Determinants of higher target wealth gains in foreign takeovers of U.S. companies.
Item
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Title
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Determinants of higher target wealth gains in foreign takeovers of U.S. companies.
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Identifier
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AAI9218241
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identifier
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9218241
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Creator
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Jung, Hyung-Chan.
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Contributor
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Adviser: Stavros Thomadakis
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Date
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1992
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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This paper develops a simple model to explain the reasons why foreign acquirers pay significantly higher premiums for U.S. target firms than do U.S. buyers. We also provide empirical work on the valuation effect of foreign takeovers and the determinants of the wealth gains of U.S. target shareholders involved in foreign takeovers. Thus this study provides a foundation for understanding the wealth effect of foreign takeovers.;The sample analyzed in this study consists of 104 targets acquired by foreign firms and 104 targets acquired by domestic firms. The results indicate that target wealth gains are significantly higher in foreign takeovers than in domestic takeovers, after controlling for the well-known wealth effects of payment method, acquisition type, tax status, size and time period of bids. This confirms the valuation effect of foreign takeovers. Furthermore, the results of cross-sectional regression analysis show that the variation in U.S. target wealth gains is explained by extra tax benefits stemming from double tax deductions for acquisition-related interest expenses incurred by foreign acquirers. These findings imply that differential taxation across tax jurisdictions is the main source of the valuation effect of foreign takeovers.;In addition, we find that there exists a valuation effect of the nationality of the foreign acquirers. Japanese companies pay significantly higher premiums than do non-Japanese acquirers. The finding also indicates that competition among bidders increases the abnormal returns to U.S. target shareholders in foreign takeovers. On the other hand, neither the deviation of exchange rates from PPP nor the industry characteristics of foreign acquirers and U.S. target firms are positively related to the magnitude of U.S. target abnormal returns. It is also observed that real interest differentials between the U.S. and the home countries of foreign acquirers cannot explain the disparity in the wealth gains of U.S. target shareholders involved in foreign takeovers.;This study does not take into account the effects of foreign takeovers on the stock prices of foreign acquirers and thus does not fully address the valuation effect of cross-border takeovers.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
