Does corporate international diversification destroy value? Evidence from cross-border mergers and acquisitions |
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| Authors: | Marcelo B Dos Santos Vihang R Errunza Darius P Miller |
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| Institution: | aFaculty of Management, McGill University, 1001 Sherbrooke West, Montreal, PQ, Canada H3 A1 GS;bBank of Montreal Chair in Finance and Banking, Faculty of Management, McGill University, 1001 Sherbrooke West, Montreal, PQ, Canada H3 A1 GS;cCaruth Chair in Finance, Cox School of Business, Southern Methodist University, P.O. Box 750333, Dallas, TX 75275, USA |
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| Abstract: | This paper investigates the valuation effects of corporate international diversification by examining cross-border mergers and acquisitions of US acquirers over the period 1990–2000. We find that, on average, acquisitions of “fairly valued” foreign business units do not lead to value discounts. In contrast, unrelated cross-border acquisitions result in a significant diversification discount of about 24% after accounting for the valuation of foreign targets. Furthermore, significant wealth gains accrue to foreign target shareholders regardless of the type of acquisition. Overall, our results suggest that international diversification does not destroy value while industrial diversification leads to discounts even after controlling for the pre-acquisition value of the target. |
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| Keywords: | Corporate international diversification Mergers and acquisitions Diversification discount |
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