The wealth effects of M&A in emerging markets : an empirical study of value creation and value distribition, and new evidence on the relationship between corruption and target pre-annoucement stock price runup

Abstract

The takeover literature appears to lack comprehensive studies on the shareholder wealth effects of mergers and acquisitions (M&A) in emerging markets (EMs). In this thesis, using a sample consisting of 542 initial takeover bids originating from 21 emerging economies, we provide a unified analysis of the value creation in M&A and the distribution of value between target- and bidder firms. Further, we examine the differences in value creation and value distribution between EMs and the United States (US) by including a control sample consisting of 2 379 US initial takeover bids. To measure value creation, we calculate both the capitalizationweighted combined cumulative abnormal returns surrounding the bid announcement, and the combined dollar returns per dollar spent on takeovers. To measure the value distribution, we calculate the difference in dollar returns received by the target and bidder, normalized by their combined pre-merger market capitalization, as well as the fraction of combined dollar returns received by the target. When analyzing the differences between EMs and the US, we control for commonly accepted deal-, firm-, and country characteristics. We find that while premiums received by targets are significantly lower in EMs than in the US, there is no significant difference in value creation. Further, EM targets receive a significantly smaller share of the value creation than their US counterparts. Hence, our results suggest that bargaining power is lower for EM targets. In addition, we present evidence indicating a positive relationship between the degree of corruption and target pre-announcement stock price runup.