An Empirical Study of the Effect of Acquisitions on Shareholder Wealth in Thailand

Abstract

The purpose of this study was to examine the impact of domestic acquisitions on shareholder wealth for both acquiring and target firms in Thailand. In addition, the study investigated the financial characteristics of companies that were involved in acquisition activities. The study explored domestic acquisitions in the form of tender offers of the companies listed on the Stock Exchange of Thailand (SET) during the period 1993 to 1999. The sample consisted of 33 acquiring firms and 40 target firms. The event study methodology was used to assess the impact of domestic acquisitions on shareholder wealth for both acquiring and target firms. The Pearson correlation test was employed to analyze the pairwise relationship between average abnormal returns accruing to shareholders of both acquiring and target firms on the event date and each financial variable: percentage of acquisition, assets, equity, income, profit, earning per share, debt ratio, and net profit margin. The cross-sectional regression analysis was applied to determine the relationship between event day returns of shareholders of firms involved in acquisitions and various financial variables. The study showed that the shareholders of acquiring firms obtained statistically significant negative abnormal returns from acquisitions. On the other hand, the shareholders of target firms earned statistically significant positive abnormal returns from acquisitions. Furthermore, the study found that the more percentage the acquiring firms made a tender offer, the less abnormal returns the shareholders of acquiring firms realized from acquisitions. In addition, the larger the firm as measured by its assets and the higher the proportion of equity with which the assets were financed, the greater the abnormal returns of target firm shareholders.