Does corporate international diversification destroy value? Evidence from cross-border mergers and acquisitions

Santos, Marcelo Braga dos; Errunza, Vihang R.; Miller, Darius P.

doi:10.1016/j.jbankfin.2008.07.010

Cited by 95 publications

(61 citation statements)

References 31 publications

(51 reference statements)

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“…In order to investigate whether international diversification maybe the reason for bidders' shareholder value decline in the long term, Dos Santos, Errunza and Miller (2008) investigated a sample of 136 cross-border M&As involving U.S bidder firms and foreign target firms over the period 1990-1999. They found that international diversification did not significantly destroy value in the long term, whereas industrial diversification lead to loss of value even after the pre-acquisition value of the targets was controlled for.…”

Section: Impact Of Mandas On Bidder Firms' Long Run Performancementioning

confidence: 99%

The Long-Run Performance of U.S. Bidding Firms in the Post M&A Period: The Impact of Bid Type, Payment Method and Industry Specialisation

Γιαννόπουλος¹,

Holt²,

Khansalar³

et al. 2017

IJBM

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This study investigates how mergers and acquisitions (M&A) affect the wealth of shareholders of public firms in the United States (U.S). More specifically, it investigates whether the nature of the bid, the payment method used, and the type of M&A have implications for shareholders of U.S bidding firms. The study analyses 352 mergers and acquisitions in the U.S during the period 1999-2008, and its results indicate that bidding firms suffer significant negative buy-and-hold abnormal returns in the three years period after a M&A announcement. The results also suggest that, in the long-run, hostile bids and cash-financed bidders outperform friendly bids and stock-funded bidders, respectively. Furthermore, the study also finds that in the long-run bidder firms that focus on industry specialisation within their M&A targets significantly outperform firms that adopt a more diversified strategy. The analysis also investigates the effects of M&A specialisation/diversification in six different sectors, and finds that specialised bidders outperform diversified bidders in four sectors: consumer & basic materials, energy & utilities, communications and technology. Furthermore, bidder firms in the financial services sector perform significantly better when diversifying into other sectors, while the performance of bidder firms in the industrial sector appears unaffected by the degree of M&A specialisation or diversification.

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Section: Impact Of Mandas On Bidder Firms' Long Run Performancementioning

confidence: 99%

The Long-Run Performance of U.S. Bidding Firms in the Post M&A Period: The Impact of Bid Type, Payment Method and Industry Specialisation

Γιαννόπουλος¹,

Holt²,

Khansalar³

et al. 2017

IJBM

View full text Add to dashboard Cite

show abstract

“…This in line with the Markowitz portfolio theory in finance which suggests that diversification reduces a firm's exposure to cyclical and seasonal uncertainties and risks. Dos Santos et al (2008) also pointed out that a company's financial resources can be employed to maximum advantage by investing in whatever businesses offering the best profit prospects.…”

Section: Risks and Rewards Of Diversification As A Strategymentioning

confidence: 99%

“…Academics, consultants, the public and financial community have different views. Some studies such as (Villalonga, 2004a(Villalonga, , 2004bDos Santos, 2008;Doukas & Kan, 2006;Santalo & Becerra, 2008) have been aimed at establishing whether diversification leads to shareholder value destruction or improvement that is, either creating a discount or a premium. Some studies have proved that high levels of diversification increase profitability and shareholder value (Dimitrov & Tice, 2006;Yan et al, 2010;Kuppuswamy & Villalonga, 2010).…”

Section: Diversification and Shareholder Valuementioning

confidence: 99%

“…5;2014 acquisitions. Dos Santos et al (2008) found evidence that US acquirer firms increase in value in the two years surrounding the acquisition. Kiymaz (2006) found that both divesting and acquiring firms experience a statistically significant wealth gains during sell off announcements.…”

Section: Corporate Diversification Creates Shareholder Valuementioning

confidence: 99%

“…Johnson et al (2006) suggest that the present trend towards narrower diversification has been driven by a growing preference to gear diversification around creating strong competitive positions in few well selected industries as opposed to scattering corporate investments across many industries. This latest development arose mainly as a result of many companies making strategic mistakes such as making acquisitions in new fields where value is not added to group performance or there are no operating synergies as stated by Dos Santos et al (2008). The phenomenon has since spread to Zimbabwe as conglomerates have restructured to raise profits and unlock shareholder value.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Diversification as a Corporate Strategy and Its Effect on Firm Performance: A Study of Zimbabwean Listed Conglomerates in the Food and Beverages Sector

Mashiri¹,

Favourate²

2014

IJEF

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Portfolio diversification in capital markets is an accepted investment strategy. On the other hand corporate diversification has drawn many opponents especially the agency theorists who argue that executives must not diversify on behalf of share holders. Diversification is a strategic option used by many managers to improve their firm's performance. While extensive literature investigates the diversification performance linkage, little agreements exist concerning the nature of this relationship. Both theoretical and empirical disagreements abound as the extensive research has neither reached a consensus nor any interpretable and acceptable findings. This paper looked at diversification as a corporate strategy and its effect on firm performance using Conglomerates in the Food and Beverages Sector listed on the ZSE. The study used a combination of primary and secondary data. Primary data was collected through interviews while secondary data were gathered from financial statements and management accounts. Data was analyzed using SPSS computer package. Three competing models were derived from literature (the linear model, Inverted U model and Intermediate model) and these were empirically assessed and tested.

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Agricultural bank acquisitions and postacquisition performance: An examination of the role of shared knowledge

Kim

Katchova

2022

Agribusiness

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The US banking sector has consolidated through acquisitions in recent decades, resulting in a significant decrease in the number of lending institutions. Agricultural commercial banks have been preferred target of such acquisitions, representing 15%-40% of all acquisitions between 1994 and 2018. In this study, we examine the postacquisition performance of banks that acquire agricultural banks in terms of profitability, bankruptcy risk, and loan monitoring process between 1994 and 2018. We also test whether the shared knowledge between the acquiring bank and the target bank in terms of geography, product, and culture affect the postacquisition outcomes. While we document improved profitability from agricultural bank acquisitions, the improvement is rather short-lived without long-term benefits. Also, we do not find improvement in other performance measures. Also, we find a negative effect of cultural knowledge, highlighting the complex implications of acquisitions. [EconLit Citations: G21, G34, Q1].

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Does corporate international diversification destroy value? Evidence from cross-border mergers and acquisitions

Cited by 95 publications

References 31 publications

The Long-Run Performance of U.S. Bidding Firms in the Post M&A Period: The Impact of Bid Type, Payment Method and Industry Specialisation

The Long-Run Performance of U.S. Bidding Firms in the Post M&A Period: The Impact of Bid Type, Payment Method and Industry Specialisation

Diversification as a Corporate Strategy and Its Effect on Firm Performance: A Study of Zimbabwean Listed Conglomerates in the Food and Beverages Sector

Agricultural bank acquisitions and postacquisition performance: An examination of the role of shared knowledge

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