The impact of M&A transactions from private equity and hedge funds. Empirical evidence from Austria and Switzerland
| Date | 22 February 2011 |
| Pages | 45-57 |
| Published date | 22 February 2011 |
| DOI | https://doi.org/10.1108/13581981111106167 |
| Author | Gerhard Wörtche,Tristan Nguyen |
| Subject Matter | Accounting & finance |
The impact of M&A transactions
from private equity
and hedge funds
Empirical evidence from
Austria and Switzerland
Gerhard Wo
¨rtche
Department of Economı
´a Financiera y Contabilidad III,
Universidad Complutense de Madrid, Madrid, Spain, and
Tristan Nguyen
Department of Economics, WHL Graduate School of Business and Economics,
Lahr, Germany
Abstract
Purpose – The purpose of this paper is to study the impact of merger and acquisition (M&A)
transactions from private equity and hedge funds. Owing to the recent financial and economic crisis,
there is a controversial discussion about the implications of M&As from private equity and hedge funds.
It is argued that acquisitions, which are driven by financial investors (FIs) like private equity and hedge
funds, have solely short-term profit interests and might be under certain circumstances a source for
future financial crisis. Therefore, these FIs should be regulated more severely.
Design/methodology/approach – This paper examines the implications of M&As from different
types of investors (FIs versus non-FIs) by analysing the wealth effects of Austrian- and Swiss
target companies. The authors use the event study methodology to analyze the effects of an merger
announcementto see whether the financial markets believethe merger will create or destroyvalue.
Findings – Considering the wealth effects of the different types of investors, the findings of this
paper support the necessity of special regulations for FIs such as private equity and hedge funds. This
is due to the fact that lower performance is linked to the disgraceful business conduct of an FI who is
oriented toward short-term profit at the cost of the target company and their stakeholders.
Originality/value – This paper provided an overview of different event study methods and
examined the implications of different types of investors by analysing the wealth effects of Swiss and
Austrian target companies. It is the first empirical study about the impact of M&A transactions from
private equity and hedge funds in Austria and Switzerland.
Keywords Regulation, Acquisitions and mergers,Hedging, Private finance, Austria,Switzerland
Paper type Case study
1. Introduction
In recent years, the increasing number of private equity and hedge funds has gained the
public’s attention. The attitude of regulatory authorities toward private equity and
hedge funds has been severely affected by the current international financial crisis. It is
expected that these financial investors (FIs) will have a higher level of regulatory
intervention (Hindle, 2009). Private equity and hedge funds have led to various political
and economical discussions because the implications of mergers and acquisitions
(M&A) from those companies are ambiguous in several ways. On the one hand,
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
M&A
transactions
45
Journal of Financial Regulation and
Compliance
Vol. 19 No. 1, 2011
pp. 45-57
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981111106167
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