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Evaluation of the Effect of M&A Transactions on Bondholders Wealth: the Case of Emerging Markets

Student: Buldynskaya Kristina

Supervisor: Svetlana Grigorieva

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Year of Graduation: 2020

In the modern business environment, global integration is becoming an essential part of strategic solutions for companies, and merger and acquisition deals (M&A) now is one of the main forms of building an integrated company. Recently, companies from emerging countries have taken up an increasing volume of the M&A market: their importance in the global investment processes is increasing every year. An important direction in the studies of M&A transactions is analysis of corporate securities’ returns during the announcements of the future transactions. This paper presents an analysis of excess return of corporate bonds in M&A transactions in emerging capital markets. On the sample of 121 transactions announced from 2002 to 2020, in which the acquirer was located in the emerging country (according to MSCI classification), two-stage research of returns received by acquirer’s bondholders in the period from 10 days before to 10 days after the announcement of the transaction had been carried out: at the first stage it was presented that the average cumulative excess return was equal to 0,55 % (statistically significant at the five percent level); at the second stage using the regression analysis the main factors which influenced the excess returns of corporate bonds have been studied. Particularly, it was found that the correlation between indicators of a diversified transaction and the public status of the target company negatively affects the excess bond yields. In addition, it was shown that macroeconomic factors, such as the level of GDP and exchange rate in the acquirer's country, significantly affect the return of bondholders (there is a positive and negative correlation, respectively). The significance of this paper consists of the analysis of abnormal bond yields in emerging market M&A transactions, while the authors of existing literature has studied only the wealth effects of shareholders. The paper also presents the significant impact of macroeconomic factors on the bondholders’ returns, which was previously studied only for stock abnormal yields.

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