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Article
Publication date: 4 May 2012

Faten Ben Slimane

In recent years, stock exchanges have been increasingly integrating and merging their activities at a national and international scale. While consolidation is often driven by…

1641

Abstract

Purpose

In recent years, stock exchanges have been increasingly integrating and merging their activities at a national and international scale. While consolidation is often driven by technological, legal and competitive changes, whether merger activities are efficient in terms of market microstructure remains unknown. Academic research to date has analyzed the causes behind these mergers primarily from the technological, legal and competitive perspective, whereas relatively little literature considers their impact on the exchange itself. The paper aims to consider the case of the Euronext merger to explain this topic by studying this merger and its effect on Euronext's market risk (measured by volatility).

Design/methodology/approach

The paper uses a standard General Auto‐regressive Conditional Heteroskedasticity (GARCH (1,1)) process to study the volatility of the underlying markets and use break methodology to highlight the merger effects. It also adds control samples to account for any change in volatility that could be caused by factors other than the merger event.

Findings

The results suggest that the Euronext merger did not affect the market risk. In particular, the paper finds no evidence that the integration onto the same platforms for trading and clearing had a significant effect on the volatility of the merging markets.

Practical implications

This study contributes to clarify business issues and to guide policy makers on exchange industrial organization.

Originality/value

The present paper further contributes to the ongoing discussion about the drawbacks and merits of horizontal exchange integration.

Details

Managerial Finance, vol. 38 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 20 July 2015

Andrea Paltrinieri

The purpose of this paper is to give an overview of UAE Stock Exchange industry. In particular this paper aims to assess a potential merger between Dubai Financial…

1198

Abstract

Purpose

The purpose of this paper is to give an overview of UAE Stock Exchange industry. In particular this paper aims to assess a potential merger between Dubai Financial Markets-Nasdaq-Dubai and Abu Dhabi Securities Exchange, evaluating risks, rewards, policy and business implications.

Design/methodology/approach

The paper presents a theoretical framework and a literature review of M & As in financial sector. It then carries out a case study on a potential merger between the UAE Stock Exchanges and a discussion on the implications for the actors involved.

Findings

The contraction both in market capitalization and in trading value in the three UAE Stock Exchanges caused by subprime financial crisis and market fragmentation could be a key factors in implementing a merger between them. Because of high-fixed costs and trading platform, a single consolidated stock exchange may benefit from significant economies of scale, particularly network effects, and economies of scope.

Practical implications

This paper could be useful to Security and Commodity Authority, in order to support a merger between Dubai and Abu Dhabi Stock Exchange. Given that UAE capital market regulator has tried to improve efficiency in UAE stock market over the last years, a merger between UAE Stock Exchanges could have positive effects on overall efficiency.

Originality/value

It is the first paper that analyze UAE Stock Exchange industry. It is the first study that focusses on a potential merger between emerging markets’ stock exchanges. It is one of the first contributions that relates stock exchanges belonging to emerging and developed countries.

Details

International Journal of Emerging Markets, vol. 10 no. 3
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 4 November 2014

Panagiotis Andrikopoulos, Andreas Albin Hoefer and Vasileios Kallinterakis

The purpose of this paper is to present and empirically test for the first time the hypothesis that herding in a market increases following the market's merger in an exchange

Abstract

Purpose

The purpose of this paper is to present and empirically test for the first time the hypothesis that herding in a market increases following the market's merger in an exchange group.

Design/methodology/approach

The hypothesis is tested empirically in EURONEXT's four European equity markets (Belgium, France, the Netherlands and Portugal) on the premise of the Hwang and Salmon (2004) measure which allows us insight into the significance, structure and evolution of market herding. Tests are conducted for each market for the period prior to and after its merger into EURONEXT, controlling for a series of variables (market conditions, common risk factors, size) to gauge the robustness of the findings.

