Corporate Ownership & Control / Volume 4, Issue 2, Winter 2006-2007 (continued)

THE LONG-RUN PERFORMANCE OF CROSS-BORDER MERGERS AND ACQUISITIONS: EVIDENCE TO SUPPORT THE INTERNALIZATION THEORY
Claude Francoeur* Abstract Our study contributes to improving the understanding of cross-border M&As in two domains: evaluation of the long-term financial performance of acquiring firms in cross-border M&As and detection of the determinants of their long-term success. Our results show no sustained gains or losses during the post-acquistion period for Canadian acquirers. In contrast to their performance in domestic M&As, Canadian firms carrying out crossborder M&As do generate enough value to keep up with stockmarket requirements, relative to their risk level as determined by the Fama & French three-factor model and the level of returns generated by peer firms in their main industrial sector. Our findings agree with the internalization theory and suggest that acquiring firms engaged in cross-border M&As can indeed realize efficiency gains and create long -term value for their shareholders, but only under certain conditions: namely, when they possess high levels of R&D and a strong combination of R&D and intangibles. Keywords: mergers & acquisitions, cross-border, internalization theory, long-run performance

*HEC Montréal, 3000, chemin de la Côte-Sainte-Catherine, Montréal, Québec, Canada, H3T 2A7, Telephone (514) 340-6847; Fax (514) 340-5633, claude.francoeur@hec.ca

Introduction Cross-border mergers and acquisitions (M&As) have become increasingly popular in recent years. According to the 2004 world investment report published by the United Nations Commission on Trade and Development (UNCTAD), the total world value of cross-border M&As peaked at over one trillion US$ in the year 2000. In 2000, Canada ranked eighth in cross-border M&A value, with a total of close to $40 billion in deals, which represents an annual compounded growth of 28.9% over the last decade,