Acquirer return at cross-border acquisition announcement by emerging market companies: Observations from BRICS countries

Abstract

Since the late 1990s and early 2000s, the world has witnessed a rapid growth of cross-border ac-quisitions conducted by emerging market acquirers. This thesis, inspired by several prior papers in the field, intends to analyse the acquirer return at the cross-border acquisition announcement from a group of emerging markets, namely Brazil, Russia, India, China, and South Africa (the BRICS countries). The main research goal of this thesis is to find out whether emerging market companies benefit from cross-border acquisitions in the form of stock return and what are the fac-tors that influence the return.

The data used in this study covers cross-border acquisitions from the BRICS countries from Jan-uary 1, 1995 to December 31, 2014. The data is retrieved from Thomson Financial Securities Data Company (SDC) and Thomson One systems. Using publicly listed acquiring company, sufficient stock price data, and single acquisition announcement by the same acquirer during the event win-dow as the selection criteria, a full sample of 958 deals is obtained.

Event study methodology and cross-sectional regression analysis are used in the empirical tests. The event study is carried out using cumulative abnormal returns from event windows (-1, +1), (-3, +3), and (-5, +5). For the cross-sectional regression analysis, a total of 14 variables are introduced, which lead to a reduced subsample of 535 deals.

Event study results show that emerging market acquirers enjoys significant positive returns dur-ing 3-day event window when the target companies are from developed markets and when acquir-ers themselves don't have government ownership involvement. Natural resources relatedness gives mixed results: emerging market acquirers of non natural resources related deals enjoy signif-icant positive returns from 3-day event window, while acquirers of natural resources related deals enjoy significant positive returns from 7-day and 11-day event windows.

Cross-sectional regression results show that relative deal size has significant positive influence on the acquirer return.