Findings

Results indicate that, with the exception of Portugal, herding grows in significance, yet declines in momentum post-merger. The authors ascribe the findings to EURONEXT's enhanced transparency (which makes it easier for investors to observe their peers’ trades, thus allowing them to infer and free-ride on their information) and its fast-moving informational dynamics that render herding movements shorter-lived. These results are robust when controlling for various market states and common risk factors, with deviations being observed when controlling for size and market volatility.

Originality/value

The study presents results for the first time on the impact of exchange mergers on herd behavior. The authors believe these to constitute useful stimulus for further research on the issue and bear important implications for regulators/policymakers in view of the ongoing proliferation of exchange mergers that has been underway since the 1990s.

Details

Review of Behavioral Finance, vol. 6 no. 2
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 4 March 2014

Ekaterina Dorodnykh

This paper contains an empirical analysis of determinants of international integration projects over the time period 1995-2010. After a broad discussion of the existent…

1642

Abstract

Purpose

This paper contains an empirical analysis of determinants of international integration projects over the time period 1995-2010. After a broad discussion of the existent literature, the investigation combines a large number of potentially relevant determinants for the explanation of whether stock exchanges are participating in formal integration projects. The paper aims to discuss these issues.

Design/methodology/approach

The methodology is based on multistage statistical data analysis, using correlation and cluster analyses to investigate the presence of integration trend between existing stock exchange projects, while multivariable logit regression examines the determinants of stock exchange integration.

Findings

The paper confirms empirically the set of drivers of financial integration. Moreover, the paper provides quantitative estimations of probability of stock exchange integration estimated for different explanatory variables. The paper demonstrates that financial harmonization, cross-membership-agreements, for-profit corporate structure, trading engine and regional integration are important drivers of stock exchange integration. By contrast, high size of stock exchange market has negative impact on the likelihood of successful merger. This result is, especially, important in terms of financial regulation.

Practical implications

Results highlight the importance of stock exchange market in terms of exposure to systemic shocks and the linkages with the overall size of the economy.

Originality/value

The paper contributes to the existing literature and extends the analysis of determinants of stock exchange integration. In particular, the existence of de jure stock market integration projects suggests to design a special regulatory framework in order to benefit the important consequences of the integration phenomenon and to decrease the risk of financial contagion.

Details

Journal of Economic Studies, vol. 41 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 14 March 2008

Enrico Moretto and Stefano Rossi

The paper aims to present an exchange ratio for merging companies that incorporates the change in the level of riskiness.

1334

Abstract

Purpose

The paper aims to present an exchange ratio for merging companies that incorporates the change in the level of riskiness.

Design/methodology/approach

The paper is a theoretical one. Its main objective has been achieved exploiting standard modern finance results such as Capital Asset Pricing Model Capital Asset Pricing Model (CAPM).

Findings

The paper offers a formula that determines a risk‐adjusted exchange ratio that takes into account both risk and synergy.

Research limitations/implications

Due to the fact that CAPM is applied and beta factors are required, the formula is fully applicable only to companies whose stocks are traded on a financial market. Empirical test of the exchange ratio formula (using, for instance, an event‐study methodology) should be performed.

Practical implications

The use of the formula allows the identification of whether the offered exchange ratio fully reflects the expected return/risk profile for stockholders of the merging companies.

Originality/value

The paper should be useful in both theoretical and managerial conditions. It carries a way to embed relative riskiness of two companies into a simple formula.

Details

Managerial Finance, vol. 34 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 October 2006

Heiko Schmiedel and Andreas Schönenberger

The purpose of this paper is to investigate the state of integration of securities market infrastructure in Europe.

Abstract

Purpose

The purpose of this paper is to investigate the state of integration of securities market infrastructure in Europe.

Design/methodology/approach

Given the lack of quantitative and price‐based measures, this paper adopts a rather qualitative approach to evaluating the degree and evolution of integration in the securities market infrastructure within Europe. Future challenges, policy options for regulation and market design are discussed.

Findings

Despite its single currency, the euro area securities infrastructure remains highly fragmented due to cross‐border differences in tax regimes, procedures, laws, and vested interests. Cost savings and increased efficiency can be expected from further integration.

