Announcement Effects and Information Contents: An Empirical Study of Cross-Border M&A by Taiwan Firms
Date Issued
2008
Date
2008
Author(s)
Pan, Li-Hsien
Abstract
Mergers and acquisitions (M&A) have become an important way for companies to grow, especially cross-border M&As have increased substantially over the last few years. Shareholders of acquiring firms have great concerned over whether firms can yield positive wealth gains. The sample was obtained from acquiring firms of stock listed company in Taiwan during the period from 1995 to 2007, which contained a total of 98 observations, with 63 electronic sample companies and 35 non-electronic sample ones. The objectives of this study were twofold. First, Event study was applied to assess whether the announcement of cross-border M&As create value for shareholders of acquiring firms. Second, try to find out important factors that affect announcement effect using regression models.he empirical results of this study suggest：.As a whole, stock market in Taiwan responds positively to the corporate M&A announcements, especially the electronic industry has experienced higher abnormal return. The results support the synergy hypothesis. It also shows that the M&A information may leak out in advance..For the entire sample, the study shows that the announcement-period abnormal returns have significant positive relationship with the acquiring firms’ equity growth rate, and negatively related to acquiring firms’ size and Tobin’s Q and the results was supported by the hubris hypothesis (Roll, 1986) ..For the electronic industry, equity growth rate is the primary explanatory variable, whereas acquiring firms’ size and Tobin’s Q have partial explanatory power. Acquiring firms with higher equity growth rate, smaller absolute size, and lower Tobin’s Q will have higher announcement effects. Our results support the hubris hypothesis (Roll, 1986) ..For non-electronic industry, factors affecting short-term abnormal returns of M&A announcements are cultural distance, acquiring firms’ absolute size and R&D expenses. Acquiring firms with lower cultural distance, smaller absolute size, and lower R&D expenses will have substantial announcement effects. The results do not support internalization theory.
Subjects
event study
announcement effect
cultural distance
synergy hypothesis
hubris hypothesis
internalization theory
Type
thesis
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