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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

Skarpås, Eirik; Stenseng, Dag
Master thesis
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URI
http://hdl.handle.net/11250/2432659
Date
2016
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  • Master Thesis [4207]
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.

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