Working Paper: CEPR ID: DP3889
Authors: Stefano Rossi; Paolo Volpin
Abstract: This Paper studies the determinants of mergers and acquisitions around the world during the 1990s by focusing on differences in laws and regulation across countries. We find that the volume of M&A activity and the premium paid are significantly larger in countries with better investor protection. This result indicates that an active market for mergers and acquisitions is a more important component of the corporate governance regime of countries with better investor protection. We also show that in cross-border deals, the targets are typically from countries with poorer investor protection than the acquirers. Hence, cross-border transactions play a governance role by improving the degree of investor protection within target firms. This finding suggests that an increase in cross-border transactions may generate a worldwide convergence of corporate governance systems.
Keywords: Corporate Governance; Investor Protection; Mergers and Acquisitions
JEL Codes: G21; G28; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Investor Protection (G18) | M&A Activity (G34) |
| Better Investor Protection (G18) | Higher Volume of M&A Activity (G34) |
| Shareholder Protection (G38) | Hostile Takeovers (G34) |
| Stronger Shareholder Protection (G38) | Higher Premium Paid During Acquisitions (G34) |
| Weaker Investor Protection (G18) | Higher Likelihood of Cash Transactions (E41) |
| Cross-Border Transactions (F38) | Weak Investor Protection in Target Countries (G38) |