یکپارچگی بازار مالی و ارزش تنوع جهانی: مدارک و شواهد برای کارفرمایان ایالات متحده در جمع آوری و ادغام های فرامرزی

In contrast to the previously documented cross-border discount, we find that there is positive cross-border effect for US acquirers during late 1990s and early 2000s. This is especially particular the case for those that acquire/merge with targets from segmented financial markets where acquirers experience significantly higher positive abnormal returns than those that acquire targets from integrated financial markets. Furthermore, firms acquiring segmented-market targets are also characterized by significantly higher post-merger operating performance improvement. The results indicate that the observed positive cross-border effect is mainly due to the increase in the number of transactions involving targets from segmented markets, in which the average firm experience significant financial constraints. We contend that value is created by a combination of firms with different financial market integration status, in which funds are provided to high cost firms. The finding that the value creation is even higher within the group of acquirers with a lower cost of capital provides additional support for our conjecture.

The 1990s and early 2000s saw a tremendous increase in the volume of cross-border mergers and acquisitions (M&As) by US firms. This increase is in part due to the fact that firms have gone away from traditional “Greenfield” investments. It is also due to the growth in international financial markets which has allowed firms to pursue investment opportunities both at home and abroad. A new and important aspect of these M&As is that a significant number of the firms that are acquired or are merged with are from segmented capital markets. For example, the number of transactions involving target firms from segmented markets increased from 41 during 1990–1995 to 174 over the 1996–2003 time period, with the total transaction value of these deals increasing from $2.5 billion to $17.6 billion. Focusing on the extent to which a country’s financial market is integrated into world capital markets we examine the effect of cross-border M&As on acquirers’ shareholders wealth in both the short and long-run. Empirical evidence as to the effect of cross-border M&As on acquirers, market value is mixed. Doukas and Travlos, 1988, Doukas, 1995, Kiymaz, 2004 and La Porta et al., 2000, among others, find that cross-border M&As are value enhancing. In contrast, researchers such as Moeller and Schlingemann, 2005 and Denis et al., 2002, find that cross-border M&As decrease acquirers’ value. Moreover, this evidence is based on data from earlier years and given the recent changes that have occurred, it is still an open question as to the impact of cross-border M&As on stockholders wealth. More important for the current paper, is that there is little or no empirical evidence on acquirers’ gains (losses) from M&As involving targets from financially segmented markets. This is probably due to the fact that there were restrictions on the type of foreign investment in these countries till the mid 1990s (Henry, 2001). And what evidence that does exist (see, e.g., Moeller and Schlingemann (2005)) is based on the time period when these restrictions were just lifted. This therefore, calls into question whether the results based on this time period holds once liberalization has had time to be fully absorbed in the economy. Using a broad sample of target countries and a more recent sample period, we provide a comprehensive analysis on the impact of global diversification across countries on cross-border M&As. Re-examining the impact of cross-border M&As on acquirers shareholders wealth is important for at least three reasons. First, as pointed out earlier, cross-border acquisitions have become an increasingly important source of investment opportunities and restructuring for US corporations. For e.g., during the 1990 to 2003 time period US corporations had cross-border acquisitions of over $742.9 billion3 compared to $54.3 billion from 1985 to 1989.4 Second, Piotroski and Srinivasan, 2007 and Li, 2007 have recently shown that following the Sarbanes and Oxley act, the cross-listings of foreign firms in the US have declined considerably. This is the case especially for firms from segmented capital markets. This suggests that foreign firms that are seeking access to US capital markets are more likely to agree to be acquired by a US corporation. This implies that M&As will become an increasingly important mechanism by which foreign firms will gain access to US capital markets, especially those from segmented markets. Third, it enhances our understanding of international integration beyond that which is possible by examining the domestic investment of firms within countries that undertook liberalization. This is because if liberalization is successful, then the need to cross-list or choosing to be acquired to get access to lower cost of funds in integrated market, as we argue, would not be necessary because the price of risk would be equalized across countries. It should be noted that if in fact we find support for our argument that firms from segmented markets that agree to be acquired do so in order to access integrated capital markets, then it suggests that cross country diversification may improve the portfolio performance of US investors. This is a benefit that has been questioned given the increased globalization of capital markets. Moeller and Schlingemann (2005) find that over the 1985–1995 time period there is