(Luận văn) acquirer abnormal returns in ma within banks, evidence from selected asean countries

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE t to VIETNAM THE NETHERLANDS ng hi ep w n VIETNAM - NETHERLANDS lo ad PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ju y th yi pl al n ua ACQUIRER ABNORMAL RETURNS IN M & A WITHIN BANKS: n va ll fu EVIDENCE FROM SELECTED ASEAN COUNTRIES oi m at nh z A thesis submitted in partial fulfilment of the requirements for the degree of z k jm ht vb MASTER OF ARTS IN DEVELOPMENT ECONOMICS om l.c NGUYEN THI NGOC DUNG gm By an Lu n ey t re CAO HAO THI va Academic Supervisor: HO CHI MINH CITY, November, 2013 Contents t to List of tables iii ng List of figures iii hi ep Abbreviation iv w Abstract v n lo ad Chapter : Introduction Problem statement 1.2 Research objectives .2 1.3 Research questions 1.4 Research scope 1.5 Research contribution 1.6 Research structure ju y th 1.1 yi pl n ua al n va ll fu m oi Chapter : Literature review nh Definition of M & A 2.2 Types of M & A 2.3 Motivation for M & A 2.4 Method for calculating event’s effect at 2.1 z z k jm ht vb gm Important time frames .6 2.4.2 Calculating Method om l.c 2.4.1 Testing significant of abnormal return 2.6 Factors affect M & A 11 2.7 Overview the using of event study in banking M&A 15 2.8 Overview about bank M & A in ASEAN countries 15 2.9 Conceptual framework 16 an Lu 2.5 ey t re Page: i n va Chapter : Methodology 18 3.1 Research process 18 3.1.1 Estimation of abnormal returns 18 t to ng 3.1.2 Analyzing factors effect CAR 21 hi ep 3.2 Data collection .21 Chapter : Data analysis .26 w n lo 4.1 Descriptive statistics 26 ad 4.1.1 Abnormal return and cumulative abnormal return to acquirers 26 y th ju 4.1.2 Cross-section regression analysis 34 yi Inferential statistics 38 pl 4.2 al n ua Chapter : Conclusions and recommendations 40 Conclusion 40 5.2 Recommendations .41 5.3 Limitation and further research 42 n va 5.1 ll fu oi m nh Reference 43 at z Appendice .50 z k jm ht vb om l.c gm an Lu n va ey t re Page: ii List of tables Table 3-1: Descriptive statistics of sample characteristic 22 t to ng Table 3-2: M&A by country .23 hi Table 3-3: M & A by year 24 ep Table 4-1: Average abnormal return, and number of positive and negative w observations for 20 days before through 20 days after announcement n lo date 28 ad Table 4-2: Average abnormal returns between groups and test of difference 30 y th ju Table 4-3: Cumulative average abnormal returns and their t statistics .33 yi Table 4-4: Cumulative average abnormal returns between groups and test of pl ua al difference .33 Table 4-5: CAAR(-18, 10) categorized by characteristics 35 n n va Table 4-6: Correlation testing 37 ll fu Table 4-7: Cross-section regression result 38 oi m at nh z z List of figures vb jm ht Figure 2-1: Process for calculating abnormal return 17 Figure 2-2: Acquirer's cumulative average abnormal return (CAR) from merger and k gm potential effect factors 17 l.c Figure 4-1: Average abnormal returns from -20 days to +20 days around om announcement date 28 an Lu Figure 4-2: Cumulative abnormal returns from -20 days to +20 days around announcement date 32 n va ey t re Page: iii Abbreviation t to ng hi ep AAR(s): Average Abnormal Return(s) APT: Arbitrage Pricing Theory AR: Abnormal return w ASEAN: n Bank and Bank lo B&B: ad Bank and Other institute CAAR(s): ju y th B&O: Association of Southest Asian Nations Cumulative Average Abnormal Return(s) yi pl Capital Asset Pricing Theory CAR(s): Cumulative Abnormal Return(s) M & A: Mergers and Acquistions n ua al CAPM: n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page: iv Abstract This paper examines acquirer’s abnormal return from merger and acquisition (M & t to ng A) between two banks, and between bank and non-bank institute By using event hi study and market model, M & A cases announcing from Jan 2005 to Dec 2012 of ep ASEAN are investigated Besides that, determinants affect abnormal return like w acquirer size, listing target status, payment method, learning by doing, bidder n lo leverage, type of M & A, Tobin q ratio, target nation, etc are analyzed in detail ad y th Key words: ASEAN mergers, acquisition, M & A, abnormal return, event study, ju market model yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page: v Chapter : Introduction t to 1.1 Problem statement ng hi The problem of merger and acquisition (M & A) has been mentioned much these ep days in Vietnam This can be checked through a famous searching tool – Google by w typing key word “sáp nhập” – mean merger, and you will find at least 426,000 n lo related results with that This trend can be understood that when the economic, or ad especially financial situation become hard, firms think more about M & A as a y th resolution for rescuing ju yi pl To measure the effectiveness of a M & A deal, we need even years to know, but it ua al does not take long time to see the reaction of the market Besides that, according to n Andrade, Mitchell and Stafford (2001), market response around acquisition va n announcement is the best way to examine the success of the deal Problem is how to ll fu measure the response of market in front of M & A news? One of the common oi m methods is comparing the return from the company’s stock around the time of at nh