Abnormal Returns to Mergers and Acquisitions in Ten Asian Stock Markets

By Ma, Jianyu; Pagan, Jose A. et al. | International Journal of Business, Summer 2009 | Go to article overview
Save to active project

Abnormal Returns to Mergers and Acquisitions in Ten Asian Stock Markets


Ma, Jianyu, Pagan, Jose A., Chu, Yun, International Journal of Business


I. INTRODUCTION

The volume of mergers and acquisitions (M&A) has greatly expanded over the past quarter century, particularly in developed markets. Once a U.S. business phenomenon, M&A deals are now commonly used by corporations throughout the world to pursue their goals and objectives related to strategic growth (Gaughan, 2005). Given the relatively recent increase in the number of M&A deals occurring in emerging markets, studies in these markets are relatively few and contrast with the extensive array of M&A studies in the U.S. and other developed countries.

All U.S. industries have been impacted by M&A deals, with most large firms in the U.S. economy being to some extent products of past M&A (Mueller, 1997). At the same time, academics have developed a series of theories and hypotheses to explain and predict the M&A phenomenon. These theories and hypotheses cover many issues related to M&A, from motives, attitudes, and approaches to the consequences of the transactions, from short-term to long-term performance, and from corporate governance to joint ventures and strategic alliances, which are alternatives to M&A deals. These ideas, derived from theoretical and/or empirical studies based on U.S. data, have been shown to be valid in explaining M&A deals in continental European markets (Tichy, 2001).

Compared to M&A deals in the U.S. and other developed countries, M&A deals in Asian emerging economies are different in two important ways. First, the U.S. has a well-developed legal system to protect the interests of shareholders and the welfare of consumers that differs from many emerging economies that suffer from a poor legal environment as well as weak enforcement of existing laws (La Porta et al., 1999). Second, cultural and governance differences between developing and developed markets lead to differences in the organizational structure of firms (Denis and McConnell, 2003; Kwok and Tadesse, 2006). Given these differences, it is necessary to re-examine the validity of the theories and hypotheses with specific reference to developing markets in Asia.

Some of the theories used to explain the M&A phenomena in developed economies may not be appropriate when trying to explain M&A activities in developing markets. For example, the "free cash flow" theory posits that managers of firms with unused borrowing power and large free cash flows are more likely to undertake low-benefit mergers. In developed economies, the "free cash flow" theory is often used to explain why diversification generates lower total gains (Jensen, 1986). However, preliminary evidence from diversification studies in developing markets indicates that diversification might generate higher total gains (Khanna and Palepu, 1997, 2000a, 2000b).

The relative lack of extensive study of M&A in developing markets may be due to two reasons. First, unlike in developed markets, there is a lack of comprehensive databases on M&A transactions in emerging markets. Second, there are relatively small economies of scale and scope in emerging markets. Thus, there is a relatively small number of M&A transactions in emerging markets. However, the process of global economic integration and the excellent economic performance of some Asian emerging economies over the last few decades have caught the attention of both investors and academicians (Wright et al., 2005).

In this study, we investigate abnormal returns to shareholders of bidder firms around the day of M&A announcement for ten emerging Asian markets: China, India, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand. The analysis is based on a sample of 1,477 M&A deals in these ten emerging Asian markets over six years (2000-2005). Our findings show that the emerging Asian stock markets have positive reactions to announcement of M&A deals. On average, shareholders of bidding firms gain 0.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Abnormal Returns to Mergers and Acquisitions in Ten Asian Stock Markets
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.