IDEAS home Printed from https://ideas.repec.org/a/ejn/ejefjr/v9y2021i1p1-18.html
   My bibliography  Save this article

The Short- and Long-Term Value Gains to Acquirers of Emerging Market Targets in Mergers and Acquisition Deals

Author

Listed:
  • Emmanuel Okofo-Dartey

    (University of South Africa, South Africa)

  • Lungile Ntsalaze

    (University of South Africa, South Africa)

Abstract

This study investigates whether the acquisition of targets from the emerging markets impacts the short-term and long-term value gains of these targets' acquirers in terms of their profitability and growth opportunities. The study uses firm-level data of 93 listed acquirers of targets from the emerging markets sourced from the Bloomberg Terminal from 2003 to 2018. It employs the difference generalized method of moments (GMM) for analysis. This dynamic panel estimation method takes care of endogeneity problems, omitted variables, and error measurements. The study reveals that, broadly, the acquirers' profitability levels improve in the short-term after merger and acquisition (M&A) deals. This improvement in the acquirers' profitability levels occurs in the 1st, 4th and 5th year periods within the short-term after their M&A transactions are completed. Regarding growth opportunities, acquirers of targets from the emerging markets experience both negative and positive returns on their short-term growth opportunities. However, they experience significant positive returns on their growth opportunities in the long-term. Our paper complements and contributes to the body of knowledge on international market entry and have implication for potential acquirers interested in investment opportunities in the emerging markets.

Suggested Citation

  • Emmanuel Okofo-Dartey & Lungile Ntsalaze, 2021. "The Short- and Long-Term Value Gains to Acquirers of Emerging Market Targets in Mergers and Acquisition Deals," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 9(1), pages 1-18.
    • Handle: RePEc:ejn:ejefjr:v:9:y:2021:i:1:p:1-18
    as

