واکنش سهامداران به اطلاعیه های ادغام شرکت های خصوصی: آیا بازارهای هدف و بازارهای شرکت کننده در مزایده تفاوت ایجاد می کنند؟

We study announcement effects of cross-border acquisitions of private firms on short-term bidders’ stock market returns in the European Union. We assume that the development status of the target market and the governance within the bidder market make a difference. Investors of bidding companies react positively to private acquisition announcements in both China and the United States of America (US). Moreover, the bidder returns do not differ significantly between the two target markets. We find bidder market effects for the US: private acquisitions by civil law firms generate smaller bidder returns, while relatively large private acquisitions by common law firms increase such returns. For China we do not find bidder market effects, nor variables that significantly explain shareholders’ reactions to announcements of private acquisitions.

In their study of acquirers from the United Kingdom Conn, Cosh, Guest, and Hughes (2005) find that private firms form the majority of firms acquired in cross-border acquisitions. They, moreover, show that acquisitions of private firms (in contrast to acquisitions of listed firms) generate positive announcement returns for the shareholders. In this study we extend the study of Conn et al. by studying whether the target market makes a difference for private cross-border acquisitions. For that reason we study acquisitions of private firms in two widely divergent target markets, namely China and the United States of America (US). Prior research shows that acquisitions in emerging markets positively influence the short-term returns to bidders’ shareholders (Chari, Ouimet, & Tesar, 2004). Although these authors do not include acquisitions of Chinese firms, it is likely that entering the Chinese economy will provide even better opportunities for acquirers, than entering other emerging markets. The Chinese economy is attractive because it has shown steady and rapid growth and because it is nowadays one of the largest economies in the world. The Chinese economy has, moreover, only recently been opened for foreign acquirers.1 Entering such a market may be very attractive for first movers.2 We have also broadened the scope of our analysis by studying acquisitions by European companies. This allows us to incorporate governance effects due to differences in the bidders’ home markets, as the European Union includes countries with both common and civil law systems.3 In particular, La Porta, López-de-Silanes, Shleifer, and Vishny (2000) find that cross-border acquisitions are most efficient if the acquirer is located in a common law country. Our choice of the European Union allows us to study if bidders from common law countries also outperform bidders from civil law countries where private acquisitions are involved. This paper contributes to research on cross-border acquisitions because there is no previous research that focuses on the effects of cross-border acquisitions of private firms on bidder returns in different target markets. Moreover, there is no literature that assesses bidder returns of foreign acquisitions in China.4 The study of differences between acquirers from common law and civil law countries in cross-border private acquisitions is also new and provides insights into whether investors value private acquisitions differently if the governance systems of the bidder markets differ. Finally, the research allows us to assess whether (or not) similar explanatory variables influence short-term investors’ reactions in bidders’ markets where cross-border acquisitions of privately owned firms in different target markets are involved. We do indeed find positive short-term cumulative average announcement returns for announcements of acquisitions of private firms in China. We also find these returns to be positive for announcements of private acquisitions in the US and our hypothesis that the announcement returns for Chinese acquisitions will be larger than those in the US must be rejected. This suggests that previously documented relative disadvantages of acquiring in developed markets may not hold if one studies acquisitions of private firms. We do not find significantly higher shareholders’ returns for bidders from common law countries in comparison to bidders from civil law countries. This may again be caused by the fact that we focus here on private acquisitions. For the explanatory variables, we find that relative deal size (+) and acquisition experience (−) influence short-term cumulative average abnormal returns of European acquirers in the US, but not in China. However, the bidder market matters for the explanatory variables, as the positive effect of the relative deal size in the US is generated by acquirers from common law countries, while the negative effect of acquisition experience is primarily caused by acquirers from civil law countries. The further content of this paper is as follows. In Section 2, we present the literature on cross-border acquisitions and our hypotheses. Section 3 describes the dataset, the sample characteristics and our methodology. Section 4 sets out the empirical results, and Section 5 concludes the paper.

