Abstract

This study provides empirical evidence that during the period 1985-2005 cross-border bidders from both Canada and the United Kingdom earned higher announcement returns than domestic bidders. This cross-border excess return persists after controlling for industry effects, toeholds, payment methods and the effect of macro-economic conditions in the target country. Toeholds can explain the excess return for both cross-border and domestic bidders while it isn't associated with higher cross-border bidder gains. The horizontal factor weakly explains the cross-border excess returns. The cash method of payment cannot explain the observed excess gains for cross-border bidders over domestic bidders even though cross-border bidders generate higher gains than domestic bidder when both use cash. Better economic conditions in the target country are associated with higher returns of cross-border bidders. Further, the multinomial model indicates that British firms in the material industry are more likely to acquire foreign rather than domestic targets. Large Canadian firms prefer cross-border acquisitions. If the bidder or their industry have previous merger and acquisition experience in the U.S. market, the acquirer is more likely to acquire a U.S. firm than a domestic or other foreign firm.