Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212049 
Year of Publication: 
2006
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 24/2006
Publisher: 
Bank of Finland, Helsinki
Abstract: 
Using theories of internal capital markets, this paper examines the link between financial market integration and the value of global diversification.Based on a sample of 1,491 completed cross-border mergers and acquisitions (M&As) conducted by US acquirers during the 1990-2003 period, we find that, in general, US shareholders gain significant positive abnormal returns following the announcement of the merger/acquisition.Specifically, firms that acquire/merge with targets from countries with financially segmented markets experience significantly higher positive abnormal returns than those that acquire/merge with targets from countries with financially integrated capital markets.We find that the significantly higher positive returns are driven particularly by deals between firms from unrelated industries.These firms with higher announcement returns are also characterized by positive and significant post-merger operating performance.This finding is consistent with our event study results and suggests that the overall improvement in the merged firms' performance is likely due to the influx of internal capital from wholly integrated acquirers to segmented targets, firms that, on average are usually faced with higher capital constraints.
Subjects: 
financial market integration
global diversification
internal capital markets
mergers
acquisitions
JEL: 
G15
G31
G34
Persistent Identifier of the first edition: 
ISBN: 
952-462-325-0
Document Type: 
Working Paper

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