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 VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ACQUIRER ABNORMAL RETURNS IN M & A WITHIN BANKS: EVIDENCE FROM SELECTED ASEAN COUNTRIES A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By NGUYEN THI NGOC DUNG Academic Supervisor: CAO HAO THI HO CHI MINH CITY, November, 2013 Contents List of tables iii List of figures iii Abbreviation iv Abstract v Chapter : Introduction 1.1 Problem statement 1.2 Research objectives .2 1.3 Research questions 1.4 Research scope 1.5 Research contribution 1.6 Research structure Chapter : Literature review 2.1 Definition of M & A 2.2 Types of M & A 2.3 Motivation for M & A 2.4 Method for calculating event’s effect 2.4.1 Important time frames .6 2.4.2 Calculating Method 2.5 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 Chapter : Methodology 18 Page: i 3.1 Research process 18 3.1.1 Estimation of abnormal returns 18 3.1.2 Analyzing factors effect CAR 21 3.2 Data collection .21 Chapter : Data analysis .26 4.1 Descriptive statistics 26 4.1.1 Abnormal return and cumulative abnormal return to acquirers 26 4.1.2 Cross-section regression analysis 34 4.2 Inferential statistics 38 Chapter : Conclusions and recommendations 40 5.1 Conclusion 40 5.2 Recommendations .41 5.3 Limitation and further research 42 Reference 43 Appendice .50 Page: ii List of tables Table 3-1: Descriptive statistics of sample characteristic 22 Table 3-2: M&A by country .23 Table 3-3: M & A by year 24 Table 4-1: Average abnormal return, and number of positive and negative observations for 20 days before through 20 days after announcement date 28 Table 4-2: Average abnormal returns between groups and test of difference 30 Table 4-3: Cumulative average abnormal returns and their t statistics .33 Table 4-4: Cumulative average abnormal returns between groups and test of difference .33 Table 4-5: CAAR(-18, 10) categorized by characteristics 35 Table 4-6: Correlation testing 37 Table 4-7: Cross-section regression result 38 List of figures Figure 2-1: Process for calculating abnormal return 17 Figure 2-2: Acquirer's cumulative average abnormal return (CAR) from merger and potential effect factors 17 Figure 4-1: Average abnormal returns from -20 days to +20 days around announcement date 28 Figure 4-2: Cumulative abnormal returns from -20 days to +20 days around announcement date 32 Page: iii Abbreviation AAR(s): Average Abnormal Return(s) APT: Arbitrage Pricing Theory AR: Abnormal return ASEAN: Association of Southest Asian Nations B&B: Bank and Bank B&O: Bank and Other institute CAAR(s): Cumulative Average Abnormal Return(s) CAPM: Capital Asset Pricing Theory CAR(s): Cumulative Abnormal Return(s) M & A: Mergers and Acquistions Page: iv Abstract This paper examines acquirer’s abnormal return from merger and acquisition (M & A) between two banks, and between bank and non-bank institute By using event study and market model, M & A cases announcing from Jan 2005 to Dec 2012 of ASEAN are investigated Besides that, determinants affect abnormal return like acquirer size, listing target status, payment method, learning by doing, bidder leverage, type of M & A, Tobin q ratio, target nation, etc are analyzed in detail Key words: ASEAN mergers, acquisition, M & A, abnormal return, event study, market model Page: v Chapter : Introduction 1.1 Problem statement The problem of merger and acquisition (M & A) has been mentioned much these days in Vietnam This can be checked through a famous searching tool – Google by typing key word “sáp nhập” – mean merger, and you will find at least 426,000 related results with that This trend can be understood that when the economic, or especially financial situation become hard, firms think more about M & A as a resolution for rescuing To measure the effectiveness of a M & A deal, we need even years to know, but it does not take long time to see the reaction of the market Besides that, according to Andrade, Mitchell and Stafford (2001), market response around acquisition announcement is the best way to examine the success of the deal Problem is how to measure the response of market in front of M & A news? One of the common methods is comparing the return from the company’s stock around the time of 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 calculate abnormal return to specific object like acquirers (who offer merger), target firms, or even their industry rivals, etc Applying this method, many studies have done With specific country, there are 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 specific industry, many researches about merging between banks, such as: James and Weir (1987), Hannan & Wolken (1989), Houston and Ryngaert (1994), DeLong (2001), Cornett et al (2003), Anderson et al (2004), Beitel et al (2004), Lepetit et al (2004), Karceski et al (2005), DeLong and DeYoung (2007) etc, or about telecommunication firms (Akdogu, 2009) One notice point here is most of above 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: 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 mergers after the 1997 financial crisis, Goddard et al (2012) research about emerging market including Asia and Latin America To date, as what we know, there is no studies really calculate abnormal return in merger cases within ASEAN countries 1.2 Research objectives By doing this research, we try to find out reaction of market in front of M&A acquisition announcement especially in bank mergers cases of ASEAN In details, this paper will measure abnormal returns to acquirers in bank mergers It also compares the return of acquirer come from acquisition among banks, and between bank and other institute Moreover, some common factors like acquirer size, listing target status, payment method, studying by doing, bidder leverage, types of merger, Tobin q ratio, and target nation will be analyzed to estimate the impact of potential factors on abnormal return 1.3 Research questions From research objectives, following questions are tried to answer: - Are abnormal returns to acquirers in bank mergers positive? - Are abnormal returns to acquirers in bank mergers higher than those of mergers between bank and other institution? - What is the impact of common factors on abnormal return? 1.4 Research scope With the objective of researching about ASEAN situation, the paper will be conducted base on bank merger within six ASEAN countries: Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam Moreover, updated deals announced and completed from 01/01/2005 to 31/12/2012 are selected The information about deals will be collected from Zephyz – Bureau van Dijk – one of the best databases about M&A around the world Page: 1.5 Research contribution Answering three research questions, the usefulness of this paper concentrate on two main points First, it is an overview about bank mergers in ASEAN countries within the period from 2005 to 2012 Second, from the lesson of ASEAN countries, this study is expected to be a reliable source for further researches related to this field 1.6 Research structure Continue to this introduction chapter, some literature concepts about merger and acquisition (M & A) as well as related empirical studies will be presented in chapter Methodology and data collection will be stated clearly in chapter Data analysis will be indicated in chapter Chapter will end with conclusion and recommendations for further researches Page: Chapter : Literature review In this chapter, some important points related to M & A will be explained First, definition, types, and motivation of M & A will be stated clearly in Section 2.1, 2.2, and 2.3 Then, Section 2.4, 2.5 will show an overview about recent methods for calculating event’s effect as well as testing significance Next, some main factors effect M & A will be discussed Section 2.7, 2.8 will present an overview about the using of event study in banking M & A, and situation of M & A in banks in ASEAN countries Last section will end with conceptual framework 2.1 Definition of M & A Merger and acquisition (M & A) are usually seen going with each other However, these two concepts have a little bit difference in meaning While merger is defined as the act of joining two or more organizations or businesses into one (Oxford dictionary), acquisition is understood as the act of buying something to add to what they already own Acquisition is sometimes called “takeover” In this paper, we not distinguish these two words and use it with same meaning 2.2 Types of M & A According to Megginson & Smart (2008), there are three main kinds of merger include: horizontal, vertical and conglomerate M & A In which, horizontal merger is a combination of competitors within the same geographic market (p.854) This kind of merger is considered as a market extension method and the greatest potential for wealth creation It is explained that by combining of their resources, merged firm will have advantage in scale and scope of economy, as well as saving cost thanks to decreasing, or eliminating overlapping resources Moreover, the combination creates a market power for merged firms compare to other weaker competitors Vertical merger occurs when companies with current or potential buyer-seller relationships combine to create a more integrated company (p.855) Main advantage of vertical merger is decrease the risk of acquirer/target’s input/output which leads to higher efficiency However, this kind of merger must 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: Reference