Abnormal Returns to Mergers and Acquisitions in Ten Asian Stock Markets

Abstract

I. INTRODUCTION The volume of mergers and acquisitions (MA Kwok and Tadesse, 2006). Given these differences, it is necessary to re-examine the validity of the theories and hypotheses with specific reference to developing markets in Asia. Some of the theories used to explain the M&A phenomena in developed economies may not be appropriate when trying to explain M&A activities in developing markets. For example, the cash flow theory posits that managers of firms with unused borrowing power and large free cash flows are more likely to undertake low-benefit mergers. In developed economies, the cash flow theory is often used to explain why diversification generates lower total gains (Jensen, 1986). However, preliminary evidence from diversification studies in developing markets indicates that diversification might generate higher total gains (Khanna and Palepu, 1997, 2000a, 2000b). The relative lack of extensive study of M&A in developing markets may be due to two reasons. First, unlike in developed markets, there is a lack of comprehensive databases on M&A transactions in emerging markets. Second, there are relatively small economies of scale and scope in emerging markets. Thus, there is a relatively small number of M&A transactions in emerging markets. However, the process of global economic integration and the excellent economic performance of some Asian emerging economies over the last few decades have caught the attention of both investors and academicians (Wright et al., 2005). In this study, we investigate abnormal returns to shareholders of bidder firms around the day of M&A announcement for ten emerging Asian markets: China, India, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand. The analysis is based on a sample of 1,477 M&A deals in these ten emerging Asian markets over six years (2000-2005). Our findings show that the emerging Asian stock markets have positive reactions to announcement of M&A deals. On average, shareholders of bidding firms gain 0. …

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 85 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.