Financial Market Integration And The Value Of Global Diversification: Evidence For US Acquirers In Crossborder Mergers And Acquisitions

Using theories of internal capital markets, this paper examines the link between financial market integration and the value of global diversification. Based on a sample of 1,491 completed cross-border Mergers and Acquisitions (M&As) conducted by US acquirers during the 1990 - 2003 period, The authors find that, in general, US shareholders gain significant positive abnormal returns following the announcement of the merger/acquisition. Specifically, firms that acquire/merge with targets from countries with financially segmented markets experience significantly higher positive abnormal returns than those that acquire/merge with targets from countries with financially integrated capital markets.