Skip to main content
SpringerLink
Log in

Is the grass on the other side greener? Testing the cross-border effect for U.S. acquirers

  • Original Research
  • Published:
Review of Quantitative Finance and Accounting Aims and scope Submit manuscript

Abstract

Why do U.S. acquirers fare worse when acquiring targets in foreign countries than when acquiring domestic targets? This paper investigates reasons for the so called “cross-border effect” by examining the influence of target public status and competitiveness of the takeover market in the target country. Our findings show that the listing status of the target drives the cross-border effect in two opposite directions: acquirers of private targets fare worse in cross-border takeovers, while acquirers of public targets experience significantly higher gains in acquisitions of foreign targets. The positive cross-border benefit for acquirers of public targets is more pronounced if the target is from a country with a less competitive takeover market.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. See Guerrera and Berman (2013).

  2. Enhanced monitoring after purchasing private firms may also play a role, at least in stock offers, if private firm shareholders become outside blockholders of the combined firm (see Chang 1998).

  3. Also, Duchin and Schmidt (2013) note that agency-driven acquisitions may be more likely to occur during merger waves. If acquirers are driven by hubris or empire-building motivations, they would more likely pursue public targets, which are typically much larger than private targets, to build up their “empire”.

  4. For more evidence on merger waves and the use of clustered standard errors, also see Andrade et al. (2001), Harford (2005), Baker et al. (2012), and Schmidt (2015).

References

  • Ahern K, Daminelli D, Fracassi C (2015) Lost in translation? The effect of cultural values on mergers around the world. J Financ Econ 117:165–189

    Article  Google Scholar 

  • Alexandridis G, Petmezas D, Travlos N (2010) Gains from mergers and acquisitions around the world: new evidence. Financ Manag 39:1671–1695

    Article  Google Scholar 

  • Alexandridis G, Fuller K, Terhaar L, Travlos N (2013) Deal size, acquisition premia and shareholder gains. J Corp Finance 20:1–13

    Article  Google Scholar 

  • Anderson R, Stowe J, Xing X (2011) Does corporate diversification reduce firm risk? Evidence from diversifying acquisitions. Rev Pac Basin Financ Mark Policies 14:485–504

    Article  Google Scholar 

  • Andrade G, Mitchell M, Stafford E (2001) New evidence and perspectives on mergers. J Econ Perspect 15:103–120

    Article  Google Scholar 

  • Asquith P (1983) Merger bids, uncertainty, and stockholder returns. J Financ Econ 11:51–83

    Article  Google Scholar 

  • Baker M, Pan X, Wurgler J (2012) The effect of reference point prices on mergers and acquisitions. J Financ Econ 106:49–71

    Article  Google Scholar 

  • Billett M, Qian Y (2008) Are overconfident CEOs born or made? Evidence of self-attribution bias from frequent acquirers. Manag Sci 54:1037–1051

    Article  Google Scholar 

  • Bodnar G, Tang C, Weintrop J (1997) Both sides of corporate diversification: the value impacts of geographic and industrial diversification (no. w6224). National Bureau of Economic Research, Cambridge

    Book  Google Scholar 

  • Brau J, Hatch N, Sutton N (2010) Dual-track versus single-track sell-outs: an empirical analysis of competing harvest strategies. J Bus Ventur 25:389–402

    Article  Google Scholar 

  • Bruner R (2004) Applied mergers & acquisitions, University edition. Wiley, Hoboken

    Google Scholar 

  • Chang S (1998) Takeovers of privately held targets, methods of payment, and bidder returns. J Finance 53:773–784

    Article  Google Scholar 

  • Denis D, Denis D, Yost K (2002) Global diversification, industrial diversification, and firm value. J Finance 57:1951–1979

    Article  Google Scholar 

  • Djankov S, La Porta R, Lopez-de-Silanes F, Shleifer A (2008) The law and economics of self-dealing. J Financ Econ 88:430–465

    Article  Google Scholar 

  • Doukas J (1995) Overinvestment, Tobin’s Q and gains from foreign acquisitions. J Bank Finance 19:1285–1303

    Article  Google Scholar 

  • Duchin R, Schmidt B (2013) Riding the merger wave: uncertainty, reduced monitoring, and bad acquisitions. J Financ Econ 107:69–88

    Article  Google Scholar 

  • Faccio M, McConnell J, Stolin D (2006) Returns to acquirers of listed and unlisted targets. J Financ Quant Anal 41:197–220

