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Winner's Curse: New Evidence from Bank Cross-border M&As

Author:
Hui Dong   Frank Song  


Issue Date:
2012


Abstract(summary):

This paper directly tests the winner's curse under the framework of bank cross-border mergers and acquisitions. The hypothesis of winner's curse pre- dicts that bidder returns are inversely related to the level of competition in a given deal and to the uncertainty in the value of the target. We use a novel dataset of rating differences to measure the uncertainty of the target bank value, and find that the returns to the acquirer banks are significantly reduced under more target uncertainty, but no such relation to competitions. We also find that in bank cross-border M&As, acquirer abnormal return will increase with information disclosure, both voluntary and mandatory disclo- sure, of the target country. Also, combined banks create more acquisition synergy if the target country has a higher quality of bank information disclo- sure. And the positive effect is large enough to mitigate the negative effect of target uncertainty. Related analysis indicates that managers of foreign acquirer banks would more accurately estimate target values if target bank disclose more information about their loans and deposits. Results of the paper are consistent with semi-strong stock market efficiency.


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35


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