The Australian Market for Corporate Control and how Firms create value

By , August 9, 2011 7:12 pm
The Australian Market for Corporate Control and how Firms create value

2010

Xuan Huang, Logan Robertson, Tai Tran, Huy Truong, Frank Wong

Abstract

Academic literature has devoted much effort to analyse merger and acquisition activities. Event studies are conducted to look at factors affecting shareholder returns in M&As. In particular, Moeller et al (2004) documented a size effect of US firms’ cumulative abnormal return around acquisition announcements. Using similar methodology on a sample of 1578 takeover deals from 2001 to 2007, this report attempts to i) assist Australian managers to select potential takeover target, ii) assist investors to make informed investment decision. We documented that Cumulative abnormal return (CAR) are on average positive at 4.15%, but average dollar CAR loss $11.66 million. However, once we take into account the skewness of Australian firm, the median for both CAR and dollar CAR are positive. OLS, multivariate and Probit regression methods were employed to confirm our analysis. Our result did not indicate a significant firm size effect in our dataset of Australian Acquirers. We also find highest abnormal return in stock-financed deals where targets are private. Additionally, we link the positive result of combined cumulative abnormal return to synergy motivation for doing acquisitions. Our findings should be of interest to financial managers in Australia who plan on merger engagements. Finally, our probit regression indicates that larger acquirer size is no more likely to make value reducing deals than those who are smaller.

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