International mergers and acquisitions of financial firms

... valuation effects of international mergers an d acquisitions of financial firm s A bnorm al re tu rn s accruing to shareholders of financial firms participating in international m ergers and acquisitions. .. of dom estic m ergers and acquisitions of both corporate and financial firms, it has only begun to investigate international corporate m ergers and is particularly limited for international mergers. .. permission of the copyright owner Further reproduction prohibited without permission INTERNATIONAL MERGERS AND ACQUISITIONS OF FINANCIAL FIRMS A Dissertation by RITA BISWAS Submitted to the Office of

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Further reproduction prohibited without permission. Order Num ber 9118188 International mergers and acquisitions of financial firms Biswas, Rita, Ph.D. Texas A&M University, 1990 UMI 300 N. Zeeb Rd. Ann Arbor, MI 48106 R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout perm ission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. INTERNATIONAL MERGERS AND ACQUISITIONS OF FINANCIAL FIRMS A Dissertation by RITA BISWAS Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY December 1990 Major Subject: Finance R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout perm ission. INTERNATIONAL MERGERS AND ACQUISITIONS OF FINANCIAL FIRMS A Dissertation by RITA BISWAS Approved as to style and content by: T DF DEV PROB STD > - 2 . 8 7 9 8 1 9. 1 0 . 0 0 9 6 EQUAL - 2 . 8 7 9 8 20.0 0 . 0 0 9 3 F '« ARE EQUAL, F '« 1 . 5 4 W ITH 10 AND Et m UNEQUAL VARIANCES PROB STD 10 OF 0 . 5 0 5 5 R ep ro d u ced with p erm ission o f th e copyright ow ner. Further reproduction prohibited w ithout perm ission. TABLE 7 Overall Target Returns in Domestic Acquisitions R e s u l t s f o r D o m e s t i c OBS R e s u l t s T a r g e t s DAY (N = 7 4 ) ; 1 1 - d a y ABART I n t e r v a l TSTAT CAR 1 -5 0 . 0 0 2 9 7 5 4 1 .1 2 4 4 0 . 0 0 2 9 7 5 2 -4 0 . 0 0 5 2 4 2 3 1 .9 8 1 0 0 . 0 0 8 2 1 8 3 -3 0 . 0 0 8 1 6 8 2 3 .0 8 6 7 0 . 0 1 6 3 8 6 4 -2 0 . 0 1 6 8 6 9 4 6 . 3 7 4 8 0 . 0 3 3 2 5 5 5 -1 0 . 0 7 1 7 8 8 8 2 7 . 1 2 8 5 0 . 1 0 5 0 4 4 6 0 0 . 0 3 5 2 0 9 1 1 3 .3 0 5 3 0 . 1 4 0 2 5 3 7 1 0 . 0 0 3 1 2 3 1 1 .1 8 0 2 0 . 1 4 3 3 7 6 8 2 0 . 0 0 1 S 2 8 7 0 . 5 7 7 7 0 . 1 4 4 9 0 5 0 . 1 4 1 2 6 0 9 3 - 0 . 0 0 3 6 4 5 1 - 1 . 3 7 7 5 10 4 - 0 . 0 0 2 9 3 4 4 - 1 . 1 0 8 9 0 . 1 3 8 3 2 5 11 5 - 0 . 0 0 2 3 5 8 4 - 0 . 8 9 1 2 0 . 1 3 5 9 6 7 f o r D o m e s t i c T a r g e t s (N = 7 4 ) ; 2 - d a y ( - 1 , 0 ) OBS DAY 1 - 1 0 . 0 7 1 7 8 8 8 2 7 . 1 2 8 5 0 . 0 7 1 7 8 9 2 0 0 . 0 3 5 2 0 9 1 1 3 .3 0 5 3 0 . 1 0 6 9 9 8 ABART TSTAT CAR P e r i o d TSTAT R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 81 19.3606). The 2 day (day -1,0) CAR is also a highly significant (t-statistic of 28.5917) 10.699 percent. Based on the target results, it appears that domestic acquisitions are also poorly held secrets, since there are significant positive abnormal returns from even day -3. The results of the t-test perform ed to test the statistical significance of the differences in the means of the daily average abnormal returns between domestic and international acquisition targets are presented in Table 8. The m ean of the daily average abnormal return is 1.236 percent for dom estic targets and 0.797 percent for the international targets. Unlike the bidders, here, the difference in the m eans is not statistically significant (t-statistic of 0.5629). Hence, from a target firm 's point of view, it does not m atter significantly if the bidder is from its ow n country or from a foreign jountry. It stands to gain from positive abnormal returns in either case. 5,4. Categories o f International Acquisitions~ A Comparison It m ust be recognized tnat the above analysis of the overall sam ple of participants of international financial acquisitions was done in two broad, heterogeneous groups of bidders and targets. We now turn to the task of disaggregating the overall sam ple into homogeneous subgroups of bidders and targets, respectively. The criteria for categorization are four in the case of bidders and three in the case of targets. R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 82 TABLE 8 Differences Between Domestic and International Targets R e s u l t s f o r D o m e s tic OBS ! DAY 1 1 - d a y I n t e r v a l TSTAT ABART CAR 1 -5 0 . 0 0 2 9 7 5 4 1 .1 2 4 4 0 . 0 0 2 9 7 5 -4 0 . 0 0 5 2 4 2 3 1 . 9 8 1 0 0 . 0 0 8 2 1 8 3 -3 0 . 0 0 8 1 6 8 2 3 . 0 8 6 7 0 . 0 1 6 3 8 6 4 -2 0 . 0 1 6 8 6 9 4 6 . 3 7 4 8 0 . 0 3 3 2 5 5 5 -1 0 . 0 7 1 7 8 8 8 2 7 . 1 2 8 5 0 . 1 0 5 0 4 4 0 0 . 0 3 5 2 0 9 1 1 3 .3 0 5 3 0 . 1 4 0 2 5 3 7 1 0 . 0 0 3 1 2 3 1 1 .1 8 0 2 O. 1 4 3 3 7 6 8 2 0 . 0 0 1 5 2 8 7 0 . 5 7 7 7 0 . 9 3 - 0 .0 0 3 6 4 5 1 - 1 . 3 7 7 5 0 . 1 4 1 2 6 0 10 4 - 0 . 0 0 2 9 3 4 4 - 1 . 1 0 8 9 0 . 11 5 - 0 . 0 0 2 3 5 8 4 - 0 . 8 9 1 2 0 . 1 3 5 9 6 7 SET TOTAL OTC: 9 + OF 2 5 TARGETS 8 1 ) ; (N= HAND-GATHERED DAY + 11-DAY 4 1 4 4 9 0 5 1 3 8 3 2 5 IN TERV AL; CANAD IAN); ABART TSTAT CAR 1 - 5 0 . 0 0 0 6 5 4 0 0 . 2 4 1 5 0 . 0 0 0 6 5 4 0 2 - 4 0 .0 0 3 9 7 1 8 1 .4 6 6 5 0 . 0 0 4 6 2 5 8 3 - 3 0 . 0 0 2 2 2 6 1 0 . 8 2 2 0 0 . 0 0 6 8 5 2 0 4 - 2 0 . 0 1 1 2 2 1 8 4 . 1 4 3 6 0 . 0 1 8 0 7 3 8 5 -1 0 . 0 2 3 1 1 7 3 8 . 5 3 5 9 0 .0 4 1 1 9 1 1 6 0 0 . 0 3 9 2 1 3 6 1 4 .4 7 9 3 0 . 0 8 0 4 0 4 7 7 1 0 .0 0 3 1 2 5 8 1 .1 5 4 2 0 . 0 8 3 5 3 0 5 8 ? 0 . 0 0 3 4 7 9 9 1 .2 8 4 9 0 . 0 8 7 0 1 0 3 9 3 0 . C 0 2 8 0 2 9 1 .0 3 5 0 0 . 0 8 9 8 1 3 3 10 4 - 0 . 0 0 1 8 6 4 4 - 0 . 6 8 8 4 0 . 0 8 7 9 4 8 9 11 5 - 0 . 0 0 0 2 8 2 4 - 0 . 1 0 4 3 0 . 0 8 7 6 6 6 5 DOM ESTIC VS. IN TERN A TIO N A L N A C Q U IS IT IO N S : MEAN 11 DOM ESTIC 11 FOREIGN TTEST RESULTS DEV 0 .0 0 6 8 3 5 6 4 0 .0 1 2 4 6 5 2 4 0 . 0 0 3 7 5 8 4 1 OF PROB > |T | 0 . 5 6 2 9 1 5 .5 0 . 5 8 1 5 0 . 5 6 2 9 20.0 0 . 5 7 9 8 F '» ARE ERROR 0 .0 2 2 6 7 1 2 4 EQUAL > STD 0 .0 0 7 9 6 9 6 7 UNEQUAL VARIANCES PROB STD 0 . 0 1 2 3 6 0 6 5 VARIANCES HO: 7 4 ) ; ABART STATUS FOR = 2 OBS V ARIA BLE: (N 6 + TARGETS: T a r g e t s EQUAL, F '» 3 .3 1 WITH 10 AND 10 OF 0 .0 7 2 6 R ep ro d u ced with p erm ission o f th e copyright ow ner. Further reproduction prohibited w ithout perm ission. 