Cross-border acquisitions and shareholder wealth: Tests of the synergy and internalization hypotheses

In this paper, we test the synergy and internalization hypotheses for international acquisitions using a sample of foreign acquisitions of U.S. firms during the period 1979–1990. The major findings include: First, shareholders of our paired sample of U.S. targets and foreign acquirers experienced significantly positive combined wealth gains, $68 million on average, indicating that cross-border takeovers are generally synergy-creating activities. Second, shareholders of the U.S. targets realized significant wealth gains, regardless of the nationality of acquirers. Third, the Japanese acquisitions in our sample generated the largest net wealth gains, $398 million on average, which was shared by both target shareholders (43%) and acquirer shareholders (57%). Fourth, foreign acquirers benefitted from the targets' R&D capabilities, supporting the ‘reverse-internalization’ hypothesis.