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).
Valuation Effects of Private and Public Target Mergers in Korea*
Article first published online: 25 NOV 2010
© 2010 Korean Securities Association
Asia-Pacific Journal of Financial Studies
Volume 39, Issue 6, pages 752–776, December 2010
How to Cite
Jung, H.-C. (2010), Valuation Effects of Private and Public Target Mergers in Korea. Asia-Pacific Journal of Financial Studies, 39: 752–776. doi: 10.1111/j.2041-6156.2010.01027.x
- Issue published online: 25 NOV 2010
- Article first published online: 25 NOV 2010
- Received 7 July 2009; Accepted 2 August 2010
- Bidder returns;
- Information effects;
- Monitoring effects;
- Valuation effects
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.