83 5.4.1. Product Diversification The overall sample of bidders was first classified into banks and non­ banks and then further classified into subgroups by the nature of the target firm w hich the bidder intended to acquire: when the target is a bank or bank holding com pany then the b idder is in one group while if the target is a security dealer, finance com pany, m erchant bank o r som e other financial service firm, then the bidder is in the second group. A similar classification w as m ad e for the overall sam ple of bank and non-bank target firms, depending on w hether the firm being sold was a bank (or bank holding company) or a non-bank financial firm. Table 9 presents the abnorm al returns, corresponding t-statistics and CARs (over the period t = -5 to +5) for the two subgroups of the bidding firms, respectively. The com parison of the abnormal returns betw een these portfolios should shed light on the role of p ro d u ct diversification in m otivating acquisitions. The 71 international acquisition announcem ents m ade by the non-bank-acquiring bidders are, on average, associated with a day 0 abnorm al return of -0.09 percent (t-statistic of 0.408), statistically insignificant at all conventional levels, and no different from the statistically insignificant abnorm al returns accruing to the 58 bank-acquiring bidders on day 0 (0.13 percent with a t-statistic of 0.6621). A t-test perform ed to test for the differences in the means of the daily average abnormal returns of the two groups did not find any statistically significant differences. (Table 9). R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. TABLE 9 Evidence on Product Diversification ABNORMAL RETURNS TO BIDDERS (N = DAY OBS A NON-BANK 6 7 ) TSTAT ABART CAR 1 -5 - 0 . 0 0 1 2 2 3 4 2 -4 0 . 0 0 0 6 5 9 6 3 -3 - 0 . 0 0 1 4 4 2 3 - 0 . 6 5 4 0 2 - 0 . 0 0 2 0 0 6 1 4 -2 0 . 0 0 0 3 8 8 3 0 . 1 7 6 1 0 - 0 . 0 0 1 6 1 7 7 5 -1 0 .0 0 0 5 6 2 1 0 . 2 5 4 8 8 - 0 . 0 0 1 0 5 5 6 6 0 - 0 . 0 0 0 9 0 0 0 - 0 . 4 0 8 1 3 - 0 . 0 0 1 9 5 5 7 7 1 0 . 0 0 1 7 4 0 9 0 . 7 8 9 4 5 - 0 . 0 0 0 2 1 4 7 8 2 0 . 0 0 1 8 4 5 8 0 . 8 3 7 0 2 0 .0 0 1 6 3 1 1 9 3 0 . 0 0 0 1 6 9 4 0 . 0 7 6 8 3 0 . 0 0 1 8 0 0 6 10 . 4 - 0 . 0 0 0 2 8 4 2 - 0 . 1 2 8 8 7 0 . 0 0 1 5 1 6 4 1 1 5 - 0 . 0 0 0 3 6 6 8 - 0 . 1 6 6 3 4 0 . 0 0 1 1 4 9 5 ABNORMAL RETURNS TO BIDDERS (N OBS BID D ERS AroiiTRTNir, : Bidders « - 0 . 0 0 1 2 2 3 4 - 0 . 5 5 4 7 6 0 .2 9 9 1 ACOUIRING 1 A - 0 . 0 0 0 5 0 3 BANK TARGET 5 8 ) DAY ABART TSTAT CAR 1 -5 0 . 0 0 0 0 2 5 3 0 .0 1 2 1 0 . 0 0 0 0 2 5 3 2 -4 0 . 0 0 0 1 1 3 9 0 . 0 5 4 7 0 . 0 0 0 1 3 9 2 3 -3 - 0 . 0 0 0 1 3 5 7 - 0 . 0 6 5 2 0 . 0 0 0 0 0 3 5 4 -2 - 0 . 0 0 1 5 3 9 9 - 0 . 7 3 9 6 - 0 . 0 0 1 5 3 6 4 5 -1 0 . 0 0 1 7 3 0 7 0 . 8 3 1 3 0 . 0 0 0 1 9 4 3 6 0 0 . 0 0 1 3 7 8 4 0 .6 6 2 1 0 . 0 0 1 5 7 2 7 7 1 0 . 0 0 0 8 0 5 8 0 . 3 8 7 0 0 . 0 0 2 3 7 8 5 8 2 - 0 . 0 0 2 1 0 5 8 - 1 . 0 1 1 4 0 . 0 0 0 2 7 2 6 9 3 0 . 0 0 2 0 2 1 9 0 . 9 7 1 2 0 . 0 0 2 2 9 4 7 10 4 - 0 . 0 0 1 0 2 4 8 - 0 . 4 9 2 2 0 . 0 0 1 2 6 9 9 1 1 5 - 0 . 0 0 1 8 0 2 2 - 0 . 8 6 5 6 - 0 . 0 0 0 5 3 2 3 ACQUIRING NON-BANK AND VARIABLE: BANK TARGETS : TTEST PROCEDURE ABART STATUS N NONBANK 11 0 .0 0 0 1 0 4 4 9 0 . 0 0 1 0 8 8 5 9 0 . 0 0 0 3 2 8 2 2 11 - 0 . 0 0 0 0 4 8 4 0 0 . 0 0 1 4 4 0 2 4 0 . 0 0 0 4 3 4 2 5 BANK MEAN VARIANCES FOR HO: OF PROB OEV > 0 . 2 8 0 9 1 8 .6 0 . 7 8 1 9 EQUAL 0 . 2 8 0 9 2 0 . 0 0 . 7 8 1 7 > F '« ARE EOUAL, F' 1 .7 5 WITH STD ERROR |T I UNEOUAL VARIANCES PROB STD 10 AND 10 DF 0 . 3 9 0 9 R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 85 Table 10 presents the same analysis for the two subgroups of the target firms. Here, individually, the two subgroups of targets display statistically significant daily abnormal returns on day 0 and -1, of approximately the same m agnitudes. However, a t-test does not find any statistically significant differences in the means of the daily abnormal returns of the two groups. Thus, the proposition that acquiring a dissimilar target m ight give rise to product diversification benefits to bidders a n d /o r targets is not supported by the data. This finding does not support the corresponding domestic evidence on bidding firms found by Swary (1981, 1983) for bank acquisitions of non-banking financial firms. 5.4.2. Method of Payment Classifying the portfolios of bidding and selling firms according to the m ethod of paym ent in the acquisition transaction, two subgroups of each set were formed,: those in which cash was paid versus those in which the terms of the transaction were either not disclosed or securities w ere exchanged. Tables 11 and 12 show the abnormal returns, the associated t-values and the CARs, for the 11-day interval around the announcem ent day. For the bidding firms, the abnormal returns continue to be insignificant and close to zero, throughout the 11-day period, for both the subgroups. For the target firms, the market reaction associated with acquisitions to be paid for in cash is higher in magnitude than for those which were not paid in cash. The day 0 abnormal return is a significant 6.66 percent for cash transactions while for the other it is only 0.81 percent, though still statistically R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 86 TABLE 10 Evidence on Product Diversification : Targets ABNORMAL RETURNS ( N = DAY OBS TO NONBANK ABART TSTAT CAR 1 -5 0 . 0 0 1 6 2 6 1 0 . 2 1 5 9 4 0 .0 0 1 6 2 6 1 L -4 - 0 . 0 0 0 6 4 8 6 - 0 . 0 8 6 1 4 0 . 0 0 0 9 7 7 4 3 -3 0 .0 0 0 9 2 9 8 0 . 1 2 3 4 7 0 . 0 0 1 9 0 7 2 4 -2 0 . 0 0 5 9 2 4 0 0 . 7 8 6 7 0 0 . 0 0 7 8 3 1 2 5 -1 0 .0 1 4 8 8 1 7 1 .9 7 6 2 6 0 . 0 2 2 7 1 2 9 6 0 0 . 0 4 5 3 4 4 3 6 . 0 2 1 6 5 0 . 0 6 8 0 5 7 2 - 0 . 0 0 0 0 2 4 4 - 0 . 0 0 3 2 4 0 . 0 6 8 0 3 2 8 4 7 1 8 2 0 .0 0 4 7 8 3 2 0 . 6 3 5 2 0 0 . 0 7 2 8 1 6 0 9 3 - 0 . 0 0 0 6 4 6 7 - 0 . 0 8 5 8 7 0 . 0 7 2 1 6 9 3 10 4 0 . 0 0 3 6 1 8 8 0 . 4 8 0 5 7 0 .0 7 5 7 8 B 1 1 1 5 0 . 0 0 7 8 8 7 2 1 .0 4 7 4 1 0 . 0 8 3 6 7 5 4 ABNORMAL RETURNS ( OBS N = TO BANK TARGETS 5 7 ) ; DAY ABART TSTAT CAR 1 -5 0 . 0 0 0 2 4 4 8 0 . 1 2 -4 0 . 0 0 5 9 1 7 2 2 . 6 8 2 6 0 . 0 0 6 1 6 2 0 1 .2 5 6 7 0 . 0 0 8 9 3 4 0 110 0 . 0 0 0 2 4 4 8 3 -3 0 . 0 0 2 7 7 2 0 4 -2 0 . 0 1 3 4 5 2 5 6 . 0 9 8 8 0 . 0 2 2 3 8 6 5 5 -1 0 . 