Working Paper: CEPR ID: DP10917
Authors: Rui Albuquerque; Luis Brando Marques; Miguel A. Ferreira; Pedro Matos
Abstract: We test the hypothesis that foreign direct investment promotes corporate governance spillovers in the host country non-target firms. Using firm-level data from 22 countries, we find that cross-border M&A activity is associated with subsequent improvements in the governance of target firms? rivals. The spillover is more pronounced when the acquirer?s country has stronger investor protection than the target?s country, and when the target operates in a competitive industry. Cross-border M&As also lead to increases in valuation and reductions in overinvestment of non-target firms. Our results suggest that the international market for corporate control promotes functional convergence in corporate governance.
Keywords: corporate governance; cross-border mergers and acquisitions; foreign direct investment; spillovers
JEL Codes: G32; G34; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cross-border M&As by high-governance acquirer firms (G34) | positive governance spillovers in local nontarget firms (L59) |
| stronger investor protection in acquirer's country (G34) | stronger governance spillovers (G38) |
| competitive industries (L19) | amplified spillovers of governance improvements (F68) |
| cross-border M&A activity (F23) | increase in governance index of nontarget firms (G34) |
| cross-border M&A activity (F23) | higher market valuations in nontarget firms (G19) |
| cross-border M&A activity (F23) | lower investment rates in nontarget firms (G19) |
| governance improvements (G38) | reduced overinvestment in nontarget firms (G34) |
| foreign direct investment (F23) | corporate governance improvements (G38) |