The Developing Economies
Volume 40, Number 4 (December 2002)
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SPECIAL ISSUE: M&A AND PRIVATIZATION IN DEVELOPING COUNTRIES
-Changing Ownership Structure and Its Impact on Economic Performance-
Economic Liberalization and Changes in Corporate Control in Latin America (149KB) / Germano Mendes De Paula, Joao Carlos Ferraz, and Mariana Iootty
Structural Changes and Specialization in Brazilian Industry: The Evolution of Leading Companies and the M&A Process (89KB) / Frederico Rocha and David Kupfer
Will the Market Keep Brazil Lit Up? Ownership and Market Structural Changes in the Electric Power Sector (115KB) / Nobuaki Hamaguchi
The Impact of M&As on Shareholder Wealth: Evidence from Taiwanese Corporations (47KB) / Yeh Tsung-ming and Yasuo Hoshino
John Cantwell and Grazia D. Santangelo, "M&As and the Global Strategies of TNCs," pp. 400-434.
Most of the motivations for M&As that feature in the global strategies of transnational corporations (TNCs) are a means of reshaping competitive advantages within their respective industries. They have some effect on the TNCs of all or most industries and so to that extent they are not necessarily sector-specific. However, it may be that some of the motives which we outline affect some industries more than others, and in that sense they can be expected to be associated with a greater intensity of M&As in certain sectors than others. We identify the likelihood of M&As across industries, and discuss how the general factors that have promoted the recent M&A wave have had a bigger impact on the global strategies of TNCs in the industries in which the propensity to engage in M&As has been the highest. The regional dimension is also considered.
Gary A. Dymski, "The Global Bank Merger Wave: Implications for Developing Countries," pp. 435-66.
This paper reconsiders causes and implications of the global bank merger wave, especially for developing economies. Previous studies of the global bank mergers----that is, mergers between banks from different nations----had assumed that these combinations are efficiency-driven, and that the U.S. case defines the paradigm for all other nations' banking systems. This paper argues that the U.S. experience is unique, not paradigmatic, and that bank mergers are not efficiency-driven; instead, this merger wave has arisen because of macrostructural circumstances and because of shifts over time in banks' strategic motives. This paper argues that large, offshore banks often engage in cross-border mergers because they want to provide financial services to households and firms that have reached minimal threshold wealth levels. For developing economies, this suggests that cross-border acquisitions of local banks by offshore banks will have mixed effects; and it cannot be assumed that the net social impact is positive.
Germano Mendes De Paula, Joao Carlos Ferraz, and Mariana Iootty, "Economic Liberalization and Changes in Corporate Control in Latin America," pp. 467-96.
This article analyzes ownership restructuring and changes in corporate control in four large Latin American countries-- Argentina, Brazil, Chile, and Mexico--during the 1990s. Drawing on original firm-level data, this is a comparative study aimed at identifying cross-country differences and regularities. It focuses on transactions associated with privatizations and private mergers and acquisitions (M&As)--their evolution, relative importance, and sectoral incidence--as well as the role played by different types of investors: local, foreign, and joint ventures. A specially built database was used in the analysis, comprising 3,085 private M&As and 329 privatization transactions. Although similar to processes occurring elsewhere, it is argued that ownership restructuring in Latin America was facilitated and fostered by specific changes in policy-associated institutional framework conditions. That is, the wide-ranging process of ownership restructuring is strongly associated with economic liberalization, which has become the main feature of Latin American national regimes of incentives and regulation.
Frederico Rocha and David Kupfer, "Structural Changes and Specialization in Brazilian Industry: The Evolution of Leading Companies and the M&A Process," pp. 497-521.
This paper analyzes changes in the Brazilian productive structure and in ownership structures of leading companies during the 1990s. It uses information from balance sheets published in Gazeta Mercantil and from the Thomson Financial Securities Data database on M&A. The main findings are: (i) the sectoral distribution of leading companies has remained stable; (ii) there has been a strong change in the ownership structure in Brazil, with an increase in the participation of multinational enterprises (MNEs) in the sample of leading companies; (iii) this increase in participation may be partially, though not integrally, explained by M&A transactions; (iv) though the M&A process has been quite intensive in the period, productive concentration has decreased among the group of leading companies; and (v) acquiring firms have adopted specializing strategies during the period. This trend is even clearer when private national enterprises (PNEs) are examined separately.
Nobuaki Hamaguchi, "Will the Market Keep Brazil Lit Up? Ownership and Market Structural Changes in the Electric Power Sector," pp. 522-51.
After achieving significant success until the 1970s, the Brazilian electric power sector stalled due to financial problems. The government promoted a shift toward a private ownership model and tried to entrust the market with creating a stable and efficient energy supply. However, the energy crisis highlighted the difficulties in this transition. This paper points out that the uncertainty inherent in the market-based model increased information rent for the private companies and complicated the post-privatization expansion scenario. Privatization driven by macroeconomic problems should be carefully reexamined, especially for public utilities with strong natural monopoly characteristics, since markets tend to fail to supply the socially optimal supply, thus directly affecting people's lives.
Yeh Tsung-ming and Yasuo Hoshino, "The Impact of M&As on Shareholder Wealth: Evidence from Taiwanese Corporations," pp. 553-63.
This study, using forty-six M&A events in Taiwan between 1987 and 1998, investigates the effects of M&As on shareholder wealth. The shareholders of the acquiring firms gain modestly positive abnormal returns around the announcement dates. We also distinguish M&As of different purposes, finding that M&As for technology-acquiring purposes are most favored by the market, while vertical M&As are detrimental to shareholder wealth.
Chan-Hyun Sohn, "Corporate Debt Resolution and the Role of Foreign Capital in the Post-Crisis Restructuring of the Republic of Korea," pp. 564-86.
The outbreak of the financial crisis in the Republic of Korea in 1997 exposed the structural weaknesses in the country's economy. Heated debates have failed to generate definitive answers on just what caused the financial crisis. Considering the importance of restructuring the corporate sector, this paper analyzed how the resolution of corporate debts was accomplished and examined the role of foreign capital in Korea's post-crisis corporate restructuring. Special attention was given to the measures devised to recover nonperforming loans for the liquidation of corporate debts, to the foreign capital inflows through cross-border M&As or privatization processes, and to the changes in control through corporate governance reforms. This paper concluded that the resolution of corporate debts has been satisfactory and successful and that foreign capital contributed significantly to effective corporate restructuring and debt resolution in the post-crisis restructuring of Korea.