Merger and Acquisition

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RESEARCH PROPOSAL

TOPIC:
AN INVESTIGATION ON THE IMPACT OF FULL ACQUISITION IN EUROPE, ASIA AND AFRICA IN THE LAST DACADE ON THE ACQUIRING AND TARGET COMPANIES

INTRODUCTION

While it is understood through several researches that targets companies’ shareholders realize stock market gains with acquisition announcement, a significant number of studies have found that corporate acquisition generates negative returns for the shareholders of the acquiring company. Baines, (1978), Firth, (1980) Harris, (1989), Limmack (1991), Ellot, (1993), Limmack, (1996).

This research proposal will undertake the empirical investigation on the effect of full acquisition of the share capital of Targets companies in Europe, Asia and Africa in the last decade. Worthy of note is the fact that there are limited evidences and research on full acquisition of the entire share capital of the target companies. This research will assess the value created (if any) to the Acquiring firms and Target Firms after the acquisition in several industries that aligned with the sample size.

IMPORTANCE OF RESEARCH

This research is important in filling the gap created by previous studies because most studies focuses on partial acquisition or mergers and there are limited researches on the effect of full acquisition to both the Acquirer and Targets.

It is also important because the global interconnectedness of the economies of the world and global macroeconomic imbalance has precipitated the increasing occurrence in mergers and acquisitions. With the emergence of global powers like China and Russia, there would be increasing cases of full acquisition in the near future. Therefore a detailed study of the effect of full acquisition to targets and acquirers will further enhances the depth of due diligence that need to be carried out before the acquisition.

This research will also add to the past literature reviews in two ways. Firstly, it will widens the regional scope of the literature on event study methodology by researching beyond the shores of United States, since most studies are focused on M & A activities in the US. Secondly, most of the existing literature focuses on M & A that is not necessarily full acquisition, whereas, this research will focuses exclusively on the impact of full acquisition of the entire share capital of targets to the Acquiring firms and Target Firms.

LITERATURE REVIEW

Previous studies so far revealed that the target companies’ shareholders are usually better off after an acquisition, while the acquiring firm shareholders are not. For instance, Padmavathy and Ashok, (2012) found that the impact of the announcement of merger does not hold any significant difference on the share price movement and no significant abnormal return is gained by the Acquirer during the event window of 21 days. Asquithe and Kim,( 1982) have also found out that acquiring companies share prices are not affected significantly by M & A announcement during the events period.

Langetieg (1978) had a sample size of 149 events between the period 1929 -1969 using effective date as the event date with event window of 120 days before and 120 days after. He found that positive cumulative abnormal returns accrue to the Target firm shareholders but negative cumulative abnormal returns accrue to the Acquiring companies.

Bradley and Kim (1988) had a sample size of 236 events between the period 1963 -1984 with event window of 5 days before and 5 days after. They found that positive cumulative abnormal returns accrue to the Target firm shareholders but negative cumulative abnormal returns accrue to the Acquiring companies.

Dennis McConnel (1986), Jarrell and Poulsen (1989), Servaes (1991) found positive cumulative abnormal returns to the Target companies and Healy and Ruback (1992) had a sample size of 50 largest US mergers during the period 1979 -1984 and found positive cumulative abnormal returns to the target companies and negative...
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