IS TARGET GOVERNMENT PARTNERSHIP VALUABLE IN CROSS-BORDER ACQUISITIONS

Abstract

With the transaction data from 56 countries across the world, the study aims to analyze the impact of target government partnership in the form of state-ownership on acquirer’s stock price in cross-border acquisitions. We use cumulative abnormal returns around the deal announcement date to examine the stock price impact. In terms of the role played by government, competing arguments from the agency theory and the property right theory provide conflicting predictions. Our findings indicate that state-ownership in the target of cross-border acquisition might have overall a detrimental effect on the acquirer’s takeover returns though the effect is not significant. Inspired the arguments from the two theories, we break down the state-ownership into low, medium and high, and analyze the three categories separately. Further analysis reveals that when state-ownership in the target is medium or high (>20%), the cross-border deal destroys shareholder value of the acquirer. However, when state-ownership in the target is low (between 0% and 20%), the transaction might improve the acquirer’s return.