VALUE CREATION AROUND M&A ANNOUNCEMENTS IN ASIA

Abstract

We examine the short-term value creation associated with M&A activities in the context of Asian stock exchanges, namely Japan, Korea, Hong Kong, Taiwan, Singapore, from January 2007 to December 2010. Specifically we examine a total of 546 deals, including 322 unique companies that have been targets in an M&A deal, and 357 unique acquirers. We employ a welldocumented event study methodology to measure the significance of abnormal returns in event windows surrounding announcement dates, and also employ multivariate regression models to test for the effects of proposed firm- and deal-specific determinants of abnormal returns. Finally, we examine the possibility of information leakage prior an M&A announcement, as measured by the build-up of short sale activity before the official disclosure of a deal, and also explore a matched pair trading strategy involving the shorting the rivals of target firms in M&A deals and whilst entering long positions on the target firms. On average, we find statistically significant positive abnormal returns for target firms, and statistically insignificant positive abnormal returns for acquirer firms for our sample set of M&A deals. We also find that extensively tested theories in prior literature on the determinants of abnormal returns around M&A announcements in developed markets only hold true partially in our five studied Asian markets. Additionally, we find some signs of increased short selling activity in pre-announcement windows in selected markets, indicating potential information leakage prior to official disclosure of M&A deals. Finally, we also find statistically significant higher cumulative returns using the matched pair strategy compared to the cumulative sole returns of target firms in M&A deals, under certain conditions.