Financing decisions and gains from cross-border acquisitions by emerging-market acquirers

This study examines the valuation effect of the source of cash for acquisition financing and a set of determinants of bidder gains in the context of the cross-border acquisitions (CBAs) by emerging-market acquirers (EMAs) during 2000-2010. Our findings suggest that the CBAs create value for the EMAs but the value creation does not persist. We also found that the investors in emerging markets are aware of the agency cost of free cash flow and the market timing behavior of managers and thus react accordingly. Investors react more positively to large CBAs, the CBAs pursued by EMAs with prior local experience, the CBA of targets residing in a relative higher operational risk and the CBAs involving distant national cultures.