The majority of research on merger and acquisition (M&A) in Scandinavia is related to domestic M&A. In addition to a lack of research on cross-border M&A for the Scandinavian market, the many obstacles associated with this form of take-overs make it fruitful to investigate the phenomenon in Scandinavia. This thesis investigates the announcement effect of cross-border mergers and acquisitions (M&A) on target firm shareholders’ value in Scandinavia in the short-term. A short-run perspective is chosen in order to isolate the impact of one particular event by preventing cofounding events during the event period. Evidence on long-run effects is therefore left out of the analysis. A sample of 98 Scandinavian target firms has been analyzed in the time span between 1997 and 2011 in order to find empirical evidence that supports the hypothesis that the announcement of cross-border M&A generates value for target firm shareholders.
The announcement effect of cross-border M&A activity is in this thesis evaluated on the basis of the shareholders’ value approach. This approach compares shareholders’ value, measured by stock returns, subsequent to the announcement of cross-border M&A to an estimated value that is calculated based on the assumption that the M&A had not occurred. Since the purpose of this thesis is to look at the effect of M&A announcement on shareholders’ value, the impact of M&A on other stakeholders is not examined (other stakeholders include employees, customers, management and the society).
The event study methodology has been applied in order to detect abnormal returns during an event period of five days, where the abnormal return is the difference between the observed return of a security and the return of a security that are expected to be observed if no event occurs (Peterson, 1989). The event period over which the abnormal returns are examined spans from two days prior to the announcement of cross-border M&A to two days after the announcement of cross-border M&A.
This study finds significant and positive average abnormal returns on both of the days prior to the announcement day. These results indicate that news about mergers and/or acquisitions on some occasions reached the market before the actual day of the announcement, possibly due to information leakage or rumors. In addition, a significant and positive abnormal return is found on the first day following the announcement day, indicating that news about mergers and/or acquisitions in some cases reached the market after trading hours which made it impossible for market participants to react to the news on the actual day of the announcement.
The cumulative average abnormal returns of the securities in the sample represent an estimate at the time of the M&A announcement of the expected discounted value to shareholders generated by the take-over (Campa & Hernando, 2004). The empirical evidence of this study suggests that target shareholders in Scandinavia experience a statistically significant cumulative average abnormal return of 14.7% during the five days under which the returns of the stocks are examined. The main conclusion of this thesis is that the announcement of cross-border M&A generates value to target firm shareholders in Scandinavia in the short-run.