Various studies have been done on wealth effects and financial performance of firms in different countries but have yielded mixed results. Data on completed deals of Cross-border Mergers and Acquisitions (CBMAs) comprising public listed firms with more than ten percent of share acquisition in five East Asian countries were analysed using event study and key financial ratios. Although the results for average abnormal returns in Indonesia and Korea were inconclusive, the results for Malaysia, Thailand and the Philippines suggest that the market had reacted positively adding value to the target firms at merger announcements. There was a significant improvement in targets’ free cash flow after CBMAs when compared to both before CBMAs and also control firms after CBMAs. The results also reveal that that these five East Asian countries have moved towards more efficient markets.

We examine the impact of cross-border mergers and acquisitions on a target firm’s risk and return based on a sample of partially acquired target firms in 18 emerging countries between 1990 and 2007. We find that cross-border acquisitions significantly reduce both the total and downside risk of the target firms and that this reduction is more significant in acquisitions undertaken by bidders from countries that have better protection of investor rights. We also show that this risk reduction improves the risk adjusted performance of these firms. Thus, we conclude that cross-border partial acquisitions benefit an emerging market investors’ risk-return trade off by reducing investment risk and increasing investment returns; policy makers in emerging markets may be well advised to open their markets for partial cross-border acquisitions.

This study examines the effects of different dimensions of financing constraints (financial market development, governance environments, ownership control and other firm-specific characteristics) on cross-border mergers and acquisitions (M&As) for all takeover bids announced in nine East Asian economies from 1998 to 2005. The results of logistic regressions verify that the extent of stock market and governance developments encourages cross-border M&As in this region. The results also indicate that firm-specific financing constraints, except the ownership control variables, reduce the occurrence of cross-border M&As related to domestic M&As. Although family- and state-controlled firms have better access to external financing, they are reluctant to risk diluting their management control and thus prefers less cross-border M&As to domestic M&As. This study enhances the empirical studies of the financing constraint-investment relation based on the market imperfection theory in corporate finance theories. Information asymmetry is the main reason causing the market imperfection and leading to financing constraints to corporate investments. This study, by examining the relation over nine East Asian firms, thus provides an understanding of how such a relation fits in the firms in countries where information asymmetry is high.