This paper studies the short-term reactions of shareholders of European companies that announce cross-border acquisitions of private companies in the developing economy of China and in the developed economy of the United States of America. Prior research has shown that it is hard for bidders to get positive abnormal returns for their shareholders around the announcement date of such deals. This may be because previous researchers have studied the acquisitions of listed companies, or because they have combined the results for acquisitions of listed and private companies. For our sample of private acquisitions, we find that bidders do get significantly positive abnormal returns for their shareholders. The existing literature suggests that acquisitions in emerging markets generate higher abnormal stock returns to the bidders’ shareholders than acquisitions in mature markets. However, we find that acquisitions of private firms in the emerging Chinese market do not generate higher abnormal returns than acquisitions of private firms in the highly developed US market. Again in contradiction to much of the existing literature, we do not find acquirers in common law countries to outperform acquirers in civil law countries. We even find that shareholders of acquirers in civil law companies benefit from acquisitions of private companies in the US. This may be caused by the possibility that acquiring foreign companies may enhance the corporate governance of the bidder's firm (Stulz, 1999). We find no variables that influence the abnormal returns after announcements of acquisitions in China, while two variables do influence abnormal returns after announcements of acquisitions in the US. First, previous experience affects abnormal returns after announcements of acquisitions in the US negatively. This may be due to the relative inexperience of European acquirers. After eight or nine announcements of acquisitions the shareholders seem to react more positively. Second, shareholders of European bidders from common law countries are positive about relatively large deals in the US. A possible reason is that the announcement of a bid for a large private target in the US may increase the reputation (and the returns) of relatively small European acquirers. To end the paper we would recommend the following avenues for further research. Firstly, this paper has a short-term focus as we study the cumulative abnormal returns for the shareholders of companies that announce a cross-border acquisition. Other research could study the long-term operational success of acquisitions in China and in the US. Such research could indicate if there is a difference between the short-term benefits to the shareholders of the bidders and the long-term operational success of the acquisition. In that case accounting, survivorship and questionnaire data would be needed to measure acquisition success. Secondly, a cross-border acquisition is only one mode of the entry into foreign countries and, furthermore, a very recent phenomenon in China. The literature shows that acquisitions are likely to be linked to particular strategic considerations. In our research we incorporated certain strategic aspects; specifically the origin and the experience of the acquirer, and the focus of the acquisition. Nevertheless, we cannot exclude the possibility that there are other strategic considerations that make acquisitions in China different from those in the US. Further empirical research into the nature and impact of such strategic considerations may therefore be useful. A questionnaire based survey may be able to provide some answers, but it would be more helpful if datasets included systematic information about strategic considerations. Thirdly, we only study the effect of the acquisition announcements on the shareholders of the bidding company. Although shareholders are important as residual stakeholders, other participants, such as debt holders, managers, employees and customers of the acquirer, may also benefit from an acquisition. Moreover, empirical literature shows that the shareholders of the target company quite often benefit as well. This could be the case for the shareholders of the target companies in our dataset. However, we are unable to measure these effects, because we focus on private companies. Although we find that bidders’ shareholders gain from announcements of acquisitions in China and in the US, not all stakeholder groups may gain. Research that reveals the reactions of other stakeholders involved in cross-border acquisitions is therefore recommended. Finally, in our cross-section analysis we do not find a significant explanation for the cumulative abnormal returns to shareholders of companies that announce acquisitions in China. When we enlarge our Chinese sample with the 89 observations for which we do not have information on relative deal sizes, the coefficients of the other variables are still not significant. A similar lack of significant explanation is reported in a study of US-Chinese joint ventures (Cheng, Fung, & Lam, 1998). Nevertheless it is possible that we could find significant explanations if we had access to a much larger number of announcements of acquisitions in China. However, an alternative reason might be that Chinese acquisitions require specific Chinese variables to explain acquisition success. Ma and Delios (2007), for example, find that the location choice within China matters for Japanese investors, while Chi, Sun, and Young (2009), reveal that political advantages are more important than economic advantages for acquisitions by Chinese firms in China. It may therefore be worthwhile to search for relevant variables that explain successful Chinese acquisitions. Again, it will not be easy to get the necessary information as foreign acquisitions in China mainly involve unlisted companies, and consequently such information would have to be obtained from managers responsible for cross-border acquisitions in China.