announcement of M & A which called abnormal return and average return of it in normal time (expected return) By using market model and event study, we can z z calculate abnormal return to specific object like acquirers (who offer merger), target jm ht vb firms, or even their industry rivals, etc k Applying this method, many studies have done With specific country, there are gm l.c some researches like Bae, Kang and Kim (2002) about Korean Chaebol, Filbien et al (2011) about Canada, Brown and Fung (2009) about Japan Keiretsu, etc With om specific industry, many researches about merging between banks, such as: James an Lu and Weir (1987), Hannan & Wolken (1989), Houston and Ryngaert (1994), DeLong studies based on data and situations of developed market like US, or European Limited studies about M & A in emerging market: William & Liao (2008) search Page: ey telecommunication firms (Akdogu, 2009) One notice point here is most of above t re al (2004), Karceski et al (2005), DeLong and DeYoung (2007) etc, or about n va (2001), Cornett et al (2003), Anderson et al (2004), Beitel et al (2004), Lepetit et for value created between international banks and targets banks in emerging market, Crouzille et al (2008) measure the reaction of ASEAN stock market to bank t to mergers after the 1997 financial crisis, Goddard et al (2012) research about ng hi emerging market including Asia and Latin America To date, as what we know, ep there is no studies really calculate abnormal return in merger cases within ASEAN countries w n lo ad 1.2 Research objectives y th By doing this research, we try to find out reaction of market in front of M&A ju acquisition announcement especially in bank mergers cases of ASEAN In details, yi pl this paper will measure abnormal returns to acquirers in bank mergers It also ua al compares the return of acquirer come from acquisition among banks, and between n bank and other institute Moreover, some common factors like acquirer size, listing va n target status, payment method, studying by doing, bidder leverage, types of merger, ll fu Tobin q ratio, and target nation will be analyzed to estimate the impact of potential oi m factors on abnormal return nh at 1.3 Research questions z From research objectives, following questions are tried to answer: z vb Are abnormal returns to acquirers in bank mergers positive? - Are abnormal returns to acquirers in bank mergers higher than those of mergers k jm ht - What is the impact of common factors on abnormal return? om l.c - gm between bank and other institution? an Lu 1.4 Research scope With the objective of researching about ASEAN situation, the paper will be va conducted base on bank merger within six ASEAN countries: Indonesia, Malaysia, n deals will be collected from Zephyz – Bureau van Dijk – one of the best databases about M&A around the world Page: ey and completed from 01/01/2005 to 31/12/2012 are selected The information about t re Philippines, Singapore, Thailand, and Vietnam Moreover, updated deals announced 1.5 Research contribution Answering three research questions, the usefulness of this paper concentrate on two t to main points First, it is an overview about bank mergers in ASEAN countries within ng hi the period from 2005 to 2012 Second, from the lesson of ASEAN countries, this ep study is expected to be a reliable source for further researches related to this field w 1.6 Research structure n lo Continue to this introduction chapter, some literature concepts about merger and ad y th acquisition (M & A) as well as related empirical studies will be presented in chapter ju Methodology and data collection will be stated clearly in chapter Data analysis yi pl will be indicated in chapter Chapter will end with conclusion and n ua al recommendations for further researches n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page: Chapter : Literature review In this chapter, some important points related to M & A will be explained First, t to ng definition, types, and motivation of M & A will be stated clearly in Section 2.1, 2.2, hi and 2.3 Then, Section 2.4, 2.5 will show an overview about recent methods for ep calculating event’s effect as well as testing significance Next, some main factors w effect M & A will be discussed Section 2.7, 2.8 will present an overview about the n lo using of event study in banking M & A, and situation of M & A in banks in ad ASEAN countries Last section will end with conceptual framework y th ju 2.1 Definition of M & A yi pl Merger and acquisition (M & A) are usually seen going with each other However, ua al these two concepts have a little bit difference in meaning While merger is defined n as the act of joining two or more organizations or businesses into one (Oxford va dictionary), acquisition is understood as the act of buying something to add to what n ll fu they already own Acquisition is sometimes called “takeover” In this paper, we oi m not distinguish these two words and use it with same meaning at nh 2.2 Types of M & A z According to Megginson & Smart (2008), there are three main kinds of merger z vb include: horizontal, vertical and conglomerate M & A In which, horizontal merger jm ht is a combination of competitors within the same geographic market (p.854) This k kind of merger is considered as a market extension