Post-takeover Restructuring and the Sources of Gains in Foreign Takeovers: Evidence from U.S. Targets

Jun-Koo Kang, Jin-Mo Kim and Wei-Lin Liu
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Jun-Koo Kang: Michigan State University
Jin-Mo Kim: University of Missouri–Kansas City
Wei-Lin Liu: Michigan State University

Journal of Business, 2006, vol. 79, issue 5, pages 2503-2538

Abstract: We examine post-takeover restructuring activity and the sources of gains in large U.S. targets of foreign acquirers. We find that layoffs and sell-offs are less important in justifying the target premium in foreign takeovers than in domestic takeovers. In contrast, U.S. targets in foreign takeovers subsequently make more post-takeover investments than those in domestic takeovers. The likelihood of these post-takeover restructuring activities is significantly influenced by target characteristics. Finally, the U.S. Tax Reform Act of 1986 has had a significant positive effect on target returns. These results suggest that the realization of synergy is the main motive behind foreign takeovers.

Date: 2006

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