M&A PERFORMANCE: A COMPARATIVE STUDY OF EMERGING AND DEVELOPED MARKETS

Abstract

The study commenced with a view to enquire into the performance puzzle syndrome and the influence of institutional distance on M&A outcomes. Towards this, it examines the performance for a large sample of deals. The study sample covers a period ranging over a period of two-decades for deals originating from five emerging and seven developed markets including the BRICS countries, United Kingdom, Germany, France Netherlands, Spain, Canada and Japan. The stock market reactions on and around the deal announcement are examined using the event study methodology. The market reactions on deal reactions are analysed for each of the sample nations. Following this, an overall comparative analysis is conducted for emerging and developed market deal performance. Dwelling deeper, the deals are then further bifurcated and analysed based on the target location, i.e., domestic and cross-border deals for an enhanced understanding. Finally, the impact of institutional distance on deal performance is examined for understanding the simultaneous and individual impact of different distance dimensions. The first objective of the study relates to examining the emerging market M&A performance. Towards this objective, the acquirer stock returns on deal announcement are analysed for understanding the market perception towards deal performance and its effect on shareholder’s wealth. While the results found a positive zero-day returns for all the five emerging markets, country-wise distinctions are observed in the pattern of information absorption highlighting individual market peculiarities. Further towards the second objective of the study, announcement period returns for the deals originating from the sample of seven developed nations are calculated and analysed. All the seven developed nations observed a statistically significant and positive returns on the day of announcement as well as consistently positive cumulative returns are recorded across all select event windows. Comparing the performance for emerging and developed markets, the results reveal higher wealth gains for emerging market acquirers around the deal announcement as against the developed market acquirers, indicated by both zero day returns and the cumulative return values around deal announcement. Towards the vii third objective of the study, total sample of M&A deals were split into domestic and cross-border deals for each of the sample country to compare and contrast the differences in their performance. The reported results highlight a distinct country-wise behavioural pattern on the cross-border versus domestic deal performance. Finally, working towards the fourth objective of the study, the study elucidated the relationship between the multiple institutional distance dimensions and M&A performance highlighting the variations in their significance and direction of effect. The result confirms statistically significant and distinct impacts of financial, political, cultural and global-connectedness distance on the deal performance. A notable contribution of the study lies in recognising and explaining the distinctive impacts of institutional distance dimensions on the M&A, warranting against any generalisations based on aggregated distance measures.