INTERNATIONAL MERGERS: RETURNS TO U.S. AND BRITISH FIRMS

Empirical evidence is provided on the returns to shareholders of acquiring and acquired firms in international mergers between US and UK companies during the period 1971-1980. The cumulative abnormal return (CAR) for UK acquired firms was half that found for US targets. This is consistent with the h...

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Bibliographic Details
Published in:Journal of business finance & accounting 1990-12, Vol.17 (5), p.689-711
Main Authors: Conn, R.L., Connell, F.
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Economic models
Economic theory
International
Mergers
Shareholders wealth
Statistical analysis
Stock prices
Studies
U.S.A
United Kingdom
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Summary:Empirical evidence is provided on the returns to shareholders of acquiring and acquired firms in international mergers between US and UK companies during the period 1971-1980. The cumulative abnormal return (CAR) for UK acquired firms was half that found for US targets. This is consistent with the hypothesis that the UK market for corporate control is less competitive than that in the US because of greater agency costs and fewer regulatory and disclosure requirements. Acquiring firms' CARs in both the US and the UK were highly sensitive to the method used to estimate the market model's parameters based on pre-merger returns, post-merger returns, or pooled returns because of an unstable intercept (alpha) parameter. The unstable alpha term calls for reexamination of domestic merger studies, especially in the UK, where all existing studies have used only pre-merger returns to estimate the market model. An international market model that included an international market index as well as the relevant national index did not result in significant differences in CAR from the purely domestic market model.
ISSN:0306-686X
1468-5957
DOI:10.1111/j.1468-5957.1990.tb00568.x