The Effect of Cross-Border Acquisitions on Shareholders Wealth in the Nordic Market

Abstract: This study examines the short-term announcement returns of 1961 acquisitions made by Nordic firms during 1997-2012. The aim of the research is to find out how the bidder shareholders wealth is affected by the origin of the acquisition. The study reveals positive announcement returns to the shareholders of the Nordic bidding firms. This holds for both domestic and cross-border acquisitions. However, there is a significant negative cross-border effect of 0,72% during a three-day announcement window. The shareholders of the Nordic bidding firms receive significantly lower announcement returns when acquiring a foreign target compared to a domestic target. The study further examines how the announcement returns are affected by factors like the payment method, ownership structure and industry diversification. The majority of previous studies conducted on the US and UK market show that acquiring a target company using equity bids results in a loss for the shareholders of the bidding company. In contrast to these studies, the shareholders of Nordic bidding firms actually receive higher announcement returns when equity is involved in the deal.