The Cross-border Effect in Acquisitions: A Study of Western European Target Firms

The abnormal and cumulative abnormal returns to Western European target firms in cross-border and domestic acquisitions are studied to test for a target company cross-border effect in Western Europe. The analysis focused on a sample of 654 and 435 domestic and cross-border deals, respectively, from 1990 to 2018. In the month of the bid, an insignificant cross-border effect of, approximately, −6.8% is found, indicating that target firms in domestic deals outperform those in cross-border bids. The highest difference in cumulative abnormal returns between target firms in cross-border and domestic acquisitions is observed from day t0 to t-1 and t-1 to t+5, accounting to a highly significant positive cross-border effect of 5.7% and 3.3%, respectively. The Western European target company cross-border effect seems to be explained by the market access premium and differences in bid and firm specific characteristics, in particular, the payment method, percentage of stake acquired, and industry of the target firm. Once the payment method, percentage of shares acquired, and the target firms’ industries are controlled for, the target company cross-border effect is found to be insignificant.