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Firms can choose to expand either internally or externally through mergers, but the success of a merger depends critically on whether the two event firms achieve economies of scale (Shleifer and Vishny, 1989; Denis and McConnell, 2003; Besanko et al., 2004; Cole et al., 2006; and Hitt et al., 2009). Forms of the event study methodology have been the predominant methods used to measure stock price responses to merger or takeover announcements, and most studies suggest that takeovers create shareholder wealth (Beitel et al., 2002; Bruner, 2002; Kuipers et al., 2002; Campa and Hernando, 2004; Jensen, 2006; and Akbulut and Matsusaka, 2010).
Surveys reveal that most of the studies show that target firm’s shareholder returns are on average significantly positive and the more recent studies tend to support this view. Jensen (2006) suggests that the market for corporate control has generated large benefits of around US$535 bn to event firms’ shareholders in approximately 50 largest US takeovers in the prior four years. Morellec and Zhdanov (2004) predict that takeovers result in larger returns to target firm’s shareholders than to bidding firm’s shareholders. Still, some other studies—for example, Karceski et al., 2000; and Danbolt, 2002; cited in Campa and Hernando’s, 2004 survey—report negative abnormal returns of –2.39%, –7.60%, –9.44% and –1.52% respectively to target firm’s shareholders.
Therefore, the conclusions are ambivalent, though they suggest that anticipated wealth creation can be viewed as the likely rationale behind merger and acquisition decisions. Thus, this research is undertaken to explore whether or not takeovers result in positive effects on target firm’s shareholders in the Thai context.
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