Originality/value

This is the only paper which provides a comprehensive and comparative analysis of the current level of integration of the securities infrastructure in the euro area and its implications for regulation and market policy.

Details

Journal of Financial Regulation and Compliance, vol. 14 no. 4
Type: Research Article
ISSN: 1358-1988

Keywords

Article
Publication date: 1 April 2002

Wayne J. Carroll

Market manipulation is a general term covering a number of practices deemed harmful to the capital markets. Conduct that can lead to a violation of the market manipulation…

Abstract

Market manipulation is a general term covering a number of practices deemed harmful to the capital markets. Conduct that can lead to a violation of the market manipulation provisions extends from active trading to merely spreading information about a particular security or company. Market manipulation comes in many forms, whose number is limited only by human ingenuity.

Details

Journal of Financial Crime, vol. 9 no. 4
Type: Research Article
ISSN: 1359-0790

Article
Publication date: 11 May 2015

Zhang Dengjun

This study aims to link the financial cooperation in the Nordic region and the interdependence between the stock markets in this area. The main emphasis is placed on the evolution…

Abstract

Purpose

This study aims to link the financial cooperation in the Nordic region and the interdependence between the stock markets in this area. The main emphasis is placed on the evolution of this interdependence as the financial integration was proceeding.

Design/methodology/approach

Johansen’s cointegration technique and the exponential generalized autoregressive conditionally heteroskedastic model are applied to test the long-run and short-run interdependences, respectively, among Nordic stock markets. In particular, the recursive estimation approach is used to reveal the evolution of the interdependence between those markets.

Findings

The existence of two cointegrations over the sample period indicates that the markets depend on each other to some extent. The recursive estimation of Johansen’s model further reveals that the interdependence had been greatly improving until late 2008. The interdependence between those markets is also confirmed convincingly by the short-term dynamics, noting that the spillover effects between most pairs of stock volatilities are witnessed in the empirical results.

Practical implications

The findings show the dynamics of the long-run correlations between the Nordic stock markets, which imply the intrinsic response to the process of financial market reforms, the 2008 global financial crisis and the period after the crisis. The evidenced information about determinants of the interdependence between Nordic stock markets is sending strong signals to investors to enhance their investment strategies.

Originality/value

Most of the existing studies have been restricted to the static long-run and/or short-run interdependence among those markets. However, this study contributes to the literature by investigating the dynamics of interdependence among the Nordic stock markets over time; moreover, the evolution of the market interdependence is sketched closely to the process of the regional financial market reforms.

Details

Review of Accounting and Finance, vol. 14 no. 2
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 1 June 1991

Robert L Conn, Karen E. Lahey and Michael Lahey

This paper extends the merger pricing model associated with Larson‐Gonedes to the general question: how well does the premium developed from the pricing model forecast the…

