Target Premia and Exchange Rates: Australian Evidence

Abstract

This paper documents exchange rate and cross-border effects on Australian target premia. A significant relationship between changes in the real exchange rate and target premia for successful domestic and crossborder acquisitions is identified and shown to be robust to bid characteristics and relatedness of bidder and target. Exchange rate effects on domestic target premia are sensitive to measurement of the exchange rate and to the level of economic exposure experienced by the target. However, exchange rate and US crossborder effect on cross-border acquired targets are robust to model specifications and various definitions of the real and nominal exchange rate.