Tender offers in South America: are abnormal returns really high?

Different studies in developed capital markets have found positive abnormal returns of at least 15% during the announcement date of a tender offer. Although there are almost no studies for South American stock markets, some studies reported positive abnormal returns, ranging from 25% to 50%, related to the announcement of the first tender offer. In this study one argues that estimated positive abnormal returns in emerging markets are high because studies have assumed a completely segmented capital market by applying the market model with a local stock market index. By allowing for partial integration among five South American emerging markets, one shows that there are in fact positive abnormal returns previously, during, and after the announcement date of the first tender offer. However, the positive abnormal return associated to the announcement date is in the order of 8%. A slightly higher abnormal return is obtained using a market model that accounts for partial integration and downside risk. These results prompt towards a lower positive abnormal return in the sample of South American firms studied.