a cross-border discount, defined as the difference between abnormal returns of cross-border and domestic M&As, to US acquirers. However, there are several reasons why we believe that this characteristic of the wealth effects of cross-border M&As might have changed starting in the mid 1990s. In the late 1980s and early 1990s, many emerging markets instituted reforms that liberalized their financial markets, thereby allowing foreign firms to acquire domestic firms. Although liberalization is synonymous with integration, these countries financial markets were at best only partially integrated into world capital markets. This is the case because liberalized markets take time to be fully integrated into the world capital markets. Thus, as pointed out by Errunza and Miller (2000) despite liberalization, firms from these markets still face a higher cost of capital compared to firms from integrated markets, all else equal. We therefore hypothesize that one of the main reasons for the increase in cross-border acquisitions by US firms, especially by firms from segmented markets, is to provide funding to financially constrained firms either through internal capital markets or indirectly through access to external capital markets.5 By overcoming these financial constraints these firms are then able to undertake positive NPV projects which they would otherwise have to forego. To the extent that stock markets are efficient, these benefits that are created via an acquisition or merger should be reflected in positive abnormal returns following the M&A announcement. Instead of agreeing to be acquired by US firms, firms from segmented markets may also cross-list (Lins et al., 2005). The cross-listing option, however, may not be available for a significant number of firms from segmented capital markets for several reasons. First, both NYSE and NASDAQ require firms that cross-list to have average pre-tax income of $100 million for the last three years prior to cross-listing. Therefore, a lot of firms, especially private ones, would probably not meet this requirement. Although firms could instead choose the pink sheet or the over the counter market (OTC) cross-listing option, these options do not provide the same benefits as they do not result in a significant reduction in a firm’s cost of capital (Hail and Leuz, 2006). Second, the cost of cross-listing on a US exchange in integrated market is quite significant as evidenced by the $100,000 listing fee. In addition, for a significant number of firms, especially those from segmented markets, there would be an additional cost in the form of underpricing that characterizes initial public offerings given that they are private firms.6 An additional trend in recent cross-border M&As is that, increasingly large reputable multinational corporations such as Cisco, Microsoft, GE, Coca-Cola, AOL and Pfizer, among others, are actively involved in these M&As. This indicates that not only has the volume of M&As increased over time but acquirers’ characteristics have also changed. The implication of this is that the wealth effects of cross-border transactions may be significantly different than those observed for the earlier time periods. For example, if in fact synergy is created following cross-border acquisitions, it may be even stronger among these large acquirers because they are more likely to have cheaper access to external capital markets and/or may already have a well functioning internal capital market. Using a sample of 1491 foreign acquisitions and 7692 domestic acquisitions, we find that for the full sample period, acquirers in domestic M&As experience a significantly higher average abnormal stock return (1.49%) than those in cross-border M&As (0.96%). However, when we separate the sample into 1990–1995 and 1996–2003 sub-periods, we find that only for the former sub-period is there a statistical difference in abnormal returns. Importantly, we find that this decline in the difference in abnormal returns is driven primarily by the acquisitions of segmented-market targets. This finding supports our hypothesis that because of the difference in the type of firms that are currently participating in cross-border M&As and particularly because of the increase in the number of targets from segmented markets, the cross-border discount is no longer present and in the case of large bidders there is now a premium. Similar to the findings by Moeller et al. (2004) for domestic M&As, we find a statistically significant and economically meaningful difference between the announcement effects of large acquirers (0.69%) and small acquirers (3.63%). Importantly, large firms that are involved in acquiring targets from segmented markets experience a significantly higher average abnormal return (1.46%) than those acquiring targets from integrated markets (0.55%). This difference in abnormal returns is even larger for deals conducted by large bidders with relatively lower betas and higher credit ratings (our proxies for a firm’s cost of capital). These findings hold after the inclusion of variables that are likely to influence acquirers’ abnormal returns. The evidence from the event study, for large acquirers that have a lower cost of capital, not only supports our hypothesis about the benefits for firms taking over segmented-market targets, but also indicates that these benefits are economically meaningful. Univariate analysis indicates that there is no significant difference in the level of acquirers’ free cash flow, proxying for the availability of internal funds prior to the merger or