Impact of the Financial Crisis on the Performance of European Acquisitions

Abstract

This study looks at the impact of the recent financial crisis on the short-term performance of European acquisitions. We use institutional theory and transaction cost economic theory to study whether bidders derive lower or higher returns from acquisitions announced after 2008. We investigate shareholders' stock price reaction to 2245 deals which occurred during 2004-12 across 22 European Union countries. Our results from both univariate and multivariate analysis show that the deals announced in the post-crisis period, corresponding to the period of economic recession, generate higher returns to shareholders as compared to acquisitions announced in the pre-crisis period. We also test the relevance of the IMPACT OF THE FINANCIAL CRISIS ON THE PERFORMANCE OF EUROPEAN ACQUISITIONS Rekha Rao Nicholson Julie SalaberShareholder wealth accretion is difficult to predict under most circumstances Kan, 2006, Cartwright andSchoenberg, 2006) and it can become a herculean task when cast under the shadows of a financial crisis (Mody and Negishi, 2000). In this chapter, we examine the under-explored effects of macroeconomic environment, that is the role of a supra-national institution like the Economic and Monetary Union (EMU), on the value creation ability of mergers and acquisitions (M&As) for investors during the financial turmoil.We look at European acquisitions undertaken before and after the 2007-08 financial crisis to ascertain short-term shareholder returns. The majority of earlier studies either looked at domestic versus international aspects of M&A deals without paying attention to the regional and supra-national arrangements integrating different countries, or they have examined the performance of M&A deals during 'normal' times which leaves out the effects of financial instability/economic recession within and across a political/economic union as a question yet to be answered.In this study, we look at acquisitions across 22 European Union (EU) countries (both EMU and non-EMU) and expect countries within the EMU to experience similar institutional constraints from the economic slowdown (Rose and Spiegel, 2012). By investigating the performance of European cross-border mergers and acquisitions before and after the financial crisis, our study fills a gap in the literature and links two interesting and equally important topics: cross-border M&A activity and performance within an economic union (Cartwright and Schoenberg, 2006) and the impact of a crisis on business performance (Chau et al., 2012). Our study extends the argument on how a crisis will impact short-term returns on companies' inorganic growth strategy through mergers and acquisitions. BACKGROUND AND HYPOTHESES

Standardization versus adaptation of global marketing strategies in emerging market cross-border acquisitions

“…The growth of EMF cross-border acquisitions has led to a closer examination of their acquisition processes, post-acquisition performances, and post-acquisition integrations (Buckley et al , 2007, 2012; Gubbi et al , 2010; Li, 2007; Nicholson and Salaber, 2013, 2014; Rao-Nicholson et al , 2015; Yaprak and Karademir, 2010). Research into the standardization/adaptation strategies adopted by EMFs in the branding of their acquisitions in order to streamline their global marketing strategies is pertinent as EMFs try to mitigate any “latecomer” issues in the international business world by acquiring incumbent firms in both developed and developing markets.…”

Investigating the relationship between bank performance and accounting standards: evidence from M&As in European banking

“…Post-merger performance received extensive research attention from accounting and finance scholars, but very few studies examine the trends and bank performance of cross-border investments and M&As during the global financial crises (Beltratti and Paladino, 2013; Kahouli and Maktouf, 2015; Rao-Nicholson and Salaber, 2014, 2015; Rao-Nicholson et al , 2016; Rao and Reddy, 2015; Reddy et al , 2014). For example, Beltratti and Paladino (2013) find no significant abnormal returns around the announcement of acquisitions during the crisis period.…”