Aboody, D., Kasznik, R., & Williams, M (2000) Purchase versus pooling in stock-for-stock acquisitions: Why firms care? Journal of Accounting and Economics, 29(3), 261-286 Akdoğu, E (2009) Gaining a competitive edge through acquisitions: Evidence from the telecommunications industry Journal of Corporate Finance, 15(1), 99-112 Amihud, Y., & Lev, B (1981) Risk reduction as a managerial motive for conglomerate mergers The Bell Journal of Economics, 605-617 Amihud, Y., Lev, B., & Travlos, N G (1990) Corporate control and the choice of investment financing: The case of corporate acquisitions The Journal of Finance, 45(2), 603-616 Anderson, C W., Becher, D A., & Campbell II, T L (2004) Bank mergers, the market for bank CEOs, and managerial incentives Journal of Financial Intermediation, 13(1), 6-27 Andrade, G., Mitchell, M., & Stafford, E (2001) New evidence and perspectives on mergers Asquith, P., Bruner, R F., & Mullins Jr, D W (1983) The gains to bidding firms from merger Journal of Financial Economics, 11(1), 121-139 Bae, K H., Kang, J K., & Kim, J M (2002) Tunneling or value added? Evidence from mergers by Korean business groups The journal of finance, 57(6), 2695-2740 Baradwaj, B G., Fraser, D R., & Furtado, E P (1990) Hostile bank takeover offers: Analysis and implications Journal of Banking & Finance, 14(6), 1229-1242 Beitel, P., Schiereck, D., & Wahrenburg, M (2004) Explaining M&A success in European banks European Financial Management, 10(1), 109-139 Page: 43 Ben‐Amar, W., & André, P (2006) Separation of ownership from control and acquiring firm performance: The case of family ownership in Canada Journal of Business Finance & Accounting, 33(3‐4), 517-543 Berger, A N., & Humphrey, D B (1994) Bank scale economies, mergers, concentration, and efficiency: The US experience Bernard, V L (1987) Cross-sectional dependence and problems in inference in market-based accounting research Journal of Accounting Research, 25(1), 148 Brown, C., & Fung, C (2009) Keiretsu affiliation and stock-market-driven acquisitions Journal of Financial Research, 32(4), 479-503 Brown, S J., & Warner, J B (1980) Measuring security price performance Journal of Financial Economics, 8(3), 205-258 Brown, S J., & Warner, J B (1985) Using daily stock returns: The case of event studies Journal of Financial Economics, 14(1), 3-31 Brown, S J., & Weinstein, M I (1985) Derived factors in event studies Journal of Financial Economics, 14(3), 491-495 Chang, S (1998) Takeovers of privately held targets, methods of payment, and bidder returns The Journal of Finance, 53(2), 773-784 Collins, D W., & Dent, W T (1984) A comparison of alternative testing methodologies used in capital market research Journal of Accounting Research, 22(1), 48-84 Conn, R L., Cosh, A., Guest, P M., & Hughes, A (2005) The impact on UK acquirers of domestic, cross‐border, public and private acquisitions Journal of Business Finance & Accounting, 32(5‐6), 815-870 Cornett, M M., Hovakimian, G., Palia, D., & Tehranian, H (2003) The impact of the manager–shareholder conflict on acquiring bank returns Journal of Banking & Finance, 27(1), 103-131 Page: 44 Cowan, A R (1992) Nonparametric event study tests Review of Quantitative Finance and Accounting, 2(4), 343-358 Crouzille, C., Lepetit, L., & Bautista, C (2008) How did the Asian Stock Markets React to Bank Mergers after the 1997 Financial Crisis? Pacific Economic Review, 13(2), 171-182 Datta, D K., & Puia, G (1995) Cross-border acquisitions: An examination of the influence of relatedness and cultural fit on shareholder value creation in US acquiring firms MIR: Management International Review, 337-359 Datta, D K., Pinches, G E., & Narayanan, V K (1992) Factors influencing wealth creation from mergers and acquisitions: A meta‐analysis Strategic Management Journal, 13(1), 67-84 DeLong, G L (2001) Stockholder gains from focusing versus diversifying bank mergers Journal of Financial Economics, 59(2), 221-252 DeLong, G., & DeYoung, R (2007) Learning by observing: Information spillovers in the execution and valuation of commercial bank M&As The Journal of Finance, 62(1), 181-216 Demsetz, H., & Lehn, K (1985) The structure of corporate ownership: Causes and consequences The Journal of Political Economy, 93(6), 1155-1177 Draper, P., & Paudyal, K (1999) Corporate takeovers: mode of payment, returns and trading activity Journal of Business Finance & Accounting, 26(5‐6), 521-558 Duso, T., Gugler, K., & Yurtoglu, B (2010) Is the event study methodology useful for merger analysis? A comparison of stock market and accounting data International Review of Law and Economics, 30(2), 186-192 Eichengreen, B., & Luengnaruemitchai, P (2004) Why doesn't Asia have bigger bond markets? (No w10576) National Bureau of Economic Research Page: 