0 2 6 5 8 4 9 1 2 .0 5 2 5 0 . 0 4 8 9 7 1 4 6 0 0 .0 3 6 6 3 2 2 1 6 .6 0 7 6 0 . 0 8 5 6 0 3 6 7 1 0 .0 0 4 4 5 2 2 2 . 0 1 8 4 0 . 0 9 0 0 5 5 8 8 2 0 . 0 0 2 9 3 1 1 1 .3 2 8 8 0 . 0 9 2 9 8 6 9 9 3 0 .0 0 4 2 5 5 4 1 .9 2 9 2 0 . 0 9 7 2 4 2 3 10 4 - 0 . 0 0 4 1 7 3 1 - 1 . 8 9 1 9 0 . 0 9 3 0 6 9 2 11 5 - 0 . 0 0 3 7 2 2 3 - 1 . 6 8 7 5 0 . 0 8 9 3 4 6 9 JN-BANK AND BANK TARGETS VARIA BLE: STATUS TARGETS 2 4 ) ; N : TTEST PROCEDURE ABART MEAN STD DEV STO ERROR NON-BANK 11 0 .0 0 7 6 0 6 8 5 0 . 0 1 3 3 3 6 7 5 0 .0 0 4 0 2 1 1 8 BANK 11 0 . 0 0 8 1 2 2 4 5 0 . 0 1 2 7 4 5 5 0 0 .0 0 3 8 4 2 9 1 VARIANCES FOR HO; DF PROB > |T | UNEOUAL - 0 . 0 9 2 7 2 0 . 0 0 .9 2 7 1 EOUAL - 0 . 0 9 2 7 2 0 . 0 0 . 9 2 7 1 VARIANCES PROB T > ARE EOUAL. F ' ■ O .S 8 8 8 F ' 1 .0 9 W ITH 10 AND 10 OF R ep ro d u ced with p erm ission o f th e copyright ow ner. Further reproduction prohibited w ithout perm ission. 87 TABLE 11 Evidence on Method of Payment Differences : Bidders RETURNS IS WHEN ( N = ABART - 0 . 0 0 1 2 6 5 0 - 0 . 7 0 2 9 - 0 . 0 0 1 2 6 5 0 - 0 . 0 0 0 4 3 0 2 - 0 . 2 3 9 1 - 0 . 0 0 1 6 9 5 2 3 -3 - 0 . 0 0 1 6 9 7 3 - 0 . 3 4 3 1 - 0 . 0 0 3 3 9 2 5 4 -2 0 . 0 0 0 5 3 5 0 0 . 2 9 7 2 - 0 . 0 0 2 8 5 7 6 5 -1 0 . 0 0 0 7 9 3 4 0 . 4 4 0 8 - 0 . 0 0 2 0 6 4 2 6 0 - 0 . 0 0 2 1 9 6 1 - 1 . 2 2 0 2 - 0 . 0 0 4 2 6 0 3 7 1 0 . 0 0 2 6 3 3 7 1 .4 6 3 4 - 0 . 0 0 1 6 2 6 5 8 2 0 . 0 0 1 3 3 2 0 0 . 7 4 4 0 - 0 . 0 0 0 2 6 7 5 9 3 0 . 0 0 0 7 2 4 0 0 . 4 0 2 3 0 . 0 0 0 4 3 6 4 10 4 - 0 . 0 0 3 1 0 4 2 - 1 . 7 2 4 8 - 0 . 0 0 2 6 6 7 8 11 5 - 0 . 0 0 2 8 6 7 0 -1 - 0 . 0 0 5 5 3 4 8 TO B ID D ERS CASH: ( DAY WHEN N = METHOD OF PAYMENT TSTAT CAR 1 - 5 0 . 0 0 0 1 7 2 5 0 . 0 7 3 8 2 0 . 0 0 0 1 7 2 4 6 2 - 4 0 . 0 0 1 5 0 6 5 0 . 6 4 4 8 2 0 . 0 0 1 6 7 8 9 2 3 - 3 0 . 0 0 0 2 9 6 3 O . 1 2 6 8 5 0 . 0 0 1 9 7 5 2 7 4 - 2 - 0 . 0 0 1 8 7 5 5 - 0 . 3 0 2 7 6 0 .0 0 0 0 9 9 8 1 0 . 0 0 1 6 1 2 9 8 5 -1 0 . 0 0 1 5 1 3 2 0 . 6 4 7 6 9 6 0 0 . 0 0 3 2 5 1 2 1 .37.154 0 .0 0 4 8 6 4 2 1 7 1 - 0 . 0 0 0 4 3 7 3 - O . 1 8 7 1 9 0 . 0 0 4 4 2 6 8 8 8 2 - 0 . 0 0 1 7 3 2 0 - 0 . 7 4 1 3 7 0 . 0 0 2 6 9 4 8 5 9 3 0 . 0 0 1 4 3 0 0 0 . 6 1 2 0 9 0 . 0 0 4 1 2 4 8 4 10 4 0 . 0 0 2 6 2 8 2 1 .1 2 4 9 8 0 . 0 0 6 7 5 3 0 7 1 1 5 0 . 0 0 1 3 7 8 7 0 . 5 9 0 1 3 0 . 0 0 8 1 3 1 7 8 OF PAYMENT N UNKNOWN AND CASH ; TTEST STD DEV PROCEDURE ABART MEAN STD 11 -0 ..0 0 0 5 0 3 1 5 0 . 0 0 1 8 6 3 5 7 O .i 11 0.. 0 0 0 7 3 9 2 5 0 . 0 0 1 6 3 6 9 9 O.i VARIANCES PROB THE . 5 9 3 0 5 4 ) ; ABART VARIANCES HO: CAR t s t a t VARIA BLE: FOR PAYMENT -4 METHOD CASH OF -5 OBS UNKNOWN METHOD 1 RETURNS STATUS THE 7 1 ) ; 2 IS BIDDERS; BID D ERS CASH; DAY OBS ABNORMAL TO NOT > F '= ARE T DF PROB > |T | UNEOUAL - 1 . 6 6 1 2 1 9 .7 0 . 1 1 2 5 EQUAL - 1 . 6 6 1 2 2 0 . 0 0 . EQUAL. F '» 1 . 3 0 W ITH 10 AND 10 ERROR 11 2 3 DF 0 .6 8 9 7 R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 88 TABLE 12 Evidence on Method of Payment Differences ABNORMAL RETURNS IS TARGETS CASH; DAY CBS ABNORMAL TO NOT WHEN (N = THE METHOD TSTAT 1 -5 - 0 . 0 0 1 2 7 9 0 - 0 . 3 9 6 6 5 - 0 . 0 0 1 2 7 9 0 -4 - 0 . 0 0 1 8 8 8 8 - 0 . 5 8 5 7 6 - 0 . 0 0 3 1 6 7 9 3 -3 - 0 . 0 0 1 7 2 6 1 - 0 . 5 3 5 2 8 - 0 . 0 0 4 8 9 4 0 4 -2 0 .0 0 4 5 0 3 3 1 .3 9 6 5 6 - 0 . 0 0 0 3 9 0 6 5 -1 0 . 0 1 7 8 4 5 9 5 .5 3 4 3 1 0 . 0 1 7 4 5 5 3 6 0 0 .0 0 8 1 1 6 8 2 .5 1 7 1 5 0 . 0 2 5 5 7 2 1 0 .5 3 6 9 1 0 . 0 2 7 3 0 3 4 7 1 0 .0 0 1 7 3 1 3 8 2 0 .0 0 4 2 5 5 8 1 .3 1 9 7 8 0 . 0 3 1 5 5 9 2 9 3 0 .0 0 1 3 5 2 4 0 . 4 1 9 4 0 0 . 0 3 2 9 1 1 6 10 4 0 .0 0 0 7 4 5 2 0 .2 3 1 0 9 0 . 0 3 3 6 5 6 8 11 5 0 : 0 0 5 0 1 4 0 1 .5 5 4 9 1 0 . 0 3 8 6 7 0 7 RETURNS TO TARGETS CASH; WHEN (N DAY = THE METHOD ABART TSTAT CAR -5 0 .0 0 2 3 6 2 4 0 . 5 4 6 2 0 . 0 0 2 3 6 2 -4 0 . 0 0 9 1 5 0 9 2 .1 1 5 9 0 . 0 1 1 5 1 3 3 -3 0 .0 0 5 7 1 8 8 1 .3 2 2 3 0 . 0 1 7 2 3 2 4 -2 0 .0 1 7 1 5 9 1 3 .9 6 7 5 0 . 0 3 4 3 9 1 5 -1 0 . 0 2 7 7 7 5 8 6 .4 2 2 3 0 . 0 6 2 1 6 7 6 0 0 .0 6 6 6 9 4 4 1 5 .4 2 1 1 0 . 1 2 8 8 6 1 7 1 0 .0 0 4 3 5 8 1 1 .0 0 7 7 0 . 1 3 3 2 1 9 8 2 0 .0 0 2 7 9 4 2 0 .6 4 6 1 0 . 1 3 6 0 1 4 9 3 0 . 0 0 4 0 8 4 8 0 .9 4 4 5 0 . 1 4 0 0 9 9 10 4 - 0 . 0 0 4 1 7 0 6 - 0 . 9 6 4 3 0 . 1 3 5 9 2 8 11 5 - 0 . 0 0 4 9 6 2 9 - 1 . 1 4 7 5 0 . 1 3 0 9 6 5 -h Imen * METHOD UNKNOWN VS. CASH: 11 11 STD STD ERROR 0 .0 0 5 7 0 5 3 2 0 . 0 0 1 7 2 0 2 2 0 . 0 2 0 4 0 1 8 4 0 . 0 0 6 1 5 1 3 9 EQUAL F '* DEV 0 .0 1 1 9 0 5 9 1 UNEOUAL > PROCEDURE 0 . 0 0 3 5 1 5 5 3 VARIANCES VARIANCES TTEST ABART MEAN STATUS PROB PAYMENT 1 VARIABLE: HO: OF 4 3 ) ; 2 TARGETS: FOR CAR 2 OBS CASH PAYMENT 3 8 ) ; ABART IS UNKNOWN OF : Targets ARE DF - 1 .3 1 3 6 - 1 . 3 1 3 6 EQUAL. F ' = PROB 11.6 WITH |T | 0 . 2 1 4 5 20.0 1 2 . 7 9 > 0 . 2 0 3 9 10 AND 10 DF 0 . 0 0 0 4 R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 89 significant. The CARs for the cash group reach a peak of 14.00 percent while for the non-cash group it peaks at 3.86 percent. However, the means of the daily average abnormal returns are statistically different, at the 10 percent level, as revealed by the t-test results. For the cash group, the m ean is 1.19 percent w hile for the non-cash it is 0.35 percent and the t-statistic for the difference is 1.3136. In the domestic studies, higher abnormal returns associated w ith cash offers com pared to security offers, for both bidders and targets, have been explained by personal tax-effects, agency effects and inform ation effects, as discussed in previous chapters. These hypotheses apply to the international acquisitions too, and hence one should see the same kind of differences between the tw o means of paym ent in international acquisitions as found in the dom estic studies. However, due to paucity of data, instead of a cash versus p u re security-exchange classification, these results are based on cash versus non-cash dichotomy, where the non-cash group includes acquisitions w here the m eans of payment was not disclosed at the time of the acquisition announcem ent. This might explain the lack of finding stronger differences between the two groups in this study, especially for the targets. 