method and the greatest gm potential for wealth creation It is explained that by combining of their resources, l.c merged firm will have advantage in scale and scope of economy, as well as saving om cost thanks to decreasing, or eliminating overlapping resources Moreover, the an Lu combination creates a market power for merged firms compare to other weaker buyer-seller relationships combine to create a more integrated company (p.855) faces with a serious problem of entering a new line of business which they maybe have not enough knowledge to manage With last kind of merger, pure Page: ey input/output which leads to higher efficiency However, this kind of merger must t re Main advantage of vertical merger is decrease the risk of acquirer/target’s n va competitors Vertical merger occurs when companies with current or potential Reference Aboody, D., Kasznik, R., & Williams, M (2000) Purchase versus pooling in t to ng stock-for-stock acquisitions: Why firms care? 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Scanlon, K P (1987) Interstate bank mergers: The early z evidence Journal of Financial Research, 10(4), 305-311 z vb ht Williams, J., & Liao, A (2008) The search for value: Cross-border bank M&A in k jm emerging markets Comparative Economic Studies, 50(2), 274-296 l.c gm Zephyr – Bureau van Dijk : https://zephyr2.bvdep.com/version- 2013419/ZephyrNeo.HomePage.serv?_CID=1&context=1NZD8LSAN7IUS om AB an Lu n va ey t re Page: 49 -Appendice t to Appendix 1: Studies with event study ng Writer, Title hi year ep Stockholder gains Delong from G L (2001) Data Objective Result Event study + US cases Examine wealth Bank mergers that focus market model (1988 - effect of bank both mergers activity w Methodology focusing n 1995) Estimation lo versus ad diversifying y th bank mergers by distinguishing ju window: -300 Daily days to -51 stock days return geographic are and value- increasing between types of mergers (activity Merger focus on activity tends to increase wealth and geography) yi while Event focus pl geography does not destroy wealth ua al window: on n -10 days to +1 n va days and (1974) Capital asset US cases the Stockholder of acquired impact of firms pricing model oi merging Examine (1948 - mergers on return of about 14% on Estimation Monthly m of Event study + ll return: the case Mandelker fu Risk 1967) nh firms jm ht months merger vb return to z months months preceding the z stock k Event gm window: -40 l.c months to +40 months Bidders and the Banking industy Wolken, D (1989) US cases J Estimation window: -90 1982 to 1987) days to -15 days Event Gain to stockholder of effects on target firms stockholder wealth of of acquisition Daily announcement stock involving return publicly banking window: Page: 50 No gain to stockholder bidding firms acquisition announcement involving traded publicly traded banking organization Wealth ey evidence from market model & the t re process: H., Examine n Acquisition Event study + va Targets in the Hannan, T an Lu to om Return abnormal the average in the seven acquirer at window: -60 earn Writer, Title Methodology year Data Objective t to various Result transfer organization from ng hi lengths from - shareholder of bidding 15 firms to shareholder of days to ep +15 days target firms Positive combined w n wealth effects are lo registered by ad combinations involving y th less capitalized target ju firms and vice versa yi bank G., R., D & (1980 to Estimation 1987) window: -210 n fu Furtado, E implications market model va and US cases n Fraser, Event study + ua B offers: Analysis Baradwaj, al takeover pl Hostile days to -61 ll P (1990) the in bids on higher abnormal return shareholder of than one of non-hostile Daily target and stock bidding banks deal Bidder shareholder in oi hostile nh deal although experience at window: shareholder hostile deal experience return Event Target effect of hostile m days Estimate negative abnormal return, they z various still less negative than z vb lengths from one in non-hostile deal jm ht -60 days to +60 days k Event study + returns Cornett, M., market model in corporate De, (1991) Estimation 1986) days to +75 interstate bank mergers to the interstate stock mergers price reaction for both bidder and target banks announcement of Daily stock bank va days market Positive an Lu window: +16 Evidence from the reaction of stock (1982 to S Examine om takeover bids: & US cases l.c Millon gm Common stock return n t re Event ey window: - 15 days to + 15 days Investor Hagendorff, Event study + US cases Page: 51 Examine the Acquirer experience Writer, Title year t to protection and J., the M., value ng hi effects of bank ep merger Collins, Methodology Data Objective market model and effect of investor higher European protection law in targeting low protection the economies & Keasey, K Estimation cases window: -121 (2008) (1996 to days 2004) Event Daily window: stock various return w in Europe and n lo the US target country days to -21 announcements Result to returns European when (most economies) acquirer’s than returns protection regime (US) targeting high ad y th ju lengths from - yi 20 days to + pl days and mergers (2004) Investigate market- + Europe announcement positive adjusted cases effect of large return n in Wit US cases va effects of bank Event study + n