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Diversification, Ownership and Control of Swedish Corporations

Author

Listed:
  • John A. Doukas
  • Martin Holmen
  • Nickolaos G. Travlos

Abstract

We study the short‐ and long‐term valuation effects of Swedish takeovers. Using a sample of 93 bidding firms that acquired 101 targets between 1980 and 1995, we find that diversifying acquisitions lead to a negative market reaction and deterioration of the operating performance of the bidder. Announcement and performance gains in each of the three years following the acquisition occur only when bidders expand their core rather than their peripheral lines of business. Our findings suggest that focused acquisitions lead to greater synergies and operating efficiencies than diversifying acquisitions. Intra‐group acquisitions, however, show that bidders do not realise significant gains whether they adopt diversifying or focusing investment strategies by purchasing firms controlled by the Wallenberg and SHB conglomerate groups. Intra‐group targets realize significant gains regardless bidder’s investment strategy. Finally, the evidence does not support the view that intra‐conglomerate acquisitions are associated with expropriation of minority shareholders. However, they appear to enhance the control rights of large shareholders of the bidding firm.

Suggested Citation

  • John A. Doukas & Martin Holmen & Nickolaos G. Travlos, 2002. "Diversification, Ownership and Control of Swedish Corporations," European Financial Management, European Financial Management Association, vol. 8(3), pages 281-314, September.
    • Handle: RePEc:bla:eufman:v:8:y:2002:i:3:p:281-314
    DOI: 10.1111/1468-036X.00190
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    Cited by:

    1. Veronika Vinogradova, 2018. "Value creation through external growth strategy: the architecture of successful performance," Review of Quantitative Finance and Accounting, Springer, vol. 51(3), pages 847-882, October.
    2. Marina Martynova & Luc Renneboog, 2011. "The Performance of the European Market for Corporate Control: Evidence from the Fifth Takeover Wave," European Financial Management, European Financial Management Association, vol. 17(2), pages 208-259, March.
    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. Gönül Çolak, 2010. "Diversification, Refocusing and Firm Value," European Financial Management, European Financial Management Association, vol. 16(3), pages 422-448, June.
    5. Moshfique Uddin & Agyenim Boateng, 2009. "An analysis of short‐run performance of cross‐border mergers and acquisitions," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 8(4), pages 431-453, October.
    6. Ali Ataullah & Ian Davidson & Hang Le, 2010. "Large Shareholders, the Board of Directors and the Allocation of Cash Proceeds from Corporate Asset Sell†offs," European Financial Management, European Financial Management Association, vol. 16(2), pages 271-295, March.
    7. Neelam Rani & Surendra S Yadav & P.K. Jain, 2015. "Impact of Mergers and Acquisitions on Shareholders’ Wealth in the Short Run: An Event Study Approach," Vikalpa: The Journal for Decision Makers, , vol. 40(3), pages 293-312, September.
    8. Manapol Ekkayokkaya & Phil Holmes & Krishna Paudyal, 2009. "The Euro and the Changing Face of European Banking: Evidence from Mergers and Acquisitions," European Financial Management, European Financial Management Association, vol. 15(2), pages 451-476, March.
    9. Amewu, Godfred & Alagidede, Paul, 2019. "Mergers and executive compensation changes: Evidence from African markets," Research in International Business and Finance, Elsevier, vol. 48(C), pages 397-419.
    10. Teti, Emanuele & Tului, Stefano, 2020. "Do mergers and acquisitions create shareholder value in the infrastructure and utility sectors? Analysis of market perceptions," Utilities Policy, Elsevier, vol. 64(C).
    11. Tomas Jandik & Craig G. Rennie, 2008. "The Evolution of Corporate Governance and Firm Performance in Transition Economies: The Case of Sellier and Bellot in the Czech Republic," European Financial Management, European Financial Management Association, vol. 14(4), pages 747-791, September.
    12. Neelam Rani & Surendra S. Yadav & P.K. Jain, 2013. "Market Response to the Announcement of Mergers and Acquisitions: An Empirical Study from India," Vision, , vol. 17(1), pages 1-16, March.
    13. Gerritsen, Dirk F., 2015. "Security analysts’ target prices and takeover premiums," Finance Research Letters, Elsevier, vol. 13(C), pages 205-213.
    14. Imen Khanchel El Mehdi, 2014. "Accrual and cash flow anomalies in diversified firms: Impact of segment portfolio management," Working Papers 2014-76, Department of Research, Ipag Business School.
    15. repec:ipg:wpaper:2014-076 is not listed on IDEAS
    16. Taylan Mavruk & Conny Overland & Stefan Sjögren, 2020. "Keeping it real or keeping it simple? Ownership concentration measures compared," European Financial Management, European Financial Management Association, vol. 26(4), pages 958-1005, September.
    17. Liu, Chunyan & Uchida, Konari & Yang, Yufeng, 2014. "Controlling shareholder, split-share structure reform and cash dividend payments in China," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 339-357.
    18. Yoser Gadhoum & Larry H. P. Lang & Leslie Young, 2005. "Who Controls US?," European Financial Management, European Financial Management Association, vol. 11(3), pages 339-363, June.
    19. Manapol Ekkayokkaya & Phil Holmes & Krishna Paudyal, 2009. "Limited Information and the Sustainability of Unlisted‐Target Acquirers' Returns," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9‐10), pages 1201-1227, November.

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