Value creation and destruction in cross-border acquisitions: an empirical analysis of foreign acquisitions of U.S. firms

Authors

  • Anju Seth,

    Corresponding author
    1. College of Commerce and Business Administration, University of Illinois at Urbana–Champaign, Champaign, Illinois, U.S.A.
    • College of Commerce and Business Administration, University of Illinois at Urbana–Champaign, 350 Wohlers Hall, 1206 South Sixth St., Champaign, IL 61820, U.S.A.
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  • Kean P. Song,

    1. College of Commerce and Business Administration, University of Illinois at Urbana–Champaign, Champaign, Illinois, U.S.A.
    2. Bauer College of Business, University of Houston, Houston, Texas, U.S.A.
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    • Kean Song, our coauthor and friend, passed away at the age of 42 before this article was accepted for publication. Kean devoted enormous attention and ambition to his students at Prairie View A&M University. His energy and devotion will long be remembered by those exposed to his talents.

  • R. Richardson Pettit

    1. Bauer College of Business, University of Houston, Houston, Texas, U.S.A.
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Abstract

We conduct an investigation of the sources of gains and losses in cross-border acquisitions in light of different motives for undertaking these transactions: synergy-seeking, managerialism and hubris. We find that the data are consistent with the expectation that multiple sources of value creation exist in synergistic cross-border acquisitions: asset sharing, reverse internalization of valuable intangible assets, and financial diversification. Gains accrue to bidder firm shareholders only for the least fungible of these sources of gains, i.e., reverse internalization. For value-destroying acquisitions that are expected to be driven by managerialism, we find that the data are consistent with only one of the sources of value destruction that we examine, i.e., risk reduction. In these acquisitions, the evidence also suggests that the relative size of the target to the bidder mitigates the negative effects of risk reduction. Our results underscore the importance of considering the implications of alternative behavioral assumptions in empirical strategy content research. Copyright © 2002 John Wiley & Sons, Ltd.

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