ABSTRACT
In this paper we investigate whether European mergers and acquisitions create more value to target than bidder shareholders, and why bidders pay larger premiums in cross-border than in domestic acquisitions. Using a sample of 275 public acquisitions initiated by large and medium-sized European firms between 2003 and 2010, we find target shareholders of both domestic and cross-border acquisitions to earn significantly positive bid premiums, with the target firm shareholders earning substantially greater premiums in cross-border than in domestic acquisitions. This effect is more pronounced in stock offers. Our empirical results show that bidder shareholders in Europe react negatively to the merger announcement of a listed target firm. In line with previous studies on European takeover market, we find that shareholders of Continental European bidders enjoy a small positive abnormal value effect whereas shareholders of UK or Irish bidders suffer small wealth losses. Previous M&A literature argues that the difference in bid premiums between cross-border and domestic acquisitions can be explained by variations in corporate governance structures. For our sample of European cross-border acquisitions we find that the large premiums paid by European bidders are due to differences in bid and target firm characteristics rather than differences in corporate governance systems between the bidder and the target?s home countries.