FOREIGN ACQUISITIONS IN THE UNITED-STATES - EFFECT ON SHAREHOLDER WEALTH OF FOREIGN ACQUIRING FIRMS

This paper examines shareholder wealth gains for 195 foreign firms tha t acquired U.S. target firms during 1983-92, We find that foreign acqu irers experience positive and significant abnormal returns of nearly t wo 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 p urchases of foreign firms over the same period. Analysis of abnormal r eturns reveals that Japanese, British, Australian and Dutch acquirers gain significantly from purchases of U.S. firms, Bidder abnormal retur ns are not related to relative size of target to bidder, or to the ext ent 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 competit ion among bidding firms for the same target decreases the returns to t he acquirers; we find that the 1986 Tax Act has led to no gains to for eign buyers of U.S. firms.