This study features the impact of successful takeovers
on the Stock Exchange of Thailand (SET). The study investigates
the bidding firms' performances during a period of 12 months,
before and after the takeover, and measures Abnormal Returns
(ARs) using an event study approach, applying two models
and three parametric test statistics. The results suggest
that Thai successful takeover effects are creating wealth
for the bidding firm's shareholders. The examination of
after the announcement month shows positive rather than
negative ARs, suggesting that the bidding firm's shareholders'
wealth is persistent. This study also provides new evidence,
indicating that the market responds positively to takeover
news, four and three months prior to the announcement month,
according to the model, leading to ARs of approximately
4.25% and 3.03% per month for the bidders, depending on
the metric.
Since mergers and acquisitions are investments taken under
conditions of uncertainty, it is not surprising that not
all business combinations are successful. Past studies show
that successful firms that combine businesses can benefit
from economies of scale or economies of scope, whereas diversification
for other reasons tends to be less successful. Economies
of scale are likely to be realized when firms are engaged
in the same line of business operations, e.g., horizontal
mergers. Economies of scope are likely to be realized when
firms in the same chain of supply combine operations, e.g.,
vertical mergers. Forms of the event study methodology have
been predominantly used to measure share price responses
to merger or takeover announcements, and most studies suggest
that takeovers create shareholder wealth. Jensen (2006)
argues that the market for corporate control has generated
large benefits of around $535 bn to event firms' shareholders,
in approximately the 50 largest US takeovers in the prior
four years. Some studies, such as Kuipers et al. (2002),
Martinez-Jerez (2002), and Akbulut and Matsusaka (2003),
report that takeovers have negative effects. Some other
prior studies report positive and negative abnormal bidder
returns (such as Beitel et al., 2002; Doukas et al., 2002;
and Goergen and Renneboog, 2004), or zero or positive ARs
(such as Kohers and Kohers, 2000; Floreani and Rigamonti,
2001; and Raj and Forsyth, 2002). More recent studies have
predominantly positive outcomes. See, for example, Croci
(2005), who investigates why managers choose to make a series
of acquisitions, and suggests that successful acquirers
show persistent success. The findings show Cumulative Abnormal
Returns (CARs) of about 0.80% around the announcement date.
Savor (2006) reports positive ARs for cash-financed acquirers.
Therefore, the results are inconclusive, though they suggest
that anticipated wealth-creation can be viewed as the likely
rationale behind merger and acquisition decisions.
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