Acquiring control in emerging markets: Foreign acquisitions in Eastern Europe and the effect on shareholder wealth

Abstract

This paper examines stock market reaction to cross-border acquisition announcements that involve Eastern European emerging-market targets. Using a unique and a manually collected dataset, we identify 125 cross-border acquisitions in which developed-market firms from France, Germany, Netherlands, and the United Kingdom acquire ownership stakes in emerging as well as developed-markets in Europe during the period January 2000 through December 2011. In line with previous findings on foreign cross-border merger and acquisitions (M&As) in emerging- markets, evidence suggests that when the target firm is located in either the Czech- Republic, Hungary, Poland, or Russia, cumulative abnormal return (CAR) to the acquiring developed-market firm shows a statistically significant increase of 1.26% over a three day event window, following the announcement. Thereby, the relative size of the acquirer to the target appears to be the only significant factor that contributes to positive acquirer returns. The result is robust to the inclusion of controls for country, industry, as well as acquirer, target, and firm specific characteristics. Moreover, cross-border M&As involving an emerging-market target result in higher value creation for the acquiring shareholders than cross-border transactions into developed-markets.