5.4.3. Old vs. New Targets From the point of view of diversification, as well as from the point of view of asym m etric inform ation, one w ould expect to see differences between the class of targets in which the bidder has a stake from before (old) and the class of targets in which the bidder is acquiring a stake for the first R ep ro d u ced with p erm ission of the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 90 time (new). The bidding firm’s managem ent w ould have better information about the target if it was an "old" one. Table 13 presents the abnorm al retu rn s w ith the corresponding t-statistic values and the cum ulative abnormal returns for the two subgroups, respectively. Like the results for the overall group of bidders, the subgroups also display insignificant abnormal returns w ith the CAR peaking at 0.29 percent for the old target-group and at 0.67 percent for the new group, both on day +4. The t-statistic for differences in the means of the daily average abnormal returns is also insignificant. 5.4.4. Controlling Interest To further examine the behavior of the abnormal returns accruing to the bid d in g an d target firm s involved in international acquisitions of financial firm s, two subgroups w ere form ed for each set, depending on w hether the stake acquired gave control to the bidder or not. This factor, if significant, could shed some light on the extent to w hich differential accounting treatm ents in different target countries motivate international acquisitions. Tables 14 and 15 present the abnormal returns, t-values and CARs for the group which is acquiring or selling a greater than 50 percent interest or a full 100 percent interest in the target (top panels in each table) and the same for the group which is acquiring or selling a subsidiary or a division or a less than controlling interest in the target (lower panels). For the b idding firms, the daily abnorm al returns continue to be around zero and insignificant in both the subgroups; however, while the CAR is negative over the entire 11-day interval for the group acquiring a R ep ro d u ced with p erm ission of the copyright ow ner. Further reproduction prohibited w ithout p erm ission. TABLE 13 Evidence on Old Versus New Targets ABNORMAL RETURNS TO BIDDERS ( OBS ABNORMAL DAY ACQUIRING = AN "EXTERNAL" TARGET 3 5 ) ABART TSTAT CAR 1 -5 - 0 . 0 0 1 9 0 5 7 - 0 . 8 0 3 9 3 - 0 . 0 0 1 9 0 5 7 2 -4 0 . 0 0 1 7 0 8 4 0 . 7 2 071 - 0 . 0 0 0 1 9 7 3 3 -3 - 0 . 0 0 1 7 2 2 8 - 0 . 7 2 6 7 6 - 0 . 0 0 1 9 2 0 0 4 -2 0 . 0 0 0 5 0 4 6 0 . 2 1 2 8 9 - 0 . 0 0 1 4 1 5 4 5 -1 0 . 0 0 2 4 5 5 7 1 .0 3 5 9 5 0 . 0 0 1 0 4 0 3 6 0 0 . 0 0 1 0 8 5 7 0 . 4 5 8 0 0 0 . 0 0 2 1 2 6 0 7 1 - 0 . 0 0 1 0 1 2 1 - 0 . 4 2 6 9 6 0 . 0 0 1 1 1 3 9 8 2 0 . 0 0 2 1 3 7 1 0 . 9 0 1 5 5 0 . 0 0 3 2 5 1 0 9 3 0 . 0 0 3 1 0 5 7 1 .3 1 0 1 6 0 . 0 0 6 3 5 6 7 10 4 0 . 0 0 0 4 1 1 7 0 . 1 7 3 6 7 0 . 0 0 6 7 6 8 4 1 1 5 - 0 . 0 0 2 2 0 0 1 - 0 . 9 2 8 1 0 0 . 0 0 4 5 6 8 4 RETURNS TO BID D ERS ( DAY OBS BIDDERS N N ACQUIRING = AN "INTERNAL" TARGET 17) ABART TSTAT CAR 1 -5 - 0 . 0 0 0 9 0 6 2 2 -4 0 . 0 0 0 8 1 3 8 3 -3 - 0 . 0 0 6 8 4 2 7 -1 4 -2 - 0 . 0 0 2 3 3 3 7 - 0 . 5 7 1 0 - 0 . 0 0 9 2 6 8 8 5 -1 0 . 0 0 2 0 7 1 4 0 . 5 0 6 8 - 0 . 0 0 7 1 9 7 3 6 0 0 .0 0 2 0 1 9 7 0 . 4 9 4 1 - 0 . 0 0 5 1 7 7 7 7 1 0 . 0 0 5 7 4 1 6 1 .4 0 4 8 0 . 0 0 0 5 6 3 9 8 2 0 . 0 0 0 6 1 0 9 0 . 1 4 9 5 0 . 0 0 1 1 7 4 9 9 3 0 . 0 0 1 3 4 1 3 0 . 3 2 8 2 0 .0 0 2 5 1 6 1 10 4 0 .0 0 0 4 2 8 7 0 . 1 0 4 9 0 . 0 0 2 9 4 4 8 11 5 - 0 . 0 0 2 7 6 9 4 - 0 . 6 7 7 6 0 . 0 0 0 1 7 5 4 ACQUIRING EXTERNAL V S. VARIABLE: STATUS - 0 . 2 2 1 7 0 . - 0 . 0 0 0 9 0 6 2 1991 - 0 . 0 0 0 0 9 2 4 .6 7 4 2 - 0 . 0 0 6 9 3 5 1 IN TERNAL TARGETS: TTEST RESULTS ABART MEAN STD DEV STD ERROR EXTERNAL 11 0 . 0 0 0 4 1 5 2 9 0 .0 0 1 8 7 9 6 8 0 . 0 0 0 5 6 6 7 4 IN TERN A L 11 0 . 0 0 0 0 1 5 9 5 0 .0 0 3 2 4 2 0 8 0 .0 0 0 9 7 7 5 2 VARIANCES FOR HO: > PROB > UNEQUAL 0 . 3 5 3 4 1 6 . 0 0 . 7 2 8 4 EQUAL 0 . 3 5 3 4 20.0 0 . 7 2 7 5 VARIANCES PROB DF F '= ARE EQUAL, F' 2 . 9 7 WITH 10 AND 10 DF 0 . 1 0 0 3 R ep ro d u ced with p erm ission o f th e copyright ow ner. Further reproduction prohibited w ithout perm ission. 92 I TABLE 14 Evidence on Controlling Interest: Bidders ABNORMAL RETURNS IN ACQUIRING FIRM ; (N ABART HO: CAR - 0 . 0 0 2 2 0 9 8 - 0 . 8 8 5 9 - 0 . 0 0 2 2 1 0 - 0 . 0 0 2 0 0 7 5 - 0 . 8 0 4 8 - 0 . 0 0 4 2 1 7 3 - 3 - 0 . 0 0 3 2 8 0 9 -1 .3 1 5 3 - 0 . 0 0 7 4 9 8 4 - 2 - 0 . 0 0 1 4 8 9 6 - 0 . 5 9 7 2 - 0 . 0 0 8 9 3 8 - 0 . 0 0 8 6 6 1 5 -1 0 . 0 0 0 3 2 6 7 0 . 1 3 1 0 6 0 0 . 0 0 1 0 4 3 3 0 . 4 1 8 3 - 0 . 0 0 7 6 1 8 7 1 - 0 . 0 0 1 7 6 1 0 - 0 . 7 0 6 0 - 0 . 0 0 9 3 7 9 8 2 0 .0 0 2 5 4 8 6 1 .0 2 1 8 - 0 . 0 0 6 8 3 0 9 3 0 .0 0 1 5 7 6 1 0 . 6 3 1 9 - 0 . 0 0 5 2 5 4 10 4 - 0 . 0 0 1 7 1 0 3 - 0 . 6 8 5 7 - 0 . 0 0 6 9 6 4 1 1 5 - 0 . 0 0 3 0 8 4 2 - 1 . 2 3 6 5 - 0 . 0 1 0 0 4 9 . RETURNS TO BIDDERS IN DAY THE ACQUIRING TARGET FIRM ABART LESS ; THAN (N = CONTROLLING TSTAT CAR 1 - 5 - 0 . 0 0 0 6 4 7 7 - 0 . 1 8 2 3 - 0 . 0 0 0 6 4 7 7 - 4 0 . 0 0 6 4 6 9 7 1 .8 2 0 5 0 . 0 0 5 8 2 2 0 3 - 3 - 0 . 0 0 3 5 6 7 4 4 -2 0 .0 0 1 1 5 0 8 0 . 3 2 3 8 0 . 0 0 3 4 0 5 4 5 - 1 0 .0 0 5 2 8 7 4 1 .4 8 7 8 0 . 0 0 8 6 9 2 8 6 0 -1 .0 0 3 8 0 . 0 0 2 2 5 4 6 0 .0 0 1 9 0 4 4 0 . 5 3 5 9 0 . 0 1 0 5 9 7 1 7 1 0 . 0 0 5 5 6 0 8 1 .5 6 4 7 0 . 0 1 6 1 5 7 9 8 2 0 .0 0 0 2 9 4 2 0 . 0 8 2 8 0 .0 1 6 4 5 2 1 9 3 0 . 0 0 3 9 3 5 3 1 .1 0 7 3 0 .0 2 0 3 8 7 4 10 4 0 . 0 0 3 5 5 7 9 1 .0 0 1 2 0 . 0 2 3 9 4 5 3 1 1 5 - 0 . 0 0 1 3 5 5 7 - 0 . 3 8 1 5 0 .0 2 2 5 8 9 6 A CONTROLLING N IN TEREST VS. LESS: TTEST RESULTS ABART MEAN STD DEV STD ERROR 11 - 0 .0 0 0 9 1 3 5 1 0 .0 0 1 9 6 0 3 6 0 .0 0 0 5 9 1 0 7 11 0 .0 0 2 0 5 3 6 1 0 .0 0 3 2 0 1 7 6 0 . 0 0 0 9 6 5 3 7 DF PROB > |T | UNEQUAL - 2 . 6 2 1 3 1 6 .6 0 . 0 1 8 2 EQUAL - 2 . 6 2 1 3 20.0 0 . 0 1 6 4 VARIANCES PROB A 2 1 ) ; 2 VARIANCES FOR TSTAT -5 VARIABLE: LESS INTEREST -4 ACQUIRING CONTROL CONTROLLING 3 1 ) ; 1 OBS STATUS A = 2 INTEREST BIDDERS BIDDERS TARGET DAY OBS ABNORMAL TO THE > F '» ARE EQUAL. F '= 2 . 6 7 W ITH 10 AND 10 DF O . 1375 R ep ro d u ced with p erm ission o f th e copyright ow ner. Further reproduction prohibited w ithout perm ission. TABLE 15 Evidence on Controlling Interest: Targets ABNORMAL RETURNS TO TARGET INTEREST OBS ABNORMAL IN DAY FIRM S ABART TSTAT CAR - 0 . 0 0 6 4 2 2 9 - 0 . 9 1 8 3 1 - 0 . 0 0 6 4 2 3 - 0 . 0 0 2 7 1 2 4 - 0 . 