acquisition, between firms that acquire targets from integrated or segmented markets. This result is further supported in the cross-sectional analyses of the determinants of acquirers’ abnormal returns. Therefore, we do not find support for the internal capital market aspect of our hypothesis. To provide further evidence on our argument that cross-border acquisitions enable targets to overcome financial constraints, we examine acquiring firms’ prior- and post-merger operating performance.7 We find that for firms taking over segmented-market targets, changes in both the raw and industry-adjusted operating performance are significantly higher than those of firms taking over integrated-market targets. This is especially the case for large bidders. In contrast, for small bidders, the results from the operating performance analysis indicate that they experience a significant operating performance decrease in the long-run no matter which market they enter. For robustness purposes we conducted several additional tests. First, because we contend that integrated-market acquirers enable segmented-market targets to relax financial constraints, all else equal, they should have a lower cost of capital and easier access to external capital markets. We also expect that these acquirers would be more likely to go to external capital markets for funds subsequent to the transaction. We find that firms going to segmented markets are more likely to issue bonds within three years following a cross-border merger or acquisition. Interestingly, in cases when they do issue equity, they experience significantly more favorable and positive wealth effects, than their integrated-market counterparts. Second, consistent with the operating performance results, we find that analysts significantly upgrade the growth rate of acquirers going to segmented markets but not integrated markets. Finally, we examine the cost of equity of public targets by estimating their betas before the merger or acquisition. We find that segmented-market targets have significantly higher betas than integrated-market targets. This is especially the case for those segmented-market targets that are acquired by firms that issue equity and/or bond subsequent to the cross-border M&As announcements. In sum, we find that cross-border M&As create value for US firms especially over the 1996–2003 time period, with most of this gain coming from acquisitions of segmented-market targets. Our results are consistent with the hypothesis that an important source of this value creation is the access to cheaper external capital that is provided by the merged firm. Our paper makes several contributions to the cross-border M&A literature. First, we provide evidence that large US firms involved in M&As in segmented markets earn significant higher average abnormal returns than those involved in integrated markets. Importantly, for this group of firms we find that the cross-border discount as reported by Moeller and Schlingemann (2005) is no longer present. Instead we find that there is a significant cross-border premium associated with these M&As and this premium is significantly larger in the 1996–2003 time period. Second, we show that an important motivation for cross-border M&As, particularly those involving targets from segmented markets, is to provide access to cheaper financing thereby relaxing target firms’ financial constraints. Third, we show that acquirers of targets from segmented markets have a significantly higher operating performance than their industry counterparts over the long-run. In contrast, acquirers of targets from integrated markets underperform their industry counterparts. This finding is intriguing as acquirers of targets from both segmented and integrated markets have positive announcement abnormal returns. This finding is similar to that reported by Moeller and Schlingemann, 2005 and Eckbo and Thorburn, 2000. Our study also contributes to the current debate about the benefits of liberalization or lack thereof. One of the purported benefits of liberalization is that it integrates developing countries capital markets into world capital markets. Our study shows that almost a decade following liberalization, integration into world capital markets for a significant number of developing countries has not occurred. It also indicates that international diversification benefits are still possible for US investors. The paper closest to ours is that by Moeller and Schlingemann (2005). However, our paper differs from theirs in several important ways. First we use a more recent time period during which significant changes occurred in international financial markets, thereby leading to significant differences in the wealth effects associated with cross-border M&As. Second, we focus on the differential impact of segmented markets and integrated markets, whereas their focus is on a comparison of the impact on domestic and foreign acquirers. Third we provide evidence as to the importance of the bidder’s cost of capital in creating value in cross-border M&As. Finally, we present evidence on the changes in analysts’ forecasts subsequent to the merger, thus overcoming the pitfalls that are known to characterize long-term performance studies. The remainder of this paper is organized as follows. Section 2 describes the data. Section 3 presents and discusses the event study results and the regression analysis. Section 4 provides results of acquiring firms’ post-merger operating performance changes. Section 5 provides robustness tests. Section 6 provides concluding remarks.