    Download full text from publisher

    File URL: https://eurasianpublications.com/wp-content/uploads/2021/04/EJEF_9_1_1_1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Markus Mentz & Dirk Schiereck, 2008. "Cross-border mergers and the cross-border effect: the case of the automotive supply industry," Review of Managerial Science, Springer, vol. 2(3), pages 199-218, November.
    2. Andrzej Rutkowski, 2018. "Profitability of Serial Acquirers on the Polish Capital Market," Springer Proceedings in Business and Economics, in: Krzysztof Jajuga & Hermann Locarek-Junge & Lucjan T. Orlowski (ed.), Contemporary Trends and Challenges in Finance, pages 211-218, Springer.
    3. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    4. Jeffrey Harrison & Matthew Hart & Derek Oler, 2014. "Leverage and acquisition performance," Review of Quantitative Finance and Accounting, Springer, vol. 43(3), pages 571-603, October.
    5. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    6. Krzysztof Jajuga & Hermann Locarek-Junge & Lucjan T. Orlowski (ed.), 2018. "Contemporary Trends and Challenges in Finance," Springer Proceedings in Business and Economics, Springer, number 978-3-319-76228-9, December.
    7. Zhu, PengCheng & Jog, Vijay & Otchere, Isaac, 2011. "Partial acquisitions in emerging markets: A test of the strategic market entry and corporate control hypotheses," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 288-305, April.
    8. Moeller, Sara B. & Schlingemann, Frederik P., 2005. "Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 533-564, March.
    9. Pablo, Eduardo, 2009. "Determinants of cross-border M&As in Latin America," Journal of Business Research, Elsevier, vol. 62(9), pages 861-867, September.
    10. Petmezas, Dimitris, 2009. "What drives acquisitions?: Market valuations and bidder performance," Journal of Multinational Financial Management, Elsevier, vol. 19(1), pages 54-74, February.
    11. Kenneth David & Harbir Singh, 1994. "Sources of Acquisition Cultural Risk," Palgrave Macmillan Books, in: Georg Krogh & Alessandro Sinatra & Harbir Singh (ed.), The Management of Corporate Acquisitions, chapter 10, pages 251-292, Palgrave Macmillan.
    12. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
    13. Mentz, M. & Schiereck, D., 2008. "Cross-border mergers and the Cross-border Effect: The Case of the Automotive Supply Industry," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 34965, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    14. Peter Öhman & Darush Yazdanfar, 2018. "Organizational-level profitability determinants in commercial banks: Swedish evidence," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 45(6), pages 1175-1191, November.
    15. Raghavendra Rau, P. & Vermaelen, Theo, 1998. "Glamour, value and the post-acquisition performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 49(2), pages 223-253, August.
    16. John Goddard & Philip Molyneux & Tim Zhou, 2012. "Bank mergers and acquisitions in emerging markets: evidence from Asia and Latin America," The European Journal of Finance, Taylor & Francis Journals, vol. 18(5), pages 419-438, May.
    17. Morck, Randall & Yeung, Bernard, 1992. "Internalization : An event study test," Journal of International Economics, Elsevier, vol. 33(1-2), pages 41-56, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    2. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    3. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    4. Feito-Ruiz, Isabel & Menéndez-Requejo, Susana, 2011. "Cross-border Mergers and Acquisitions in different legal environments," International Review of Law and Economics, Elsevier, vol. 31(3), pages 169-187, September.
    5. Taher Hamza, 2011. "Determinants of short-term value creation for the bidder: evidence from France," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(2), pages 157-186, May.
    6. Marco Bigelli & Stefano Mengoli, 2004. "Sub-Optimal Acquisition Decisions under a Majority Shareholder System," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 8(4), pages 373-405, October.
    7. ATM Adnan, 2018. "Home vs. Cross-Border Takeovers: Is There Any Difference in Investor Perception?," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2018(2), pages 59-84.
    8. Alexandrou, George & Gounopoulos, Dimitrios & Thomas, Hardy M., 2014. "Mergers and acquisitions in shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 61(C), pages 212-234.
    9. Meinshausen, Steffen & Schiereck, Dirk, 2011. "Dressed to merge — small fits fine: M&A success in the fashion and accessories industry," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 283-291.
    10. Xie, En & Reddy, K.S. & Liang, Jie, 2017. "Country-specific determinants of cross-border mergers and acquisitions: A comprehensive review and future research directions," Journal of World Business, Elsevier, vol. 52(2), pages 127-183.
    11. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    12. Sharma, Abhijit & Raat, Erwin, 2016. "Acquiring control in emerging markets: Foreign acquisitions in Eastern Europe and the effect on shareholder wealth," Research in International Business and Finance, Elsevier, vol. 37(C), pages 153-169.
    13. Hu, Nan & Li, Lu & Li, Hui & Wang, Xing, 2020. "Do mega-mergers create value? The acquisition experience and mega-deal outcomes," Journal of Empirical Finance, Elsevier, vol. 55(C), pages 119-142.
    14. Chuang, Kai-Shi, 2017. "Corporate life cycle, investment banks and shareholder wealth in M&As," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 122-134.
    15. Guo, Jie (Michael) & Li, Yichen & Wang, Changyun & Xing, Xiaofei, 2020. "The role of investment bankers in M&As: New evidence on Acquirers’ financial conditions," Journal of Banking & Finance, Elsevier, vol. 119(C).
    16. Vermaelen, Theo & Xu, Moqi, 2014. "Acquisition finance and market timing," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 73-91.
    17. Gregory, Alan & O'Donohoe, Sheila, 2014. "Do cross border and domestic acquisitions differ? Evidence from the acquisition of UK targets," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 61-69.
    18. Ervin L. Black & Thomas A. Carnes & Tomas Jandik & B. Charlene Henderson, 2007. "The Relevance of Target Accounting Quality to the Long‐Term Success of Cross‐Border Mergers," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1‐2), pages 139-168, January.
    19. Martynova, M. & Renneboog, L.D.R., 2006. "The Performance of the European Market for Corporate Control : Evidence from the 5th Takeover Wave," Discussion Paper 2006-118, Tilburg University, Center for Economic Research.
    20. Farida Akhtar, 2016. "The probability of a firm making a takeover bid: An empirical analysis of Australian firms," Australian Journal of Management, Australian School of Business, vol. 41(1), pages 27-54, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ejn:ejefjr:v:9:y:2021:i:1:p:1-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Esra Barakli (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.