The Effects of Market Efficiency and Transparancy on the Performance of Cross-Border Acquisitions



It has been found that acquisitions of private firms tend to on average outperform acquisitions of public firms. One of the main reasons for this is that privately held firms are not as efficiently valued as publicly held firms. Private ownership may, however, also create challenges as information asymmetry may lead an acquirer to buy lemons.
This lemons problem could be expected to be particularly problematic in connection with cross-border acquisitions where information asymmetry can be high. Based on a dataset of 6763 cross-border acquisitions carried out by the Global Fortune 500 firms (1997-2005), we show that acquisitions of privately held firms outperform acquisitions of public held firms also in the cross-border context. The magnitude of this effect is, however, moderated by two country-specific determinants. The level of financial development and degree of transparency into the host countries increase the relative gains from acquisitions of privately held firms.
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Patricia de Wilde - Mes