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School of Business | Department of Finance | Finance | 2014
Thesis number: 13551
Shareholder value creation in emerging market acquisitions: value of control and spillover of corporate governance standards
Author: Kalliokoski, Joona
Title: Shareholder value creation in emerging market acquisitions: value of control and spillover of corporate governance standards
Year: 2014  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; yrityskaupat; corporate acquisitions; fuusiot; mergers; corporate governance; corporate governance; omistus; ownership
Pages: 78
Key terms: M&A, merger, acquisition, corporate governance spillover, emerging markets, control, majority stake, institutional quality

The purpose of the study is to examine the stock price reaction of developed country bidders' acquisi- tion announcements on emerging market targets, and to determine if acquiring a majority stake of the target and if the difference in corporate governance standards between the bidder and the target coun- try drive the stock price reaction in a positive way. The theoretical framework for the study has been set based on research on motives for cross-border M&A and determinants of M&A value creation. Due to different institutional characteristics of developed and emerging countries, the spillover of bet- ter corporate governance practices is considered as one of the main determinants of a positive stock price reaction in emerging market acquisitions. In light of the prevailing theory and findings, I intend to provide results that capture these effects from the bidder's standpoint during the first decade of the 21st century. I aim to determine whether there is a positive stock price reaction that would be caused by acquiring control of an emerging market target and by the difference in corporate governance standards.


The sample used in this study consists of 609 cross-border M&A transactions involving either devel- oped-market or emerging market companies in 2001-2012 either as a bidder or as a target. The sample is divided into three different subsamples according to the country of the bidder and the country of the target. Subsamples consist of a developed market acquirer and emerging market target (DM-EM), a developed market acquirer and a developed market target (DM-DM), and an emerging market acquirer and an emerging market target (EM-EM). For the analysis, an event study methodology with a 3-day event window is used to measure the normal returns and abnormal announcement returns. OLS re- gression is used to test the impact of acquiring a majority stake of the target and the impact of the dif- fering corporate governance practices on cumulative abnormal returns. The data is obtained from SDC Platinum and Datastream.


I find evidence suggesting that acquisitions by developed market acquirers on emerging market targets generate positive and statistically significant CARs over a 3-day event window. However, I do not find evidence suggesting that these would generate higher CARs than the acquisitions on developed market targets. Despite the evidence of greater bidder wealth effects in transactions where a majority stake of emerging market target is acquired, the finding is not statistically significant. On the other hand, I find that the higher the difference in institutional quality between the developed market bidder country and the emerging market target country, the greater and more positive the stock price reaction is, if majori- ty stake of the target is acquired simultaneously.
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