CENTER FOR INTERNATIONAL BUSINESS EDUCATION AND RESEARCH
(GT CIBER)
WORKING PAPER SERIES
95018

Cross-Border Acquisitions and Shareholder Wealth : Test of the Synergy and Internalization Hypotheses

by Cheol S. Eun, Richard Kolodny & Carl Scherage

Abstract

In this paper, we test the synergy and internalization hypotheses fro international acquisitions using a sample of foreign acquisitions fo U.S. firms during the period 1979-90. The major findings include : First, shareholders of our paired sample of U.S. targets and foreign acquirers experienced significantly positive combined wealth gains, $68 million on average, indicting that cross-border takeovers are generally synergy-creating activities. Second, shareholders of the U.S. targets realized significant wealth gains, regardless of the nationality acquirers. Third, the Japanese acquisitions in our sample generated the largest net wealth gains, $398 million on average, which was shared by both target shareholders (43%) and acquirer shareholders (57%). Fourth, foreign acquirers benefitted from the targets' R&D capabilities, supporting the 'reverse-internalization'hypothesis.