Abstract
We examine the motives for takeovers in New Zealand surrounding the 1987 stock market crash and compare with the US findings of Gondhalekar and Bhagwat (2003). There are a number of structural differences between the New Zealand and US markets that could impact on merger motives. Compared with the US, New Zealand is a small capital market; with weak takeover regulation and a prolonged aftermath of the 1987 stock market crash. Consistent with US research, we find evidence of synergy and hubris motivations in New Zealand takeovers although we find the synergy motivation is stronger. Contrary to expectations we find no evidence of agency motivated takeovers.
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Notes
For other evidence of agency related issues surrounding merger and acquisition activity, see Yung (2001) who finds that foreign takeovers have are strongly influenced by managerial self-interest and Chen and Steiner (2000) who find that the level of firm diversification is strongly related to excess levels of discretionary funds.
The New Zealand Stock Exchange (NZSE) was demutualised on January 1, 2003 and then rebranded itself as the New Zealand Exchange (NZX) on May 30, 2003. This paper refers to the New Zealand stock market using its old name of NZSE as that was the actual market name for the entire period covered in this paper.
Other explanations for this destruction of value include the possibility that the synergy is simply not there, or that it is due to means of financing through using stocks. We wish to thank an anonymous referee for pointing this out to us.
Intuitively the debt-to-market equity ratio would increase in the post-crash period. Assuming the nominal level of debt remains approximately the same then immediately after the crash there is a drastic decrease in the market value of equity resulting in higher book-to-market equity ratios.
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We wish to thank the editor, Cheng Lee, and an anonymous referee for comments that have substantially improved this paper.
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Anderson, H.D., Marshall, B.R. Takeover motives in a weak regulatory environment surrounding a market shock: a case study of New Zealand with a comparison of Gondhalekar and Bhagwat’s (2003) US findings. Rev Quant Finan Acc 29, 53–67 (2007). https://doi.org/10.1007/s11156-007-0021-3
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DOI: https://doi.org/10.1007/s11156-007-0021-3