Merger Imbalance and Returns in International Equity Markets

At the global level, the mispricing theory of mergers by Shleifer and Vishny (2003) may imply that a significant number of targets acquired in a given country is a sign of market-wide undervaluation whereas intense acquisition activity indicates overvaluation. The present study develops a measure of merger imbalance that compares the quantity of targets and acquirers in a local market and tests significance of this variable for country-level asset pricing. The results prove that countries with a high merger imbalance significantly outperform countries with a low merger imbalance. The research is based on data from 46 countries for the years 1999-2015. The outcomes are robust to many considerations, and the findings support the theory of stock market-driven acquisitions