Journal of Korea Trade

Korea Trade Research Association (한국무역학회)
권호 표지
DOI QR코드

DOI QR Code

What Drives the Listing Effect in Acquirer Returns? Evidence from the Korean, Chinese, and Taiwanese Stock Markets

  • Kim, Byoung-Jin (Department of Business Administration, Korea Polytechnic University) ;
  • Jung, Jin-Young (College of Business Administration, Inha University)
  • Received : 2020.04.07
  • Accepted : 2020.09.07
  • Published : 2020.10.31
Download PDF
⟨ Previous Next ⟩

Abstract

Purpose - This study investigates whether a listing effect exists in cross-border M&As and whether the effect can be attributed to the uncertainty of the GDP growth rate in the target firm's home country. We apply a joint variable analysis using M&A announcement data from the Korea Exchange (KRX), Shanghai Stock Exchange (SSE), and the Taiwan Stock Exchange (TWSE) from 2004 to 2013. We also conduct an event study using the measure of the uncertainty of the GDP growth rate (based on IMF statistics) in 55 target countries. Design/methodology - We measure the abnormal return (AR) using the market-adjusted model. We test the significance of the AR and the cumulative abnormal return (CAR) using a one-sample t-test. We examine the characteristics of the CARs depending on whether the target company is listed by applying a difference analysis using CAR as a test variable. In addition, we set CAR (-5, +5) as a dependent variable to identify the cause of the listing effect, and test both the financial characteristic variables of the acquirer and the collective characteristic variables of the merger as independent variables in the multiple regression analysis. Findings - First, we find the listing effect of cross-border M&As in the KRX, SSE, and TWSE, which represent the capital markets in Korea, China, and Taiwan, respectively. This listing effect persists during the global financial crisis and has a negative effect on the wealth of acquiring shareholders, especially when the target countries are emerging markets. Second, greater uncertainty regarding the target countries' economic growth in cross-border M&As has a negative effect on the wealth of acquiring firms' shareholders. Third, our empirical analysis demonstrates that the listing effect is attributable to the fact that firms listed in a target country with greater uncertainty of economic growth are more directly and greatly exposed to uncertain capital markets through stock markets, than are unlisted firms. Originality/value - This study is significant in that it presents a new strategic perspective in the study of cross-border M&As by demonstrating empirically that the listing effect is attributable to the uncertainty regarding the economic development of the target firms' home countries.

Keywords

Acknowledgement

This work was supported by an Inha University Research Grant.

