05153081

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05153081 Lin, Tyrone T. Chen, Chie Bein Chen, Ping Yu International merger evaluation model with stochastic real exchange rate. J. Inf. Optim. Sci. 28, No. 1, 95-110 (2007). 2007 Taru Publications, New Delhi, Delhi, India EN Summary: This paper reveals an international merger valuation model using stochastic real exchange rate which follows geometric Brownian motion and square root of mean reverting process as an index to investigate how the decision making of international merger when two domestic firms match two foreign firms under two single-channel strategy-alliances in duopolistic market. The proposed model applies game options to evaluate the before and after project values of international merger and analyzes the threshold of international merger which are dealt with the real exchange rate. Under the assumption that the specific profit function of firms is given, the thresholds of real exchange rate are evaluated and the numerical examples of sensitivity analysis are also made. The results of numerical analysis could provide the decision maker to refer either to continue strategy alliance or make international merger decision. The analysis result of this paper finds that with high volatility in real exchange rate, the firm is unlikely to taking an international merger action. The reactions of the leader and the follower are different in many concepts. The follower is more risk aversion than the leader and the leader usually has more advantages than the follower because the earlier wins the more market share. This paper concludes that the investment cost and the return affect the decision of merger. In addition, from the results of analysis using numerical examples, after merging, a large firm scale gets more benefit than a small firm scale.