3 8 7 6 1 - 0 . 0 0 9 1 3 5 3 -3 - 0 . 0 0 2 4 1 0 0 - 0 . 3 4 4 5 6 - 0 . 0 1 1 5 4 5 4 -2 - 0 . 0 0 6 1 7 4 7 - 0 . 8 8 2 8 2 - 0 . 0 1 7 7 2 0 5 -1 - 0 . 0 0 0 5 1 6 1 - 0 . 0 7 3 7 9 - 0 . 0 1 8 2 3 6 6 0 0 . 0 0 5 9 6 3 6 0 . 8 5 2 6 4 - 0 . 0 1 2 2 7 3 7 1 0 .0 0 0 8 7 1 0 . 1 2 4 5 5 - 0 . 0 1 1 4 0 1 8 2 0 . 0 0 9 7 5 8 6 1 .3 9 5 2 3 - 0 . 0 0 1 6 4 3 9 3 - 0 . 0 0 2 5 6 4 3 - 0 . 3 6 6 6 3 - 0 . 0 0 4 2 0 7 10 4 0 . 0 0 1 3 7 8 8 0 . 1 9 7 1 3 - 0 . 0 0 2 8 2 8 1 1 5 0 . 0 0 3 8 2 0 0 0 .5 4 6 1 6 0 . 0 0 0 9 9 2 RETURNS FOR TARGETS THEMSELVES DAY 1 SELLIN G ; N = A CONTROLLING IN TEREST 18; ABART TSTAT CAR - 0 . 0 0 0 9 8 5 1 -5 - 0 . 0 0 0 9 8 5 - 0 . 2 7 4 1 2 -4 0 . 0 1 1 9 9 6 3 .3 3 7 1 0 .0 1 1 0 1 1 3 -3 0 . 0 0 8 8 3 4 2 .4 5 7 5 0 . 0 1 9 8 4 6 4 -2 0 . 0 1 7 3 3 2 4 . 8 2 1 4 0 . 0 3 7 1 7 8 5 -1 0 . 0 2 9 7 6 6 8 . 2 8 0 2 6 0 0 . 1 1 4 3 4 4 3 1 . 8 0 7 8 0 . 1 8 1 2 8 8 0 . 0 6 6 9 4 4 7 1 0 . 0 0 8 8 9 5 2 . 4 7 4 5 0 . 1 9 0 1 8 4 8 2 0 . 0 0 9 7 6 1 2 . 7 1 5 2 0 . 1 9 9 9 4 4 9 3 0 . 0 0 5 4 2 8 1 .5 1 0 1 0 . 2 0 5 3 7 3 10 4 - 0 . 0 2 2 7 9 7 - 6 . 3 4 1 5 0 . 11 5 - 0 . 0 0 8 3 7 5 - 2 . 3 2 9 7 0 . 1 7 4 2 0 1 SELLING CONTROLLING STATUS INTEREST V S. 11 11 ARE RESULTS STD DEV STD ERROR 0 . 0 0 4 9 7 3 3 8 0 . 0 0 1 4 9 9 5 3 0 .0 3 5 3 8 2 0 9 0 . 0 1 0 6 6 8 1 0 DF ■ 1 .4 6 1 6 EQUAL F ' = TTEST 0 . 0 1 5 8 3 6 2 7 UNEOUAL > LESS: 0 . 0 0 0 0 9 0 I 5 VARIANCES VARIANCES 1 8 2 5 7 6 ABART MEAN PROB CONTROLLING -4 VARIABLE: LESS A - 5 TARGETS CONTROL THAN 2 5 ) ; 1 OBS HO: LESS (N= 2 IN FOR SELLIN G THEM SELVES; - 1 . 4 6 1 6 EOUAL. F '* PROB 10.4 20.0 5 0 .6 1 WITH > |T I O. 1735 0 . 10 15 9 4 AND 10 DF 0 .0 0 0 1 R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 94 controlling interest, it is positive in the other group and even reaches a peak of 2.39 percent on day 10. On the other hand, for the target firms, the direction of the difference is the opposite. For the 21 firm s selling a controlling interest in themselves, the abnorm al return is 11.4 percent (tstatistic = 31.8078) on day 0, while for the other group it is an insignificant 0.59 percent. For both bidders and targets, however, the t-test for detecting statistical differences in the m eans o f the average daily abnorm al retu rn s are significant. This supports the hypothesis that the m arket distinguishes betw een the announcem ent of a full acquisition and the announcem ent of a sell-off or the acquisition of a division. 53. M ultiple Regression Analysis From the above section we saw that there exist differences in market reactions across the overall sample of bidding and target banks respectively. We also saw that a set of exogeneous variables could possibly explain these cross-sectional differences in m arket reaction to acquisition announcements. The above dichotomization analysis served the purpose well except in that it allowed for the analysis of the impact of only one variable at a time, and did not allow for controlling for the effects of the other exogeneous variables. This weakness is corrected by employing a m ultiple-variable cross-sectional regression analysis, with dum m y variables. R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 95 5.5.2. Bidder R esu lts The dependent variable in the m ultiple regression for the bidders is the bidding firm's 11-day cumulative average abnormal return from day -5 to day +5. The independent variables are four binary dum m y variables with which the following regression equation was run for each bidding firm i: CAR. (-5,+5) = a + b jD j + ^ ^ 2 + ^3^3 + ^ 4D 4 where D1 = 1 if the method of paym ent is cash; = 0 otherwise; D2 = 1 if the target is a bank; = 0 otherwise; D3 = 1 if the bidder is acquiring a controlling interest in the target; = 0 otherwise; D4 = 1 if the target is "new" to the bidder; = 0 otherwise; The estim ated equation (with the t-values shown in parenthesis below the relevant param eter estimate) is: CAR(-5,+5) =2.56- 0.19D1 + 0.02D2 - 3.27D3 - 0.35D4 (1.29) (-0.1) N= 51, F=1.039, (0.015) (-1.75) (-0.19) R2=0.0813 R ep ro d u ced with p erm ission o f th e copyright ow ner. Further reproduction prohibited w ithout perm ission. 96 This implies that differences in paym ent method, target type, extent of interest acquired and fam iliarity w ith the target do n o t influence the cum ulative average abnorm al returns to bidding firms in a statistically significant way. 5.5.2. Target Results The dependent variable here, in the multiple regression for the targets, is the target firm's 11-day cumulative average abnormal return from day -5 to day +5. The independent variables are three binary dum m y variables with which the following regression equation was run for each target firm i: CAR (-5,+5) = a 4where 4- b2D? 4- b^D^ = 1 if the method of paym ent is cash; = 0 otherwise; T>2 = 1 if the target is a bank; = 0 otherwise; = 1 if the target is giving up a controlling interest in itself; = 0 otherwise; The estim ated equation (with the t-values shown in parenthesis below the relevant param eter estimate) is: CAR(-5,+5) = 1.55 - 4.08Dj + 1.67D2 + 17.87D3 (0.26) (-0.62) (0.249) (2.53) R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 97 N = 42, F=2.921, R2=0.1835 This im plies that neither differences in paym ent m ethod nor the target type influence the cum ulative average abnorm al returns to target firms in a statistically significant w ay, b u t w hat does is the extent of the interest being sold. Giving up a controlling interest in itself affects the cum ulative abnormal returns in a statistically significant and positive way. 5.6. W ealth Effects and the D ivision o f Gains The im pact of international financial firm acquisition announcements on the participating firms w as also analyzed in terms of the change in the dollar valu e of the firms' o u tstanding comm on stock. Tables 16 and 17 p re sen t th e average abnorm al retu rn s from day -5 to day +5, the corresponding t-statistics and the cum ulative abnorm al retu rn s for the m atched bidders and targets in the 35 events considered for the wealth effects analysis. The 11-day cum ulative abnorm al return for the targets is 13.67 percent, w hich is significantly different from zero at the 0.01 level. For bidders, th e 11-day cumulative abnormal return is not significantly different from zero even at the 0.10 level, suggesting that a financial firm acquisition is, at best, a zero net present value investm ent for the bidding firm. The dollar value changes (Tables 18 and 19) suggest th at unlike domestic m ergers, here, target firms do not capture most of the synergistic gains. The average dollar value change for targets is about $63 million, which is significantly different from zero, while the b idding firm s, on average, experience a change of $72 million, but this is not significantly R ep ro d u ced with p erm ission o f th e copyright ow ner. Further reproduction prohibited w ithout perm ission. 