Do Mergers and Acquisitions Create Wealth Effects? Evidence from Twenty Emerging Markets

This article investigates the response of target firms' stock returns in mergers and acquisitions (M&As) in twenty emerging markets. Employing standard event-study methodology for a sample of 1,648 M&As from 1997 to 2013, we find that announcements of mergers and acquisitions generate a 5.17 percent average abnormal return for target firms' stocks within a three-day symmetric event window. Furthermore, cross-sectional regressions explaining the variation in abnormal returns indicate that the relative size and the percentage share of the target firm sought, as well as cash-paid M&As, are also positively related to abnormal returns, while M&As in heavily regulated industries, and in which the acquirers are private equity funds, have lower abnormal returns. Finally, abnormal returns have increased in the post-2008 crisis period. We compare our evidence with related studies on developed markets and explain the differences. Implications of findings along with suggestions for further research are discussed.