CROSS BORDER MERGERS AND ACQUISITIONS AND THE EXCHANGE RATE

Article English OPEN
Sharma, Meghna (2016)
  • Publisher: Journal Of Business Management & Social Sciences Research
  • Journal: Journal Of Business Management & Social Sciences Research (issn: 2319-5614, eissn: 2319-5614)
  • Subject: Social Sciences | Mergers and Acquisitions,FDI,Currency, Exchange Rate, Cross Border Mergers

With globalization at large and trade liberalization in particular, mergers and acquisitions between companies situated in different countries have become wide spread. A question that arouses practical concern is who gains more from mergers and acquisitions when judged in terms of domestic and cross border; acquirers of domestic targets or acquirers of foreign targets. While investigating on such gains, a question that requires attention is whether the strength of the domestic currency affects gains from these acquisitions and whether it can be considered as a deciding factor in determining if acquisition by a firm should be domestic or foreign. This study is an attempt to show the gains accruing to UK bidding firms involved in domestic as well as cross border mergers and acquisitions in relation with the strength of the domestic currency. It uses an event study method to calculate the abnormal returns experienced by the acquiring firms. With the help of simple regression, the influence of the Sterling Pound on the returns is examined. Although it fails to establish any statistically significant result, it appears that a strong value of the domestic currency can cause more returns for UK acquirers on an average, when compared against a weak domestic currency. Also, the number of bids is more during periods of a strong currency. It tries to establish a relationship between the returns of bidding firms with the exchange rate when taken along with the method of payment, technique of acquisition, target status and the industry of operation but fails to yield significant results. A possible limitation of this study is the time period, which is not long enough to capture fluctuations in the exchange rate.
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