Cross-Border M&As of European Targets by Chinese and Indian Firms: Focus on Automotive Deals

Abstract: We examine 334 cross-border deals with European targets of Chinese, Indian and European acquirers in the period between 2000 and 2012. The paper is contributing to the growing research field of outbound emerging market cross-border acquisitions, in particular from China and India. We measure how these countries' companies' acquisitions of European targets perform in comparison to intra-European deals. Moreover, we investigate which factors influence the value creation of these deals for acquiring company shareholders. Conducting an event study, we find that all geographical sub-samples show significant positive cumulative abnormal returns (CARs). Moreover, we find that intra-European automotive deals create more value for acquirers than ones involving Chinese or Indian bidders. Through a cross-sectional regression analysis, we can furthermore confirm previous literature that finds significant influence on value creation of (relative) company size, GDP related measures, and differences in openness to international trade between target and acquirer countries. We are furthermore able to explain parts of our results using the tentative model of "Hypothesized Impact of Cultural Differences on M&A Performance" set forth by Stahl and Voigt (2008). Finally, we find evidence suggesting that Chinese acquirers could benefit from positive spillover effects generated by targets residing in countries that have strong legal protection of outside investors. Martynova and Renneboog (2008) and Khanna and Palepu's (2004) call this the "bootstrapping hypothesis".