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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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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. Jens Matthias Arnold & Beata Smarzynska Javorcik, 2005. "Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia," Development Working Papers 197, Centro Studi Luca d\'Agliano, University of Milano.
  2. 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.
  3. Ray Chaudhuri, A., 2014. "Acquisitions by Multinationals and Trade Liberalization," Discussion Paper 2014-006, Tilburg University, Center for Economic Research.
  4. 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.
  5. 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.
  6. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
  7. Smith, Katherine A. & Valderrama, Diego, 2009. "The composition of capital inflows when emerging market firms face financing constraints," Journal of Development Economics, Elsevier, vol. 89(2), pages 223-234, July.
  8. Marcus Noland, 2005. "South Korea's Experience with International Capital Flows," Working Paper Series WP05-4, Peterson Institute for International Economics.
  9. 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.
  10. Henry, Peter B., 2006. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1951, Stanford University, Graduate School of Business.

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