References

  1. Aybar, B. and A. Ficici (2009), "Cross-Border Acquisitions and Firm Value: An Analysis of Emerging-Market Multinationals", Journal of International Business Studies, 40, 1317-1338. https://doi.org/10.1057/jibs.2009.15
  2. Bekaert, G., C. Harvey and C. Lundblad (2005), "Does Financial Liberalization Spur Growth?", Journal of Financial Economics, 77, 3-55. https://doi.org/10.1016/j.jfineco.2004.05.007
  3. Bevan, A. and S. Estrin (2004), "The Determinants of Foreign Direct Investment into European Transition Economies", Journal of Comparative Economics, 32(4), 775-787. https://doi.org/10.1016/j.jce.2004.08.006
  4. Bouwman, C., K. Fuller and A. Nain (2009), "Market Valuation and Acquisition Quality: Empirical Evidence", The Review of Financial Studies, 22(2), 633-679. https://doi.org/10.1093/rfs/hhm073
  5. Brown, S. and J. Warner (1985), "Using Daily Stock Returns: The Case of Event Studies", Journal of Financial Economics, 14, 3-31. https://doi.org/10.1016/0304-405X(85)90042-X
  6. Chang, Sae-Young (1998), "Takeovers of Privately Held Targets, Methods of Payment and Bidder Returns", The Journal of Finance, 53(2), 773-784. https://doi.org/10.1111/0022-1082.315138
  7. Chari, A., P. Ouimet and L. Tesar (2009), "The Value of Control in Emerging Markets", Review of Financial Studies, 23, 1-30.
  8. Conn, R., A. Cosh, P. Guest and A. Hughes (2005), "The Impact on UK Acquirers of Domestic, Cross-border, Public and Private Acquisitions", Journal of Business Finance & Accounting, 32(5-6), 815-870. https://doi.org/10.1111/j.0306-686x.2005.00615.x
  9. Deichmann, J. I. (2001), "Distribution of Foreign Direct Investment among Transition Economies in Central and Eastern Europe", Post-Soviet Geography and Economics, 42(2), 142-152. https://doi.org/10.1080/10889388.2001.10641167
  10. Faccio, M., J. McConnell and D. Stolin (2006), "Returns to Acquirers of Listed and Unlisted Targets", Journal of Financial and Quantitative Analysis, 41, 197-218. https://doi.org/10.1017/S0022109000002477
  11. Francis, B., I. Hasan and I. Sun (2008), "Financial Market Integration and the Value of Global Diversification: Evidence for US Acquirers in Cross-Border Mergers and Acquisition", Journal of Banking & Finance, 32(8), 1522-1540. https://doi.org/10.1016/j.jbankfin.2007.10.013
  12. Franco, C. and E. Gerussi (2013), "Trade, Foreign Direct Investments (FDI) and Income Inequality: Empirical Evidence from Transition Countries", The Journal of International Trade & Economic Development, 22(8), 1131-1160. https://doi.org/10.1080/09638199.2011.647048
  13. Fuller, K., J. Netter and M. Stegemoller (2002), "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions", Journal of Finance, 57(4), 1763-1793. https://doi.org/10.1111/1540-6261.00477
  14. Goergen, M. and L. Renneboog (2004), "Shareholder Wealth Effects of European Domestic and Cross-Border Takeover Bids", European Financial Management, 10, 9-45. https://doi.org/10.1111/j.1468-036X.2004.00239.x
  15. Harrington, S. and D. Shrider (2007), "All Events Induce Variance: Analyzing Abnormal Returns When Effects Vary Across Firms", Journal of Financial and Quantitative Analysis, 42(1), 229-256. https://doi.org/10.1017/S002210900000226X
  16. Henry, P. B. (2000), "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices", The Journal of Finance, 55(2), 529-564. https://doi.org/10.1111/0022-1082.00219
  17. Karels, G., E. Lawrence and J. Yu (2011), "Cross-Border Mergers and Acquisitions between Industrialized and Developing Countries: US and Indian Merger Activity", The International Journal of Banking and Finance, 8(1), 35-58.
  18. Kenny, C. and T. Moss (1998), "Stock Markets in Africa: Emerging Lions or White Elephants?", World Development, 26(5), 829-843. https://doi.org/10.1016/S0305-750X(98)00019-9
  19. Kinateder, H., M. Fabich and N. Wagner (2017), "Domestic Mergers and Acquisitions in BRICS Countries: Acquirers and Targets", Emerging Markets Review, 32, 190-199. https://doi.org/10.1016/j.ememar.2017.06.005
  20. Lane, P. J., B. R. Koka and S. Pathak (2006), "The Reification of Absorptive Capacity: A Critical Review and Rejuvenation of the Construct", The Academy of Management Review, 31(4), 833-863. https://doi.org/10.5465/amr.2006.22527456
  21. Lewellen, W. G. (1971), "A Pure Financial Rationale for the Conglomerate Mergers", The Journal of Finance, 26(2), 521-537. https://doi.org/10.1111/j.1540-6261.1971.tb00912.x
  22. Levine, R. (1997), "Financial Development and Economic Growth: Views and Agenda", Journal of Economic Literature, 35(2), 688-726.
  23. Levine, R. and S. Zervos (1998), "Stock Markets, Banks, and Economic Growth", American Economic Review, 88(3), 537-558.
  24. Levy, H. and M. Sarnat (1970), "International Diversification of Investment Portfolios", American Economic Review, 60(4), 668-675.
  25. Liou, R. (2018), "What is in a Name? Cross-National Distances and Subsidiary's Corporate Visual Identity Change in Emerging-Market Firms' Cross-Border Acquisitions", International Marketing Review, 35(2), 301-319. https://doi.org/10.1108/IMR-10-2015-0225
  26. Mantecon, T. (2009), "Mitigating Risks in Cross-Border Acquisitions", Journal of Banking & Finance, 33(4), 640-651. https://doi.org/10.1016/j.jbankfin.2008.12.001
  27. Mateev, M. (2017), "Is the M&A Announcement Effect Different Across Europe? More Evidences from Continental Europe and the UK", Research in International Business and Finance, 40(C), 190-216. https://doi.org/10.1016/j.ribaf.2017.02.001
  28. Moeller, S. and F. Schlingemann (2005), "Global Diversification and Bidder Gains: A Comparison between Cross-Border and Domestic Acquisitions", Journal of Banking & Finance, 29(3), 533-564. https://doi.org/10.1016/S0378-4266(04)00047-0
  29. Park, B. I. and T. Roh (2018), "Chinese Multinationals' FDI Motivations: Suggestion for a New Theory", International Journal of Emerging Markets, 14(1), 70-90. https://doi.org/10.1108/IJoEM-03-2017-0104
  30. Rajan, R. and L. Zingales (1998), "Financial Dependence and Growth", The American Economic Review, 88(3), 559-586.
  31. Resmini, L. (2003), "The Determinants of Foreign Direct Investment in the CEECs: New Evidence from Sectoral Patterns", Economics of Transition and Institutional Change, 8(3), 665-685. https://doi.org/10.1111/1468-0351.00060
  32. Stahl, G. K. and A. Voigt (2008), "Do Cultural Differences Matter in Mergers and Acquisitions? A Tentative Model and Examination", Organization Science, 19(1), 160-176. https://doi.org/10.1287/orsc.1070.0270
  33. Zhu, H., J. Xia and S. Makino (2015), "How do High-Technology Firms Create Value in International M&A? Integration, Autonomy, and Cross-border Contingencies", Journal of World Business, 50(4), 718-728. https://doi.org/10.1016/j.jwb.2015.01.001