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The impact of M&A transactions from private equity and hedge funds

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  • Gerhard Wörtche
  • Tristan Nguyen

Abstract

Purpose - The purpose of this paper is to study the impact of merger and acquisition (M&A) transactions from private equity and hedge funds. Owing to the recent financial and economic crisis, there is a controversial discussion about the implications of M&As from private equity and hedge funds. It is argued that acquisitions, which are driven by financial investors (FIs) like private equity and hedge funds, have solely short‐term profit interests and might be under certain circumstances a source for future financial crisis. Therefore, these FIs should be regulated more severely. Design/methodology/approach - This paper examines the implications of M&As from different types of investors (FIs versus non‐FIs) by analysing the wealth effects of Austrian‐ and Swiss target companies. The authors use the event study methodology to analyze the effects of an merger announcement to see whether the financial markets believe the merger will create or destroy value. Findings - Considering the wealth effects of the different types of investors, the findings of this paper support the necessity of special regulations for FIs such as private equity and hedge funds. This is due to the fact that lower performance is linked to the disgraceful business conduct of an FI who is oriented toward short‐term profit at the cost of the target company and their stakeholders. Originality/value - This paper provided an overview of different event study methods and examined the implications of different types of investors by analysing the wealth effects of Swiss and Austrian target companies. It is the first empirical study about the impact of M&A transactions from private equity and hedge funds in Austria and Switzerland.

Suggested Citation

  • Gerhard Wörtche & Tristan Nguyen, 2011. "The impact of M&A transactions from private equity and hedge funds," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 19(1), pages 45-57, February.
    • Handle: RePEc:eme:jfrcpp:v:19:y:2011:i:1:p:45-57
    DOI: 10.1108/13581981111106167
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    References listed on IDEAS

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    1. King, Michael R. & Maier, Philipp, 2009. "Hedge funds and financial stability: Regulating prime brokers will mitigate systemic risks," Journal of Financial Stability, Elsevier, vol. 5(3), pages 283-297, September.
    2. April Klein & Emanuel Zur, 2009. "Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors," Journal of Finance, American Finance Association, vol. 64(1), pages 187-229, February.
    3. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    4. José Manuel Campa & Ignacio Hernando, 2004. "Shareholder Value Creation in European M&As," European Financial Management, European Financial Management Association, vol. 10(1), pages 47-81, March.
    5. Becher, David A., 2000. "The valuation effects of bank mergers," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 189-214, July.
    6. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    7. Joanne Hindle, 2009. "The future of regulation," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 17(4), pages 415-426, November.
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