98 different from zero. Tables 18 and 19 also show the average total dollar value change for the 35 acquisitions to be $68 million (significantly different from zero at the 0.01 level). Finally, Tables 18 and 19 also present the average share of the gains that go to b idders and targets, under the two m ethods described in the previous chapter. If only those firms which experience value increases are included in the averages, then the bidders and targets shares are equal at 50 percent. However, if we include the events where the total value change was negative, then the bidders's share is 63 percent while tne targets' share is 37 percent. Thus, when considering dollar values, the results no longer follow the domestic trend where targets gain and bidders do not lose. R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. TABLE 16 Wealth Effects Analysis: Bidders ABNORMAL RETURNS □BS FOR DAY 3 5 B ID D ERS IN WEALTH EFFECT ABART TSTAT ANALYSIS CAR 1 -5 0 . 0 0 0 7 6 6 7 0 . 3 2 5 8 0 . 0 0 0 7 6 6 7 2 -4 0 . 0 0 3 4 3 5 9 1 .4 6 0 3 0 . 0 0 4 2 0 2 5 3 -3 0 . 0 0 1 3 6 6 0 0 . 5 8 0 6 0 . 0 0 5 5 6 8 5 4 -2 0 . 0 0 1 5 4 1 8 0 . 6 5 5 3 0 . 0 0 7 1 1 0 3 0 . 0 0 9 8 6 0 6 5 -1 0 . 0 0 2 7 5 0 3 1 .1 6 8 9 6 0 0 . 0 0 1 9 5 3 4 0 . 8 3 0 2 0 .0 1 1 8 1 4 1 7 1 0 . 0 0 2 3 5 9 6 1 .0 0 2 9 0 . 0 1 4 1 7 3 6 8 2 - 0 . 0 0 3 3 2 5 6 - 1 . 4 1 3 5 0 . 0 1 0 8 4 8 0 9 3 0 . 0 0 3 3 3 6 7 1 .4 1 8 1 0 . 0 1 4 1 8 4 6 10 4 - 0 . 0 0 0 7 0 8 8 - 0 . 3 0 1 2 0 . 0 1 3 4 7 5 9 1 1 5 - 0 . 0 0 0 0 2 7 1 - 0 . 0 1 1 5 0 . 0 1 3 4 4 8 8 R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. TABLE 17 Wealth Effects Analysis: Targets ABNORMAL RETURNS OBS FOR DAY 35 TARGETS IN WEALTH 1 - 5 - 0 . 0 0 0 6 6 6 0 -4 0 . 0 0 2 6 9 4 3 - 3 0 . 0 0 3 7 2 8 6 1 ANA LYSIS TSTAT CAR - 0 . 2 2 7 6 - 0 . 0 0 0 6 6 6 ABART 2 EFFECT 0 . 9 2 0 7 0 . 0 0 2 0 2 8 1 .2 7 4 3 0 . 0 0 5 7 5 7 0 . 0 1 7 3 2 8 4 -2 0 . 0 1 1 5 7 0 9 3 .9 5 4 4 5 -1 0 . 0 3 6 6 6 9 6 1 2 .5 3 2 0 0 . 0 5 3 9 9 7 6 0 0 . 0 6 8 4 6 0 9 2 3 .3 9 6 9 O . 1 2 2 4 5 8 7 1 0 . 0 0 5 8 0 1 1 1 .9 8 2 6 0 . 1 2 8 2 5 9 8 2 0 . 0 0 7 3 8 6 3 2 . 5 2 4 3 O . 1 3 5 6 4 6 9 3 0 . 0 0 7 8 3 0 0 10 4 - 0 . 0 0 5 2 9 2 5 - i 11 5 - 0 . 0 0 1 4 1 1 3 - 0 . 4 8 2 3 2 . 6 7 6 0 , : ; : 7 O . 1 4 3 4 7 6 O . i3 5 i5 3 0 . 1 3 6 7 7 2 R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. TABLE 18 Division of Gains D IV IS IO N OBS BVALCHG OF G AINS: B ID D E R S ' AND TARGETS' TVALCHG TOTVALCHG SHARES BSHARE TSHARE 1 2 2 1 7 3 4 7 4 0 - 7 9 6 9 9 6 2 2 0 9 3 7 7 4 4 1 .0 0 3 6 1 2 2 5 7 5 0 7 0 4 3 3 0 1 9 1 2 6 0 8 0 8 9 5 0 . 9 8 7 3 4 0 . 0 1 2 6 6 O O 6 9 0 5 0 8 1 2 7 1 7 5 9 6 7 7 1 4 0 8 1 0 4 8 9 0 . 4 9 0 3 8 0 . 5 0 9 6 2 - 0 . 0 0 3 6 1 4 1 5 2 4 4 4 3 9 0 5 8 4 6 6 1 0 5 8 2 9 0 9 0 . 1 4 4 0 5 0 . 8 5 5 9 5 5 1 7 4 7 7 3 6 9 9 - 4 4 7 3 9 7 1 1 7 0 2 9 9 7 2 8 1 .0 2 6 2 7 - 0 . 0 2 6 2 7 6 2 4 5 0 6 5 8 7 6 8 0 6 2 4 5 1 3 3 9 3 0 . 9 9 9 7 2 0 . 0 0 0 2 8 7 2 8 1 7 0 8 2 0 4 - 6 7 4 6 5 5 5 7 2 1 4 2 4 2 6 4 7 1 . 3 1 4 9 0 - 0 . 3 1 4 9 0 8 - 4 1 2 5 4 1 1 5 - 1 0 1 8 S 133 - 5 1 4 4 0 2 4 8 0 . 8 0 1 9 8 0 . 9 8 5 9 9 4 7 5 8 3 5 8 2 9 8 3 4 5 9 1 8 2 4 5 9 2 8 0 . 9 3 6 5 1 0 . 0 6 3 4 9 1 9 8 0 2 10 1 4 2 1 3 9 6 5 7 6 1 1 1 4 0 3 6 4 1 4 3 2 5 3 G S 4 0 0 . 9 9 2 2 2 0 . 0 0 7 7 8 1 1 4 0 1 8 9 6 1 2 4 8 - 5 8 4 9 5 1 6 1 3 9 6 0 4 6 6 0 8 7 1 .0 1 4 7 7 - 0 . 0 1 4 7 7 12 8 9 9 5 4 8 6 0 2 9 1 9 2 4 0 3 7 1 9 0 1 4 7 2 6 4 0 0 0 . 9 9 7 8 7 0 . 0 0 2 1 3 13 5 1 8 7 5 5 9 4 4 0 1 2 7 6 1 0 7 8 5 2 0 0 3 2 0 5 1 8 0 . 9 9 7 5 5 0 . 0 0 2 4 5 14 8 6 4 7 8 3 3 6 0 1 0 8 4 9 7 9 3 7 9 7 3 2 8 1 2 9 7 0 . 8 8 8 5 2 0 . 1 1 15 - 1 4 8 8 9 4 1 6 9 9 7 - 1 6 7 9 7 9 9 - 1 4 8 9 1 0 9 6 7 9 6 0 . 9 9 9 8 9 0 . 0 0 0 1 1 148 16 - 5 4 8 4 2 0 0 5 6 8 - 4 2 2 9 9 9 8 - 5 4 8 8 4 3 0 5 6 6 0 . 9 9 9 2 3 0 . 0 0 0 7 7 17 - 1 9 2 6 3 2 9 7 6 9 0 9 5 2 6 4 7 1 3 - 1 9 1 6 8 0 3 2 9 7 7 1 . 0 0 4 9 7 - 0 . 0 0 4 9 7 18 - 3 9 1 3 4 3 3 1 2 1 1 8 0 1 1 9 6 0 - 3 8 9 5 4 2 1 1 6 1 1 . 0 0 4 6 2 - 0 . 0 0 4 6 2 19 - 4 0 0 7 2 1 5 3 5 0 2 3 7 3 8 2 5 1 4 - 3 7 6 9 8 3 2 8 3 6 1 .0 6 2 9 7 - 0 . 0 6 2 9 7 2 0 -1 6 5 9 5 6 2 1 1 2 0 2 1 0 2 0 9 1 0 3 6 1 4 5 8 8 - 0 . 1 6 0 1 7 1 . 1 6 0 1 7 21 - 9 3 4 7 0 6 4 8 0 -4 4 6 3 7 2 3 9 - 9 7 9 3 4 3 7 1 9 0 . 9 5 4 4 2 0 . 0 4 5 5 8 0 . 2 7 6 9 3 22 6 2 8 2 4 8 5 7 6 2 4 0 6 1 9 0 7 9 8 6 8 8 6 7 6 5 5 0 . 7 2 3 0 7 2 3 - 4 5 3 3 1 3 0 0 0 8 1 6 9 7 7 0 9 2 0 7 1 1 2 4 4 3 9 6 2 0 6 3 - 0 . 3 6 4 2 8 1 .3 6 4 2 8 C- 5 8 8 1 8 9 2 3 0 4 9 3 6 6 0 7 5 9 2 7 3 6 4 5 4 2 6 5 1 5 7 8 5 0 . 1 9 4 1 4 0 . 8 0 5 8 6 *■*. e x j - 1 0 5 1 5 6 3 0 0 • 3 1 4 1 2 2 9 6 2 0 - 3 4 2 6 3 8 5 9 2 0 0 . 0 8 3 2 2 0 . 9 1 6 7 8 2 6 1 0 5 6 6 1 7 4 7 8 1 1 6 0 3 3 8 2 1 2 0 1 2 6 5 9 9 9 9 5 9 8 0 . 0 8 3 4 6 0 . 9 1 6 5 4 27 - 3 1 8 3 9 5 7 5 2 0 1 1 2 0 5 0 0 1 6 9 2 8 0 9 2 5 - 0 . 1 8 8 0 9 1 . 1 8 8 0 9 28 - 4 8 5 0 6 8 6 3 1 4 8 1 9 9 0 0 9 9 9 6 9 2 1 4 6 - 0 . 4 8 6 5 7 1 .4 8 6 5 7 0 . 2 2 5 1 3 29 1 0 1 6 2 4 4 0 1 2 9 5 2 5 7 7 8 1 3 1 1 5 0 1 7 9 0 . 7 7 4 8 7 3 0 - 5 4 6 1 5 8 9 2 9 2 2 9 7 7 8 2 3 7 6 8 1 8 9 - 0 . 2 2 9 7 9 1 . 2 2 9 7 9 31 - 3 8 4 9 9 8 3 5 0 0 - 2 8 6 8 8 3 9 4 -3 8 7 8 6 7 1 8 9 4 0 . 9 9 2 6 0 0 . 0 0 7 4 0 1 . 0 9 2 4 8 - 0 . 0 9 2 4 8 32 4 4 6 3 9 1 0 0 0 - 3 7 7 8 5 9 2 2 4 0 8 6 0 5 0 7 8 33 1 4 8 7 0 8 8 7 8 5 4 4 1 3 4 6 4 8 5 1 9 2 8 4 3 5 2 7 0 3 4 2 0 3 0 3 2 8 6 0 0 1 1 1 2 5 6 7 4 0 0 0 0 1 1 3 2 3 7 0 6 8 6 0 0 0 . 0 1 7 9 2 0 .9 8 2 0 8 35 - 1 1 2 3 3 9 5 0 0 0 - 3 3 4 0 8 8 3 7 0 0 - 4 4 6 4 2 7 8 7 0 0 0 . 2 5 1 6 4 0 . 7 4 8 3 6 0 . 7 7 1 14 0 . 