Cross-border diversification through M&As in Latin America

This study analyzes a database of 952 acquisitions in Latin America during the period from 1998 to 2004. Higher GDP growth correlation between the countries where the target and the bidder base their operations directly relates to higher cumulative abnormal returns for the acquiring firm. This result in the emerging markets of Latin America supports the evidence that Kiymaz and Mukherjee (2000) report in developed economies. This study also finds that the bidder benefits from buying companies located in countries whose governance environment differs significantly from that in the country where the bidder resides, even if the quality of the governance in the target country is worse than in the bidder's country. Although counter-intuitive, this result is consistent with evidence that Haggendorff, Collins, and Keasey (2008) report.