Market reactions when firms from less developed countries take over firms in more developed countries

: analysis of countries by four levels of income

Abstract

Cross-border mergers and acquisitions (M&As) are becoming increasingly prevalent in theworldwide M&A activity, as companies seek to expand their operations, access new markets,and achieve competitive advantage. However, the existing research on M&As has primarilyfocused on domestic deals or is limited to public or US-based companies. This paper aims toaddress this gap by examining the short-term market reactions when firms from less developedcountries acquire firms in more developed countries. The study sample categorizes bidders andtargets based on their country’s income level, comprising 1,216 deals announced between 1987and 2022. Empirical evidence strongly suggests that these transactions have a positive impacton cumulative abnormal returns (CARs) of acquirers. This dissertation also investigateswhether various factors such as cultural distance, geographical distance, the use of financialadvisors, the institutional conditions of the home country, and the degree of innovation of thehost country explain bidders’ returns. The results show that cultural distance, as measured bythe composite cultural index (CDI), is negatively associated with CARs. The degree ofgovernment effectiveness of the home country and the R&D spending relative to the GDP ofthe host country also have a negative impact on CARs, which contradicts prior literature.Nevertheless, as most results are mixed, the research cannot identify with certainty the factorsthat drive the positive CARs observed, highlighting their complexity.

Date of Award	29 Jun 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Pramuan Bunkanwanicha (Supervisor)