Shareholder wealth effects of M & As: the third wave from Malaysia

The purpose of this paper is to analyse the short-term wealth effects of mergers and acquisitions (M & As) in Malaysia. In addition, this study also examines the factors that affect the short-term shareholders’ wealth during M & A announcements in Malaysia.

The short-term wealth effect is measured by the Cumulative Average Abnormal Returns (CAARs). For the purpose of this study, the wealth effects of a sample of 180 target and 196 bidding companies announced in Malaysia during the period from 2001 to 2009 are analyzed.

Results of the study revealed that there are positive market reactions by both target and bidding shareholders towards M & A announcements. However, target shareholders earned significantly higher CAARs than bidding shareholders. There is sufficient evidence to suggest that economic condition surrounding merger announcements, type of acquisition (diversified/related), premium paid and status of bid (successful/failed) affect the short-term wealth effects of target and bidding shareholders during M & A announcements. However, the impact on the target and bidding shareholders are different. Relative size negatively affects bidding shareholders’ wealth. Target with higher ROE also earned significantly higher returns.

There is high number of announced M & A deals in Malaysia, little is known about the determinants of short-term wealth effects of M & As in emerging market Malaysia, in particular the third M & A wave.