:
    1. Kohli, Reena & Mann, Bikram Jit Singh, 2012. "Analyzing determinants of value creation in domestic and cross border acquisitions in India," International Business Review, Elsevier, vol. 21(6), pages 998-1016.
    2. Mantecon, Tomas, 2009. "Mitigating risks in cross-border acquisitions," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 640-651, April.
    3. Hamberg, Mattias & Overland, Conny & Lantz, Björn, 2013. "Board participation, toeholds and the cross-border effect," International Business Review, Elsevier, vol. 22(5), pages 868-882.
    4. Deshpande, Shreesh & Svetina, Marko & Zhu, PengCheng, 2012. "Analyst coverage of acquiring firms and value creation in cross-border acquisitions," Journal of Multinational Financial Management, Elsevier, vol. 22(5), pages 212-229.
    5. Moshfique Uddin & Agyenim Boateng, 2009. "An analysis of short-run performance of cross-border mergers and acquisitions: Evidence from the UK acquiring firms," Review of Accounting and Finance, Emerald Group Publishing, vol. 8(4), pages 431-453, November.
    6. von Eije, Henk & Wiegerinck, Hélène, 2010. "Shareholders' reactions to announcements of acquisitions of private firms: Do target and bidder markets make a difference?," International Business Review, Elsevier, vol. 19(4), pages 360-377, August.
    7. Graham, Michael & Martey, Emmanuel & Yawson, Alfred, 2008. "Acquisitions from UK firms into emerging markets," Global Finance Journal, Elsevier, vol. 19(1), pages 56-71.
    8. Abhay Abhyankar & Keng-Yu Ho & Huainan Zhao, 2005. "Long-run post-merger stock performance of UK acquiring firms: a stochastic dominance perspective," Applied Financial Economics, Taylor & Francis Journals, vol. 15(10), pages 679-690.
    9. Andy Cosh & Alan Hughes, 2008. "Takeovers after "Takeovers"," ESRC Centre for Business Research - Working Papers wp363, ESRC Centre for Business Research.
    10. Bhagat, Sanjai & Malhotra, Shavin & Zhu, PengCheng, 2011. "Emerging country cross-border acquisitions: Characteristics, acquirer returns and cross-sectional determinants," Emerging Markets Review, Elsevier, vol. 12(3), pages 250-271, September.
    11. Cao, Jack & Owen, Sian & Yawson, Alfred, 2008. "Analysing the wealth effects of UK divestitures: An examination of domestic and international sales," Research in International Business and Finance, Elsevier, vol. 22(1), pages 68-84, January.

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