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Acquiring Control in Emerging Markets: Evidence from the Stock Market

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  • Anusha Chari
  • Paige P. Ouimet
  • Linda L. Tesar

Abstract

When firms from developed markets acquire firms in emerging markets, market-capitalization-weighted monthly joint returns show a statistically significant increase of 1.8%. Panel data estimations suggest that the value gains from cross-border M&A transactions stem from the transfer of majority control from emerging-market targets to developed market acquirers' joint returns range from 5.8% to 7.8% when majority control is acquired. Announcement returns for acquirer and target firms estimate the distribution of gains and show a statistically significant increase of 2.4% and 6.9%, respectively. The evidence suggests that the stock market anticipates significant value creation from cross-border transactions that involve emerging-market targets leading to substantial gains for shareholders of both acquirer and target firms.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10872.

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Date of creation: Nov 2004
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Handle: RePEc:nbr:nberwo:10872

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Cited by:
  1. Arnold, Jens & Smarzynska Javorcik, Beata, 2005. "Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia," CEPR Discussion Papers 5065, C.E.P.R. Discussion Papers.
  2. Marcus Noland, 2005. "South Korea's Experience with International Capital Flows," Working Paper Series WP05-4, Peterson Institute for International Economics.
  3. Goldstein, Itay & Razin, Assaf, 2006. "An information-based trade off between foreign direct investment and foreign portfolio investment," Journal of International Economics, Elsevier, vol. 70(1), pages 271-295, September.
  4. 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.
  5. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
  6. Peter Blair Henry, 2006. "Capital account liberalization: theory, evidence, and speculation," Working Paper Series 2007-32, Federal Reserve Bank of San Francisco.
  7. Diego Valderrama & Katherine Smith, 2009. "Why Do Emerging Economies Import Direct Investment and Export Savings? A Story of Financial Underdevelopment," 2009 Meeting Papers 1160, Society for Economic Dynamics.
  8. Ray Chaudhuri, A., 2010. "Monopolization Through Acquisitions in Multimarket Oligopolies (Replaced by CentER DP 2011-112)," Discussion Paper 2010-96, Tilburg University, Center for Economic Research.
  9. Katherine Smith & Diego Valderrama, 2007. "The composition of capital flows when emerging market firms face financing constraints," 2007 Meeting Papers 533, Society for Economic Dynamics.
  10. Ray Chaudhuri, A., 2014. "Acquisitions by Multinationals and Trade Liberalization," Discussion Paper 2014-006, Tilburg University, Center for Economic Research.

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