Value Creation through Cross-Border Mergers and Acquisitions. An Empirical Study on European Acquirers of US Targets

The present paper analyzes the valuation effects of geographical diversification by examining mergers and acquisitions involving acquirers from 12 developed European countries and U.S. target firms over the period 1999-2007. Our findings suggest that acquisitions of overvalued U.S. targets do not cause, on average, any significant change in the excess values of European acquirers. However, after controlling for the undervaluation of the targets, we find that acquiring a fairly valued or undervalued company has no statistically significant influence at 10 % level, but it is value enhancing at 12 % significance level. Besides undervaluation of the target firm, other factors that influence the change in excess value of the acquirer are the cultural difference between the merging firms ’ countries (negative impact) and the strength of the bidder’s currency (positive impact). Furthermore, it was found that target firm shareholders experience significant wealth gains of over 25 % from the announcement date up until delistin