Valuation Effects of Private and Public Target Mergers in Korea


  • Acknowledgments: I am grateful to two anonymous referees for their helpful comments and suggestions. I also thank Hyun-Seo Jung for her research assistance. This work was supported by the Pukyong National University Research Abroad Fund in 2008 (PS-2008-017).

Corresponding author: Hyung-Chan Jung, Faculty of Business Administration, Pukyong National University, 599-1 Daeyeon3-dong, Nam-gu, Busan 608-737, Korea. Tel: +82-51-629-5724, Fax: +82-51-629-5720, email:


Using data drawn from the Korea Exchange, the present paper examines the bidding firm’s stock price reaction to the announcement of a merger bid. The results indicate that bidders gain more from mergers involving private targets than from those involving public targets. In particular, bidders acquiring a private firm experience significant wealth gains when a new blockholder emerges from the target firm. In addition, for private targets, as the relative size of the target to the bidder increases, the bidder’s abnormal returns are likely to be higher. However, when the new blockholder dummy and relative size variable are controlled for, the differences in the bidder’s wealth gains between private and public target mergers disappear, suggesting that the bidder’s higher abnormal returns from private target mergers are related to the monitoring and information effects, not to the ownership status of target firms. Furthermore, the results indicate that a bidder acquiring a public target suffers wealth losses if the bidder is affiliated with 1 of the 30 largest chaebol groups.