356

Abstract

This paper extends the merger pricing model associated with Larson‐Gonedes to the general question: how well does the premium developed from the pricing model forecast the securities market reaction of the actual merger? Based on a sample of 91 common stock mergers, shareholders in participating firms incur wealth losses about half the time but the magnitude of the gains outweighs the losses such that statistically significant gains are reported for both buyers and sellers. Removal of market wide price movements further increases the gains to shareholders. However, the premium consistently overstates the gain obtained by acquired firms and bears no systematic relationship to the gains registered by shareholders of acquiring firms. Financial analyses of mergers have focused almost exclusively on mergers as “events” with resultant measurements in abnormal returns surrounding the merger announcement/consummation to shareholders, and occasionally bondholders, in both buying and selling firms. Recent reviews of these studies by Halpern (1983), Jensen and Ruback (1983), and especially Roll (1986) stress the tentativeness of the findings and the ambiguity of their interpretation. The common feature of all this analysis has been on the ex post valuation of the merger event by the securities market from an informational content perspective. Alternatively, these studies have evaluated indirectly whether the price premium paid in an acquisition exceeds, equals, or is less than the market's valuation of the net present value of the merger, and how the spoils/losses are distributed between acquirers and acquirees. But never is the bid premium itself determined and then compared to the market's reaction upon public announcement. As Roll argues, the merger process involves three steps: “First, the bidding firm identifies a potential target firm; second, a ‘valuation’ of the equity of the target is undertaken…; third, the ‘value’ is compared to current market price… If value exceeds price, a bid is made…” Roil (1986, p. 198). This paper links the price premium offered in mergers to the market's reaction to the news of the merger, or alternatively, it compares Roll's steps two and three. The merger pricing model used is the exchange ratio determination model developed by Larson and Gonedes (1969) and applied to mergers by Conn and Nielsen (1977). The pricing model, commonly cited in finance texts (eg. Copeland and Weston (1988, pp. 757–763), has the advantage of being deterministic and thus provides a direct measure of the bid premium subject to a pareto optimal wealth constraint for shareholders in both buying and selling firms. The principal question this paper asks is: Does the price premium provide a consistent, unbiased forecast of the market's reaction? This is an important question from both the bidding firms' and target firms' perspectives for several reasons. First, the terms of the negotiated merger may signal important information to the securities market regarding the degree of agency costs in the merging firms. For example, an excessively high negotiated price for the target may indicate either the bidder has inept management or management insulated from shareholder interests. Thus, the terms of a merger may reflect not only the participants' expectations regarding the merger itself, but also be influenced by existing — although previously unknown — agency costs. The signalling information contained in merger announcement may obviously mask the expectational information, creating ambiguity in interpretation of market reaction. Second, distribution of the market reaction for buyers and sellers is important not only to participating firms' shareholders, but also to the effectiveness of the market for corporate control. A perfectly competitive merger market assures that merger premiums equal the expected value of the increased market values of merging firms. Thus, divergences between premiums and subsequent market reactions may have important implications for assessing the degree of competitiveness in the merger market, and hence, the effectiveness of mergers as a disciplinary force in the market for corporate control. Finally, the adequacy of ex ante merger pricing models remains an unexplored issue. Using an improved methodology, the Larson and Gonedes (LG) model is expanded to adjust for market wide movements in PE ratios; thus, merger specific influences on wealth positions are more clearly focused upon in contrast to the earlier work by Conn and Nielsen (1977). The earlier finding by Conn and Nielsen that approximately one half of mergers sampled in the 1960s failed to meet the pareto wealth constraint for participating firms is therefore re‐examined with an improved methodology and more recent sample of mergers occurring through 1979. The paper is organised as follows. Section I reviews and critiques the Larson‐Gonedes merger pricing model. Section II describes the empirical methodology and sample. Section III presents the empirical results and Section IV concludes with a summary.

Details

Managerial Finance, vol. 17 no. 6
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 June 2003

Michael Nwogugu

Corporate accountability and quality of corporate disclosure have impacted on many companies and banks, particularly those grown through mergers and acquisitions (M&A) and…

2864

Abstract

Corporate accountability and quality of corporate disclosure have impacted on many companies and banks, particularly those grown through mergers and acquisitions (M&A) and companies have had to restate their financial statements. The growth of service and technology companies (particularly by M&A) presents numerous public policy, legal, regulatory and accounting issues. Some of these companies have substantial intangible assets and the accounting for M&A and investments can be manipulated to affect reported assets and earnings. The exchange of securities and conflicts of interest in such transactions can affect financial statements – all of these factors can distort strategic planning, legal analysis, performance analysis and credit analysis. Fraudulent conveyance has typically not been considered in detail in many real life transactions (processed by law firms, the SEC, accounting firms and banks), even though it is the major means of unfair and illegal wealth transfer and fraud in corporate transactions. This paper highlights some of these issues, and illustrates the role and benefits of proper legal analysis in corporate transactions, and the convergence of corporate financial analysis and legal analysis and tax/accounting analysis.

Details

Managerial Auditing Journal, vol. 18 no. 4
Type: Research Article
ISSN: 0268-6902

Keywords

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