Foreign acquisitions in the United States: Effect on shareholder wealth of foreign acquiring firms

This paper examines shareholder wealth gains for 195 foreign firms that acquired U.S. target firms during 1983-92, We find that foreign acquirers experience positive and significant abnormal returns of nearly two percent over days (-10,+10) when they acquire targets in the United States; however, U.S. acquiring firms do not gain at all from their purchases of foreign firms over the same period. Analysis of abnormal returns reveals that Japanese, British, Australian and Dutch acquirers gain significantly from purchases of U.S. firms, Bidder abnormal returns are not related to relative size of target to bidder, or to the extent of their overseas exposure, or to the target's R&D intensity; they do not exhibit an industry factor nor are they affected by the value of foreign currency. There is support for the hypothesis that competition among bidding firms for the same target decreases the returns to the acquirers; we find that the 1986 Tax Act has led to no gains to foreign buyers of U.S. firms.