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The performance of UK firms acquiring large cross-border and domestic takeover targets

  • M. S. B. Aw
  • R. A. Chatterjee
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    This paper focuses upon cross-border acquisitions. A three-way comparison is made between the post-takeover performance of UK acquirers of domestic UK, US, and Continental European targets between 1991 and 1996. This study examines if UK firms acquiring large takeover targets experience cumulative abnormal returns significantly different from zero up to two years after the acquisition. This study finds that UK firms acquiring large takeover targets experience negative cumulative abnormal returns over the period examined, at various significance levels. Furthermore, the study finds that the post-takeover performance of UK firms acquiring UK targets is superior to that of UK firms acquiring US targets. In turn, the performance of UK firms acquiring US targets is better than that of UK firms acquiring Continental European targets. If this trend continues, the consequences for institutional investors and pension funds, which respond to a major takeover by increasing their holdings in the acquirer, could be serious. The shares they are buying are the very companies we show to be underperforming. And the particularly poor performance of UK companies acquiring in Europe suggests that this anomaly may become even more significant as European cross-border activity gathers pace.

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    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 14 (2004)
    Issue (Month): 5 ()
    Pages: 337-349

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    Handle: RePEc:taf:apfiec:v:14:y:2004:i:5:p:337-349
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    1. Doukas, John & Travlos, Nickolaos G, 1988. " The Effect of Corporate Multinationalism on Shareholders' Wealth: Evidence from International Acquisitions," Journal of Finance, American Finance Association, vol. 43(5), pages 1161-75, December.
    2. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
    3. Harris, Robert S & Ravenscraft, David, 1991. " The Role of Acquisitions in Foreign Direct Investment: Evidence from the U.S. Stock Market," Journal of Finance, American Finance Association, vol. 46(3), pages 825-44, July.
    4. Blume, Marshall E. & Stambaugh, Robert F., 1983. "Biases in computed returns : An application to the size effect," Journal of Financial Economics, Elsevier, vol. 12(3), pages 387-404, November.
    5. Higson, Chris & Elliott, Jamie, 1998. "Post-takeover returns: The UK evidence," Journal of Empirical Finance, Elsevier, vol. 5(1), pages 27-46, January.
    6. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    7. Cakici, Nusret & Hessel, Chris & Tandon, Kishore, 1996. "Foreign acquisitions in the United States: Effect on shareholder wealth of foreign acquiring firms," Journal of Banking & Finance, Elsevier, vol. 20(2), pages 307-329, March.
    8. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
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