45 Eun, C S., Kolodny, R., & Scheraga, C (1996) Cross-border acquisitions and shareholder wealth: Tests of the synergy and internalization hypotheses Journal of Banking & Finance, 20(9), 1559-1582 Filbien, J Y., & Kooli, M (2011, May) Gains to Merging Firms and Their Rivals: Evidence from Canada In International Conference of the French Finance Association (AFFI) Finkelstein, S., & Haleblian, J (2002) Understanding acquisition performance: The role of transfer effects Organization Science, 13(1), 36-47 Fisher, F M., & McGowan, J J (1983) On the misuse of accounting rates of return to infer monopoly profits The American Economic Review, 73(1), 8297 Fuller, K., Netter, J., & Stegemoller, M (2002) What returns to acquiring firms tell us? Evidence from firms that make many acquisitions The Journal of Finance, 57(4), 1763-1793 Goddard, J., Molyneux, P., & Zhou, T (2012) Bank mergers and acquisitions in emerging markets: evidence from Asia and Latin America The European Journal of Finance, 18(5), 419-438 Hagendorff, J., Collins, M., & Keasey, K (2008) Investor protection and the value effects of bank merger announcements in Europe and the US Journal of Banking & Finance, 32(7), 1333-1348 Hannan, T H., & Wolken, J D (1989) Returns to bidders and targets in the acquisition process: Evidence from the banking industry Journal of Financial Services Research, 3(1), 5-16 Hayward, M L (2002) When firms learn from their acquisition experience? Evidence from 1990 to 1995 Strategic Management Journal, 23(1), 21-39 Henderson Jr, G V (1990) Problems and solutions in conducting event studies Journal of Risk and Insurance, 282-306 Page: 46 Houston, J F., & Ryngaert, M D (1994) The overall gains from large bank mergers Journal of Banking & Finance, 18(6), 1155-1176 Houston, J F., James, C M., & Ryngaert, M D (2001) Where merger gains come from? Bank mergers from the perspective of insiders and outsiders Journal of Financial Economics, 60(2), 285-331 James, C M., & Wier, P (1987) Returns to acquirers and competition in the acquisition market: The case of banking The Journal of Political Economy, 95(2), 355-370 Jensen, M C (2004) The agency costs of overvalued equity and the current state of corporate finance European Financial Management, 10(4), 549-565 Kang, J K (1993) The international market for corporate control: Mergers and acquisitions of US firms by Japanese firms Journal of Financial Economics, 34(3), 345-371 Karceski, J., Ongena, S., & Smith, D C (2005) The impact of bank consolidation on commercial borrower welfare The Journal of Finance, 60(4), 2043-2082 Kothari, S P., Y J Warner (2006) “Econometrics of Event Studies” Handbook of Corporate Finance: Empirical Corporate Finance, Forthcoming in B Espen Eckbo (ed.), Volume A Kiymaz, H., & Mukherjee, T K (2000) The Impact of Country Diversification on Wealth Effects in Cross‐Border Mergers Financial Review, 35(2), 37-58 Kolari, J W., & Pynnönen, S (2010) Event study testing with cross-sectional correlation of abnormal returns Review of Financial Studies, 23(11), 39964025 Lang, L H., Stulz, R., & Walkling, R A (1991) A test of the free cash flow hypothesis: The case of bidder returns Journal of Financial Economics, 29(2), 315-335 Page: 47 Lepetit, L., Patry, S., & Rous, P (2004) Diversification versus specialization: an event study of M&As in the European banking industry Applied Financial Economics, 14(9), 663-669 Lintner, J (1965) The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets The Review of Economics and Statistics, 47(1), 13-37 MacKinlay, A C (1997) Event studies in economics and finance Journal of Economic Literature, 35(1), 13-39 Maloney, M T., McCormick, R E., & Mitchell, M L (1993) Managerial decision making and capital structure Journal of Business, 189-217 Mandelker, G (1974) Risk and return: The case of merging firms Journal of Financial Economics, 1(4), 303-335 McWilliams, A., & Siegel, D (1997) Event studies in management research: Theoretical and empirical issues Academy of Management Journal, 40(3), 626-657 Megginson, W L., & Smart, S B (2008) Introduction to corporate finance South-Western Pub Millon Cornett, M., & De, S (1991) Common stock returns in corporate takeover bids: Evidence from interstate bank mergers Journal of Banking & Finance, 15(2), 273-295 Moeller, S B., Schlingemann, F P., & Stulz, R M (2004) Firm size and the gains from acquisitions Journal of Financial Economics, 73(2), 201-228 Myers, S C., & Majluf, N S (1984) Corporate financing and investment decisions when firms have information that investors not have Journal of Financial Economics, 13(2), 187-221 Petersen, M A (2005) Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches (No w11280) National Bureau of Economic Page: 48 Research Ramaswamy, K (1997) The performance impact of strategic similarity in horizontal mergers: evidence from the US banking industry Academy of Management Journal, 40(3), 697-715 Ross, S A (1976) The arbitrage theory of capital asset pricing Journal of Economic Theory, 13(3), 341-360 Scholtens, B., & Wit, R D (2004) Announcement effects of bank mergers in Europe and the US Research in International Business and Finance, 18(2), 217-228 Sharpe, W F (1964) Capital asset prices: a theory of market equilibrium under conditions of risk The journal of Finance, 19(3), 425-442 Thomson One Banker: http://banker.thomsonib.com/ Trautwein, F (1990) Merger motives and merger prescriptions Strategic Management Journal, 11(4), 283-295 Trifts, J W., & Scanlon, K P (1987) Interstate bank mergers: The early evidence Journal of Financial Research, 10(4), 305-311 Williams, J., & Liao, A (2008) The search for value: Cross-border bank M&A in emerging markets Comparative Economic Studies, 50(2), 274-296 Zephyr – Bureau van Dijk : https://zephyr2.bvdep.com/version2013419/ZephyrNeo.HomePage.serv?_CID=1&context=1NZD8LSAN7IUS AB Page: 49 -Appendice Appendix 1: Studies with event study Writer, Title year Stockholder Delong gains L (2001) from G Methodology Data Objective Result Event study + US cases Examine wealth Bank mergers that focus market model (1988 - effect of bank both mergers activity focusing 1995) Estimation versus diversifying bank mergers by distinguishing window: -300 Daily days to -51 stock days return geographic are and value- increasing between types of mergers (activity and geography) Merger focus on activity tends to increase wealth while Event focus geography window: on does not destroy wealth -10 days to +1 days Risk and return: the case of Mandelker Event study + US cases (1974) Capital asset (1948 - impact of firms pricing model 1967) mergers on return of about 14% on merging firms Examine the Monthly window: -60 stock months return to earn abnormal the average in the seven acquirer Estimation Stockholder of acquired months preceding the merger months Event window: -40 months to +40 months Return to Bidders and Targets in the Acquisition process: evidence from the Banking industy Hannan, T Event study + H., market model Wolken, D (1989) & US cases J Estimation window: -90 1982 to 1987) days to -15 days Event Examine the 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 Writer, Title Methodology year Data various Objective Result transfer organization from lengths from - shareholder of bidding 15 firms to shareholder of days to +15 days target firms Positive combined wealth effects are registered by combinations involving less capitalized target firms and vice versa Hostile bank takeover offers: Analysis Baradwaj, Event study + B market model G., Fraser, and R., Furtado, E implications (1980 to D & Estimation 1987) window: -210 days to -61 P (1990) US cases days Estimate the Target shareholder in effect of hostile hostile deal experience bids on higher abnormal return shareholder of than one of non-hostile Daily target and stock bidding banks deal Bidder shareholder in return hostile Event deal although experience window: negative abnormal return, they various still less negative than lengths from one in non-hostile deal -60 days to +60 days Common stock Millon Event study + returns Cornett, M., market model in corporate takeover bids: & De, (1982 to S (1991) US cases Estimation 1986) window: +16 Evidence from days to +75 interstate bank days mergers Examine the Positive stock price reaction of stock reaction for both bidder market and target banks to the announcement of Daily interstate stock mergers bank return Event window: - 15 days to + 15 days Investor Hagendorff, Event study + US cases Page: 51 Examine the Acquirer experience Writer, Title year protection and J., the M., value effects of bank 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) days to -21 announcements in Europe and the US Result target country (1996 to days 2004) Event Daily window: stock various return to returns European when (most economies) acquirer’s than returns protection regime (US) targeting high lengths from 20 days to + days Announcement Scholtens Event study + US cases Investigate effects of bank and market- + Europe announcement positive mergers (2004) adjusted cases effect of large return in Wit Europe and the return model (alpha US = 0, beta =1) the Mergers result in small abnormal bank mergers in (1990 to 2000) European and US stock market Target banks experience higher returns than bidders Event window: - days to + 31 Daily stock return days Gains to J Event study + Canada Merging Firms Y., & Kooli, market model cases and M Their Rivals: Evidence from Canada Filbien, May) (2011, Estimation window: -300 (1994 to 2009) Event Shareholder of Canadian M merging & A environment experience affects gains to creation merging firms Daily and their stock industry rivals days to -15 days Examine how the return firms wealth Stock price response of the rivals of Canadian acquiring firms is positive window: Stock price of acquiring -3 days to + firms’ rivals is more days, and favorable for rivals after a dormant period within - days to + Page: 52 Title Writer, year Methodology Data days Objective Result a specific industry Stock price of target firms’ rivals is negative when the industry has a high degree concentration particularly mining sector Page: 53 of and in the Appendix 2: Common factors affect abnormal return No Variables Regulation changes Number of bidders Explanation Change of regulation/law (tax law 1968-1969/ 1986) Bidder attend merger may be one or more than one (multiple) Two common types Datta Kiymaz x x Moeller x x x x Hagendorff of transaction: merger and tender offers Merger: negotiate directly with the target’s management/board Type of transaction of directors and approved them before going to shareholder vote Tender offers: offer is made directly to target shareholder (this offer maybe friendly or unfriendly) Merger transaction may be made Mode of payment by cash, or stock/equity, or x x x x x x x x combination of both Two common types of merger: Type of merger conglomerate (unrelated) merger and non-conglomerate Country Merger between two domestic diversification firms, or different country firms Target’s market to Market to book value ratio of book value target firm Intensity of x x bidding competition in terms of the attractiveness of an industry to Industry appeal all bidders It is by dividing the dollar value of acquisitions in x the target’s industry by the total dollar value of all mergers in the relevant year 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 x No Variables Explanation Datta Kiymaz Moeller Hagendorff foreign currency can influence the premiums paid in a merger Company have involvement in prior the country through: target affiliate (a chartered business owned by company 11 Prior involvement in the target country less than 50%); division (an internal unit of company); joint business in venture (a which x two companies share responsibility and ownership); and subsidiary (a chartered business owned by another company at least 50% or more) 12 Language Goodwill 13 accounting standards 14 Goodwill tax 15 Kind of target Both bidder and target are English speaking country The treatment accounting equity of x goodwill (write-off reserves against versus x x amortization against earnings) Tax deductible x Public, private, or subsidiary target x Small (large) acquirers have a market capitalization equal to or 16 Size of acquirer less (greater) than the market capitalization of the 25th x percentile of NYSE firms in the same year 17 Deal attitude Friendly or hostile merger x Transaction value divided by 18 Relative size equity market capitalization of x acquirer 19 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 No Variables Explanation Datta Kiymaz Moeller Hagendorff Value of all corporate control transaction for $1 million or more reported by SDC for each 21 Liquidity index for year and two-digit SIC code the target divided by the total book value x of assets of all Compustat firms in the same two-digit SIC code and year Operating 22 Operating cash flow/asset cash flow is calculated by sales minus the cost of goods sold, sales and general administration, x and working capital change 23 Shareholder Level of investor protection in protection laws of target country 24 Target EPSt-1 25 Relative ROE 26 Deal value Pre-merger earning per share of target ROE of the target divided by the ROE of the acquirer Logarithm of the dollar value of the M & A transaction x x x x Pre-merger non-interest income 27 Non-interest incomet-1 which calculated by the share of non-interest income to the total of non-interest and x interest income 28 29 Acquirer total Pre-merger total cost of acquirer costt-1 per employee Acquirer ROEt-1 Pre-merger ROE of acquirer Page: 56 x x Page: 57 ... calculating abnormal return Normal return of market porfolio in pre-event period Normal/Expected return in event window Normal return of the bidder in pre-event period Abnormal return Actual return in. .. the benchmark which used to calculate normal return is FTSE /ASEAN index this index is chosen because it includes market index of five countries: Malaysia, Indonesia, Singapore, Philippines, and... paper concentrate on two main points First, it is an overview about bank mergers in ASEAN countries within the period from 2005 to 2012 Second, from the lesson of ASEAN countries, this study is