Foreign acquisitions by UK limited companies: short- and long-run performance

In this paper, we consider the short- and long-run performance of UK firms following foreign acquisitions. Based on a near-exhaustive sample of significant foreign acquisitions by UK companies over the period 1985-1994, we show that short-run returns are insignificantly different from zero irrespective of the location of the acquisition. Further analysis reveals that the distribution of the event period returns is determined by changes in the exchange rate, the presence of the acquiring firm in the target country and by US tax reforms. While long-run returns are not significantly different from zero on average, they show considerable variation by region. Specifically, firms under-perform following acquisition in the US, show insignificant returns following acquisitions in the EU and acquisitions elsewhere show significant positive returns. Examination of the distribution of these returns suggest that, in accordance with the ownership-location-internalisation hypothesis of foreign direct investment (FDI), long-run performance is more likely to depend on the firm-specific advantages such as R&D.