The Effect Of Domestic And Cross-Border Acquisitions On Shareholder Wealth

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The effect of domestic and Cross-border acquisitions on shareholder wealth



My thanks go out to all who have helped me complete this study and with whom this project may have not been possible. In particular, my gratitude goes out to friends, facilitator and family for extensive and helpful comments on early drafts. I am also deeply indebted to the authors who have shared my interest and preceded me. Their works provided me with a host of information to learn from and build upon, also served as examples to emulate.



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Effects of cross border merger and acquisitions2

Motives for Mergers and Acquisitions4

Domestic Mergers and Acquisitions4

Empirical perspective5

Theoretical Perspective7

Contribution of this research12




Alternatively, cross-country UK bank mergers and acquisitions will not occur if foreign UK banks are not motivated to go abroad. There are several reasons why foreign UK banks could go abroad. First, international bank mergers and acquisitions are expected to improve operating efficiency and enhanced profits or shareholder wealth (Ralston 2008, 285). Second, international bank mergers and acquisitions might produce international diversification benefits in the form of lower risks and lower cost of capital. Third, international bank mergers and acquisitions in U.K could provide a potential foothold in the ever increasing bank market that is evolving in U.K due to an increasing population, raising standards of living, and a maturing banking market. Lastly, it is relatively more affordable to acquire banks in developing countries (such as in U.K) than in developed countries (Pilloff 2008, 294).

The synergy hypothesis states that mergers and acquisitions will create more value if the potential economies of scale and scope are large. The information hypothesis suggests that mergers and acquisitions create value if capital markets are efficient in the semi-strong form (Pozzolo 2010, 14). The market-power hypothesis states that as mergers and acquisitions increase concentration in the industry, banks can increase their prices and as a result shareholders wealth increases. Alternatively, the manager-utility-maximization hypothesis and Roll's hubris hypothesis suggests that because manager incentives are tied to bank growth, they will overpay for target banks and therefore decrease shareholder wealth (Peristiani 2008, 326). A number of empirical studies have examined whether bank mergers and acquisitions have lead to an increase or decrease in shareholder wealth. Hudgins and Seifert, Houston and Ryngaert, Cornett and De, and Hawawini and Swary provide evidence indicating that target banks experience positive wealth effects (Pasurka 2007, 169). The evidence regarding bidder banks, however, is mixed. In this case, the studies of Cornett & De, Desai & Stover, and James & Weir, document positive shareholder wealth effects while the studies of Neely, Madura and Wiant, Wall and Gup, Hudgins and Seifert and Cornett and ...
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