Empirical Research

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Correlation

[pic 5]

What does it tell us? Word of warning:

- -Direction of causality

From A to B or the other way around?

- -3rd variable problem: an unmeasured variable influences the other two

Stork Story

- After 1960 there was a significant decline in the number of storks nesting in Denmark

- As of the late 1960s Denmark faced the lowest number of childbirths per woman → fewer storks, fewer babies

- - Statistical Evidence: # storks and #babies in 17 European countries over a 10-year period

- → Scatterplot shows positive relationship

- → Correlation coefficient: r=0.62

- → Statistically significant

- - Implications: Does the stork deliver babies: NO!

- SO what does it imply? (probably a 3rd variable influences both #storks and #babies (e.g. land area))

- → Do not confuse correlation with causation (Correlation coefficients say nothing about the direction of causality)

Aybar & Ficici (2009)

What is it about?

Emerging market firms integrate to the world economy

Cross border acquisitions of EMMS

Specifically: Their firm value implications

→ Effects of international expansion on firm value

What are we looking at?

433 corss border M&A announcements

58 EMMs

1991-2004

Sample:

- Range of industries

- Mainly from Latin America and Asia

- Two firms from HUN, three from ZAF

- 78.9% of the transactions initiated by Asian EMMs

- Thomsion SDC Platinum database

Let’s break it down

- Part 1

- Event study methodology

- To what end?

- Impact of announcements on the value of acquiring firms

- Why should we care?

- Conflicting evidence

- Opportunities and challenges

- (+) Diverse conditions; operational flexibility

- (-) Post acquisition integration; liability of foreignness

- What do they find?

- Cross-border expansions do not create value

- Part 2

- Analysis of a cross-sectional sample of firms

- To what end?

- What influences the market reaction?

- And what do they find?

- Effect on bidder value

- Positive: target size, ownership structure of the target (private vs. public), structure of the bidder

- Negative: High-Tech nature of the bidder, pursuit of targets in related industries

- Link to the literature: How do you compare it?

- Limitations

- Assumption

- The market response is instantaneous, complete, and unbiased

- Regional concentration of the parent companies in Asia and Latin America

- Can we generalize? Do you remember external validity?

- Focus on the bidder’s perspective

- But what happens if we look at the combined value for the bidder and target?

Lecture 3

Regression analysis