2 2 8 8 6 R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 102 TABLE 19 Division of Gains D i v i s i o n OBS o f G a in s BVALCHG B e t w e e n 3 5 (Positives Only) B i d d e r s & T a r g e t s TVALCHG DIVTOT O 2 2 1 7 3 4 7 4 0 ( P o s i t i v e s BSHARE O n ly ) TSHARE 1 2 2 1 7 3 4 7 4 0 1 . OOOOO 0 . 0 0 0 0 0 2 2 5 7 5 0 7 0 4 3 3 0 1 9 1 2 6 0 8 0 8 9 5 0 . 9 8 7 3 4 0 . 0 1 2 6 6 3 6 9 0 5 0 8 1 2 7 1 7 5 9 6 7 7 1 4 0 8 1 0 4 8 9 0 . 4 9 0 3 8 0 . 5 0 9 6 2 4 1 3 2 4 4 4 3 9 0 5 8 4 6 6 1 0 5 8 2 9 0 9 0 . 1 4 4 0 5 0 . 8 5 5 9 5 1 .OOOOO 0 . 0 0 0 0 0 5 1 7 4 7 7 3 6 9 9 0 1 7 4 7 7 3 6 9 9 6 2 4 5 0 6 5 8 7 6 8 0 6 2 4 5 1 3 3 9 3 7 2 8 1 7 0 8 2 0 4 0 2 8 1 7 0 8 2 0 4 8 0 0 0 0 . 9 9 9 7 2 1 .OOOOO 0 . 0 0 0 2 8 0 . OOOOO 0 . 7 3 3 5 7 9 1 4 7 0 5 1 0 4 5 8 2 9 8 3 4 5 7 3 0 0 3 4 4 9 0 . 2 0 1 4 3 10 2 6 0 1 1 5 5 7 1 1 1 4 0 3 6 4 3 7 1 5 1 9 2 1 0 . 7 0 0 1 4 0 . 2 9 9 8 6 1 1 7 4 3 5 0 7 8 3 0 7 4 3 5 0 7 8 3 1 .OOOOO 0 . 0 0 0 0 0 12 1 8 7 1 0 6 1 0 9 1 9 2 4 0 3 7 1 2 0 6 3 4 6 4 8 0 0 . 9 0 6 7 6 0 . 0 9 3 2 4 13 1 1 8 0 1 6 9 7 7 1 2 7 6 1 0 7 8 1 3 0 7 7 8 0 5 5 0 . 3 0 2 4 2 0 . 0 9 7 5 8 14 1 6 8 6 3 2 7 6 1 0 8 4 9 7 9 3 7 1 2 5 3 6 1 2 1 3 0 . 1 3 4 5 2 0 . 8 6 5 4 8 15 0 16 0 0 0 17 0 9 5 2 6 4 7 1 3 9 5 2 6 4 7 1 3 0 . 0 0 0 0 0 1 . OOOOO 18 0 1 8 0 1 1 9 6 0 1 8 0 1 1 9 6 0 0 . 0 0 0 0 0 1 . OOOOO 19 0 2 3 7 3 8 2 5 1 4 2 3 7 3 8 2 5 1 4 0 . 0 0 0 0 0 1 . OOOOO 2 0 0 1 2 0 2 1 0 2 0 9 1 2 0 2 1 0 2 0 9 0 . 0 0 0 0 0 1 . OOOOO 21 0 0 0 22 1 5 0 1 5 1 4 1 4 6 1 9 8 8 6 1 9 6 3 5 0 2 7 0 .7 6 4 7 1 0 . 2 3 5 2 9 23 0 2 7 6 7 2 6 6 0 1 2 7 6 7 2 6 6 0 1 0 . 0 0 0 0 0 1 .0 0 0 0 0 24 1 1 5 5 1 9 4 3 9 4 8 0 9 2 3 2 7 7 5 9 6 4 4 2 7 1 6 0 . 1 9 3 6 8 0 . 8 0 6 3 2 O 0 25 0 0 0 26 1 5 8 79451 2 0 6 5 2 6 0 5 1 2 2 2 4 0 5 5 0 2 0 . 0 7 1 4 0 0 . 9 2 8 6 0 27 0 3 1 6 7 6 4 7 8 7 3 1 6 7 6 4 7 8 7 0 . 0 0 0 0 0 1 .OOOOO 28 0 1 4 8 1 9 9 0 0 9 1 4 8 1 9 9 0 0 9 0 . 0 0 0 0 0 1 .0 0 0 0 0 29 8 1 8 0 7 1 6 6 2 9 5 2 5 7 7 8 11 1 3 3 2 9 4 4 0 . 7 3 4 8 0 0 . 2 6 5 2 0 3 0 0 2 9 2 2 9 7 7 8 2 9 2 2 9 7 7 8 0 . 0 0 0 0 0 1 .OOOOO 31 0 0 0 1 .OOOOO 0 . 0 0 0 0 0 32 1 8 7 4 8 4 2 0 1 8 7 4 8 4 2 33 7 1 6 4 8 0 5 9 8 1 7 2 9 8 4 2 9 7 8 8 9 4 6 4 8 9 5 0 . 8 0 5 5 2 0 . 1 9 4 4 8 34 1 3 4 1 0 3 4 1 7 7 8 3 4 4 2 5 5 5 1 4 2 4 4 7 6 7 3 2 0 . 9 4 1 4 2 0 . 0 5 8 5 8 35 0 0 0 0 .4 9 9 ' 0 .5 0 1 MEAN D IV IS IO N OF GAINS: VARIABLE MEAN SHARE MEAN OF P O S IT IV E - STANDARD DEV IATIO N N ET- WEALTH EVENTS ONLY MINIMUM MAXIMUM VALUE VALUE BSHARE 35 0 . 4 9 9 1 6 6 2 9 0 .9 6 9 1 6 0 4 9 TSHARE - 1 . 3 7 3 1 1 0 0 0 35 0 .5 0 0 8 3 3 7 1 4 .6 8 9 2 4 0 0 0 0 .8 8 6 1 4 1 5 2 - 3 . 6 8 9 2 0 0 0 0 1 .4 2 9 5 0 0 0 0 R ep ro d u ced with p erm ission o f th e copyright ow ner. Further reproduction prohibited w ithout perm ission. 103 CHAPTER VI SUMMARY AND CONCLUSIONS This study investigates acquiring and target financial firms' share price changes associated with foreign-acquisition announcements. In particular, this study provides prelim inary evidence on w hether international mergers among financial firms produce abnorm al returns for bidders and targets or not and if so, are they any different from those produced by domestic m ergers. The results indicate that the basic return patterns for international m ergers are similar, but not identical, to domestic mergers. Bidding firm shareholders experience insignificant returns close to zero w hile target shareholders experience significant positive returns. H ow ever, w hen the m agnitudes are compared statistically, there are significant differences in the av erag e abnorm al re tu rn s for th e b id d in g firm s in dom estic and international acquisitions (see Table 20). Further, just as in domestic mergers, acquisitions using the m ethod of cash paym ent give a positive signal and produce higher abnorm al returns for targ ets as transactions. co m p ared to acq u isitio n s involving n o n -cash -p ay m en t However, unlike the domestic evidence, at the international R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. TABLE 20 Comparison with Previous Studies Summary of Cumulative Abnormal Returns Associated with Mergers and Acquisitions; Sample Size and t-statistic are given in parentheses. Sample Period Study Panel A. Bidding Firms® (%) Event Period Target Firms (%) Domestic Comorate Mergers and Acauisitionsb: Dodd (1980) 1970-77 Day(0,-l)c -1.09 (60,-2.98) Asquith (1983) 1962-76 Day(0,-1) +0.20 +6.20 (196,0.78) (211,23.07) Eckbo (1983) 1963-78 Day(O.-l) Panel B. +0.07 (102,-0.12) +6.24 (57,9.97) Domestic Financial Firms' Merpers and Acauisitions: Desai & Stover (1985) 1976-82 Day(0,-1) +0.96 (18,2.18) Baradwaj , Dubofsky & Fraser (1990) 1973-87 Day(0,-1) (-0.40) (159,-2.38) Panel C. +13.41 (71,6.20) n.a.d n.a. International Comorate Mereers and Acauisitions: Fatemi & Furtado (1987) 1974-79 Day(0,-1) +2.11 (117,0.75) n.a. Doukas & Travlos (1988) 1975-83 Day 0 +0.08 (301,0.84)e n.a. Panel D. International Financial Firms' Mereers and Acauisitions: Biswas, Fraser & Mahajan (1990) 1977-87 Day(0,-1) 0+.13 (125,0.63) +6.23 (81,16.27) “Successful bids only bSource: Jensen and Ruback (1983) cDay (0,-1) is the day before and day of the offer or intent-to-acquire announcement hNot available - n.a. *Z-statistic R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 105 level, the difference between a 'bank' target and a 'non-bank' target is not significant. Finally, the results from the w ealth effects an d division of gains analysis suggest that the share of the bidding firm is a little higher and that of the targ et share a little low er in international acquisitions than in the dom estic ones. Once again, however, the basic finding rem ains unchanged: that target firms gain and bidding firms, at best, do not lose. R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. 106 REFERENCES A haronyJ., A.Saunders and I.Swary, 1985, Effects of IBA on Domestic Bank Profitability and Risk, Journal of Money, Credit and Banking, Vol.17, No.4, Part 1, pp 493-506. AharonyJ. and I.Swary, 1981, Effects of the 1970 Bank Holding Com pany Act: Evidence From Capital M arkets, Journal of Finance, Vol.36, No.4, pp. 841-853. Aliber,R., 1984, International Banking: A Survey, 1984, Journal of Money, Credit and Banking, Vol.16, No.4, Part 2, pp.661-678. Asquith, P., 1983, Merger Bids, Uncertainty and Stockholder Returns, Journal of Financial Economics, V ol.ll, Nos. 1-4, pp. 51-83. Asquith,P., R.Bruner and D .M ullinsJr., 1983, The Gains to Bidding Firms from Merger, Journal of Financial Economics, V o l.ll, Nos. 1-4, pp. 121139. Asquith,P. and E.Kim, 1982, The Impact of M erger Bids on the Participating Firm s' Security Holders, Journal of Finance, Vol.37, No.5, pp. 12091228. 