The effects of cross -border mergers and acquisitions in the European Union

This dissertation focuses on cross-border mergers and acquisitions within the European Union (original EU 15). These international transactions have been growing in importance over the past decade and warrant additional study. This study estimates country-specific wealth effects associated with the announcement of cross-border mergers and empirically examines the determinants of the variation. The results show that there are differentials in the average wealth effects of cross-border mergers based on the home country of the target and acquiring firms. Several EU nations differ significantly from EU averages, which would imply that the owners (shareholders) of firms in particular countries stand to benefit more from cross-border mergers than those in other countries. Beyond showing that such country-specific differences exist, the research continues to explain empirically why these differences exist. It is also shown that these findings are not unique to the EU by examining a small sample of cross-border mergers in Australia. Overall, the results provide some insight into why wealth effects of cross-border mergers vary between countries. The results initially provide some evidence that legal origin is in some way important, similar to its overall importance in the development of financial markets and the valuation of firms. There also appears to be evidence that per capita income is important in explaining the variation in abnormal returns. There is evidence that cultural differences (captured through trust) and tax differentials (captured through VAT rates) influence investors' reactions. Finally, an important finding is that the wealth effects may be at least equally dependent upon the country-pair for each merger rather than prevailing individual country average effects.