    Article  Google Scholar 

  • Francis B, Hasan I, Sun X (2008) Financial market integration and the value of global diversification: evidence for US acquirers in cross-border mergers and acquisitions. J Bank Finance 32:1522–1540

    Article  Google Scholar 

  • Fuller K, Netter J, Stegemoller M (2002) What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions. J Finance 57:1763–1793

    Article  Google Scholar 

  • Guerrera F, Berman D (2013) Analysis: Shopping spree for Wall Street. Wall Street Journal, Feb 14 2013

  • Harford J (2005) What drives merger waves? J Financ Econ 77:529–560

    Article  Google Scholar 

  • Harris M, Kriebel C, Raviv A (1982) Asymmetric information, incentives and intrafirm resource allocation. Manag Sci 28:604–620

    Article  Google Scholar 

  • Jensen M (1986) Agency costs of free cash flow, corporate finance, and takeovers. Am Econ Rev 76:323–329

    Google Scholar 

  • Jensen M, Ruback R (1983) The market for corporate control: the scientific evidence. J Financ Econ 11:5–50

    Article  Google Scholar 

  • John K, Freund S, Nguyen D, Vasudevan G (2010) Investor protection and cross-border acquisitions of private and public targets. J Corp Finance 16:259–275

    Article  Google Scholar 

  • Lang L, Stulz R, Walkling R (1989) Managerial performance, Tobin’s Q, and the gains from successful tender offers. J Financ Econ 24:137–154

    Article  Google Scholar 

  • Lowinski F, Schiereck D, Thomas T (2004) The effect of cross-border acquisitions on shareholder wealth—evidence from Switzerland. Rev Quant Finance Acc 22:315–330

    Article  Google Scholar 

  • Maksimovic V, Phillips G, Yang L (2013) Private and public merger waves. J Finance 68:2177–2217

    Article  Google Scholar 

  • Mantecon T (2008) An analysis of the implications of uncertainty and agency problems on the wealth effects to acquirers of private firms. J Bank Finance 32:892–905

    Article  Google Scholar 

  • Mantecon T, Thistle P (2011) The IPO market as a screening device and the going public decision: evidence from acquisitions of privately and publicly held firms. Rev Quant Finance Acc 37:325–361

    Article  Google Scholar 

  • Moeller S, Schlingemann F (2005) Global diversification and bidder gains: a comparison between cross-border and domestic acquisitions. J Bank Finance 29:533–564

    Article  Google Scholar 

  • Moeller S, Schlingemann F, Stulz R (2004) Firm size and the gains from acquisitions. J Financ Econ 73:201–228

    Article  Google Scholar 

  • Morck R, Yeung B (1992) Internalization: an event study test. J Int Econ 33:41–56

    Article  Google Scholar 

  • Officer M (2007) The price of corporate liquidity: acquisition discounts for unlisted targets. J Financ Econ 83:571–598

    Article  Google Scholar 

  • Officer M, Poulsen A, Stegemoller M (2009) Target-firm information asymmetry and acquirer returns. Rev Finance 13:467–493

    Article  Google Scholar 

  • Pantzalis C, Park J, Sutton N (2008) Legal environment, internalization, and US acquirer gains in foreign takeovers. J Financ Res 31:167–191

    Article  Google Scholar 

  • Schmidt B (2015) Costs and benefits of friendly boards during mergers and acquisitions. J Financ Econ 117:424–447

    Article  Google Scholar 

  • Servaes H (1991) Tobin’s Q and the gains from takeovers. J Finance 46:409–419

    Article  Google Scholar 

  • Stulz R (1990) Managerial discretion and optimal financing policies. J Financ Econ 26:3–27

    Article  Google Scholar 

  • Travlos N (1987) Corporate takeover bids, methods of payment, and bidding firms’ stock returns. J Finance 42:943–963

    Article  Google Scholar 

  • Yung K (2001) Foreign acquisitions and managerial discretion. Rev Quant Finance Acc 16:53–63

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Austin E. Cofrin School of Business, University of Wisconsin-Green Bay, Green Bay, WI, 54311, USA

    Yun Meng

  2. Department of Finance, University of South Florida, Tampa, FL, 33620, USA

    Ninon K. Sutton

Authors
  1. Yun Meng
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Ninon K. Sutton
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Yun Meng.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Meng, Y., Sutton, N.K. Is the grass on the other side greener? Testing the cross-border effect for U.S. acquirers. Rev Quant Finan Acc 48, 917–937 (2017). https://doi.org/10.1007/s11156-016-0573-1

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11156-016-0573-1

Keywords

JEL Classification

Search

Navigation