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Roehl,T., 1985, Data Sources for Research in Japanese Finance, Journal of Financial and Quantitative Analysis, Vol.20, No.2, pp. 273-276. Rose,J. and D.Savage, 1983, Bank H olding Com pany De Novo Entry, Bank P erform ance an d H olding C om pany Size, Q u arterly Review of Economics and Business, Vol.23, No.4, pp. 54-62. Ruback,R., 1983, A ssessing C om petition in the M arket for C orporate Acquisitions, Journal of Financial Economics, V o l.ll, No. 1, pp. 141Schwert,W., 1981, U sing Financial Data to M easure Effects of Regulation, Journal of Law and Economics, Vol.24, N o.l, pp. 121-158. Yagil,J., 1987, An Exchange Ratio Determ ination Model for Mergers: A Note, Financial Review, Vol.22, N o.l, pp. 195-202. R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout perm ission. 114 VITA Rita Biswas, bom July 16,1959, was youngest and most-bullied of three siblings. A fter her childhood in Bihar, India, she finished high school from M odern H igh School, Calcutta in 1976. Her undergraduate and graduate education brought her in contact w ith m atinee show s, ice cream and increasing obesity; nonetheless resulting in a Bachelor's an d a M aster's degree in economics from the U niversity of C alcutta in 1980 and 1983, respectively. H er brief sojourn at the U niversity of Rochester revealed intense affinity for everything b ut academics. Fleeing the snowbound shores of Lake Ontario with yet another M aster’s degree in economics in hand, she finally became serious at the bastion of conservative Aggies - Texas A&M University, in 1986. After two conference papers in Paris and Stockholm, she realized it w as time she got dow n to winding up the dissertation. She may now be found (except early mornings) in the D epartm ent of Finance, SUNY Albany, NY. R ep ro d u ced with p erm ission o f the copyright ow ner. Further reproduction prohibited w ithout p erm ission. [...]... also find that the m agnitudes of these returns are independent of the relative size of the acquired firm 2.4 Foreign Mergers and Acquisitions We n o w exam ine the international aspects of the literature, with respect to m ergers and acquisitions of both financial and non -financial firms A central issue examined in the literature w ithin this specific area of foreign acquisitions is as follows: If... hapter tw o review s some of the relevant literature in the broad area of mergers and acquisitions w ith respect to the issues raised and analyzed, and the results of these studies C hapter three discusses the issues relevant to the study of transnational m ergers and acquisitions of financial firms and identifies their testable im plications Chapter four describes the methodology and estimation procedures... acquisitions of both corporate and financial firms, it has only begun to investigate international corporate m ergers and is particularly limited for international mergers of financial firms One of the purposes of the present study is to fill this void in the literature With respect to the methodology, most of the recent literature on bank m ergers has used accounting data and various regression techniques... are the determ ining factors of the ownership pattern and structure of the world banking industry? International banking trends have reversed from the dom inance of U.S banks operating abroad in the 1960’s to the growing influence of foreign banks in the U.S in the 1970's and 1980's Further, mergers and acquisitions This docum ent is formatted in the style of Journal of Financial Economics R ep ro d... TABLE OF CONTENTS Page ABSTRACT iii DEDICATION v ACKNOWLEDGMENTS vi TABLE OF CONTENTS viii LIST OF TABLES x I INTRODUCTION 1 n REVIEW OF RELEVANT LITERATURE 6 CHAPTER 2.1 Introduction 2.2 Com peting Theories of Mergers and Acquisitions 2.3 Bank M ergers, Regulation and Interstate Expansion 2.4 Foreign Mergers and Acquisitions. .. ission LIST OF TABLES Table Page 1 Summary of Previous Studies 40 2 Distribution of Bidders and Targets 68 3 Overall Bidder Returns in International Acquisitions 73 4 Overall Target Returns in International Acquisitions 75 5 Overall Bidder Returns in Domestic Acquisitions 77 6 Differences Between Domestic and International Bidders 79 7 Overall Target Returns in Domestic Acquisitions. .. by Wansley, Lane and Yang, Fatemi and Furtado (1987), examine the effect of foreign acquisitions on the returns to shareholders of U.S.-based acquiring firms Their hypothesis is that the w ealth effects of foreign acquisitions w ould not differ from those of the dom estic ones if the financial markets in the foreign country are as competitive and as efficient as the domestic markets, and if there are... managers have little fear of them and are free to pursue their own interests Synergism is defined as the incremental wealth to the shareholders of both m erging firms due to the merger - net of any potential gains achievable through investors' personal diversification over the common stocks of the m erging firms Choi and Philippatos (1983) and m ore recently, Davidson, G arrison and H enderson (1987) m... ission 12 2.3 Bank Mergers, Regulation and Interstate Expansion All the above studies have dealt w ith the issue w hen both the acquiring and the acquired firms are based within the same country and the entities in question are prim arily non -financial firms H ow ever, follow ing the 1970 am endm ent to the Bank H olding Com pany (BHC) Act of 1956, the growth of bank holding companies and their expansion... banking industry BHC's found equity participation and acquisitions as a m ore attractive means of financing business activity relative to lending This gave rise to an increase in acquisitions by BHC's and it also increased both the bank's risk and return A num ber of studies have investigated BHC acquisitions One of the earliest ones is that by Frieder and Apilado (1983) Their study addresses m anagerial