Scholtens ua al Announcement fu Europe and the return model the 0, Daily stock vb market model cases and M Rivals: A environment window: -300 (1994 to 2009) days affects gains to firms Daily and their stock industry rivals return wealth creation Stock price response of the rivals of Canadian acquiring firms is favorable for rivals after a dormant period within - days to + Page: 52 ey firms’ rivals is more days, and t re Stock price of acquiring -3 days to + n positive window: va Event firms experience merging days to -15 merging an Lu Canada & om Evidence from May) (2011, M l.c Y., & Kooli, Shareholder of Canadian gm Merging Firms Examine how the k Canada jm ht Event study + Estimation than bidders return J Their Filbien, returns z to higher US stock market days Gains Target banks experience z days to + 31 and at window: - European nh Event 2000) oi beta =1) m = abnormal bank mergers in (1990 to ll (alpha US Mergers result in small Writer, Title Methodology year Data Objective Result t to days a specific industry ng Stock price of target hi firms’ rivals is negative ep when the industry has a high degree w n concentration lo particularly of and in the ad mining sector ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page: 53 Appendix 2: Common factors affect abnormal return Variables Regulation changes Number of bidders t to No Explanation Kiymaz x x Change of regulation/law (tax ng law 1968-1969/ 1986) hi Bidder attend merger may be ep one or more than one (multiple) Two w common types Moeller x x x x Hagendorff of transaction: merger and tender n offers lo ad Merger: negotiate directly with the target’s management/board ju y th Datta Type of transaction of directors and approved them yi before going to shareholder vote pl Tender offers: offer is made al ua directly to target shareholder n (this offer maybe friendly or va unfriendly) n Mode of payment ll fu Merger transaction may be made by cash, or stock/equity, or x x x x x x x combination of both oi m x Type of merger at nh Two common types of merger: conglomerate (unrelated) merger z and non-conglomerate z Target’s market to Market to book value ratio of book value target firm of x bidding competition in terms of the om attractiveness of an industry to Industry appeal all bidders It is by dividing the dollar value of acquisitions in x va the target’s industry by the total n dollar value of all mergers in the Unit acquisition 10 Exchange rate Whole firm or only unit of firm is acquired The relative strength or weakness of domestic versus Page: 54 x x ey t re relevant year an Lu x l.c Intensity x gm firms, or different country firms k diversification jm Merger between two domestic ht Country vb No Variables Explanation Datta Kiymaz Moeller Hagendorff foreign currency can influence t to the premiums paid in a merger Company have ng hi involvement in the ep country through: target affiliate (a chartered business owned by company w n lo Prior involvement ad 11 prior in the target country less than 50%); division (an internal unit of company); joint y th business in venture (a which x two ju companies share responsibility yi and ownership); and subsidiary pl (a chartered business owned by al ua another company at least 50% n or more) accounting goodwill (write-off reserves against x versus x nh equity of oi standards treatment m accounting The ll 13 x English speaking country fu Goodwill Both bidder and target are n Language va 12 at amortization against earnings) Kind of target Public, private, or subsidiary the 25th om percentile of NYSE firms in the x l.c of gm capitalization k less (greater) than the market jm market capitalization equal to or Size of acquirer x ht target Small (large) acquirers have a 16 x vb 15 Tax deductible z Goodwill tax z 14 same year Deal attitude Friendly or hostile merger x Transaction value divided by Relative size equity market capitalization of x n va 18 an Lu 17 Tobin’s q 20 Bidder leverage Firm market value/book value of assets Firm’s total debt over the firm’s market value Page: 55 x x ey 19 t re acquirer No Variables Explanation Datta Kiymaz Moeller Hagendorff Value of all corporate control t to transaction for $1 million or more reported by SDC for each ng hi 21 ep Liquidity index for year and two-digit SIC code the target divided by the total book value of assets of all Compustat firms in the same two-digit SIC code w n and year lo Operating ad y th Operating cash ju 22 x flow/asset cash flow is calculated by sales minus the cost of goods sold, sales and yi general administration, x and pl working capital change Relative ROE 26 Deal value target x fu 25 Pre-merger earning per share of n Target EPSt-1 va 24 x laws of target country n protection Level of investor protection in ua Shareholder al 23 ll ROE of the target divided by the oi and interest costt-1 per employee Acquirer ROEt-1 Pre-merger ROE of acquirer x om Pre-merger total cost of acquirer l.c 29 Acquirer total gm 28 k income jm non-interest x ht of vb non-interest income to the total z incomet-1 which calculated by the share of z 27 x at the M & A transaction nh Logarithm of the dollar value of Pre-merger non-interest income Non-interest x m ROE of the acquirer x an Lu n va ey t re Page: 56 t to ng hi ep w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page: 57