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Korean Journal of Financial Studies 2015;44(3):547-575.
Published online June 30, 2015.
The Size Effect and the Diversification Effect of M&As Depending on the Level of Capital Market Development
Byoung Jin Kim, Jin Young Jung
자본시장의 발달 정도에 따른 합병의 규모효과와 다각화 디스카운트
김병진, 정진영
This study is intended to determine what changes the size effect and the diversification effect of M&As bring about to acquiring firm’s firm value depending on the level of capital market development. To that end, an event study is conducted on the samples of 1,293 events where M&As were disclosed and took effect in the KOSPI markets between 2001 and 2012. First of all, the study finds out that the size effect of the M&A disclosures, which remains an unsolved puzzle in the empirical analysis of M&As, is attributable to debt ratio. Namely, the study indicates that small-cap firms have higher abnormal returns (AR) on M&As than large-cap firms when debt ratios are high. This can be interpreted that the effect of control and oversight due to the use of debt is shown relatively bigger for small-cap firms, and the influence of M&As on firm value also is bigger for small-cap firms. In addition, the size effect stemming from debt is amplified in the capital markets that are relatively underdeveloped, and the size effect stemming from debt disappears in the developed capital markets. This means that equity financing becomes easier in more developed capital markets, lessening the effect of oversight and control attributable to the use of debt, and ultimately the benefits decrease that can be enjoyed by small-cap firms in the M&As by having a high level of debt. Meanwhile, the study verifies in terms of the diversification effect of M&As that the diversification discount is greater for more developed capital markets, which is also in line with the study results by Fauver et al. (2003) that indicated that the diversification effect is in a negative (-) relationship with the degree of capital market development.
Key Words: 부채효과,자본시장의 발달,합병공시,Capital Market Development,Debt Ratio,Diversification Discount,M&, As,Size Effect Puzzle,다각화 디스카운트,규모효과
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