Working Paper: NBER ID: w16676
Authors: Jesse Ellis; Sara B. Moeller; Frederik P. Schlingemann; Ren M. Stulz
Abstract: Using a sample of control cross-border acquisitions from 61 countries from 1990 to 2007, we find that acquirers from countries with better governance gain more from such acquisitions and their gains are higher when targets are from countries with worse governance. Other acquirer country characteristics are not consistently related to acquisition gains. For instance, the anti-self-dealing index of the acquirer has opposite associations with acquirer returns depending on whether the acquisition of a public firm is paid for with cash or equity. Strikingly, global effects in acquisition returns are at least as important as acquirer country effects. First, the acquirer's industry and the year of the acquisition explain more of the stock-price reaction than the country of the acquirer. Second, for acquisitions of private firms or subsidiaries, acquirers gain more when acquisition returns are high for acquirers from other countries. We find strong evidence that better alignment of interests between insiders and minority shareholders is associated with greater acquirer returns and weaker evidence that this effect mitigates the adverse impact of poor country governance.
Keywords: cross-border acquisitions; governance; shareholder wealth
JEL Codes: G31; G32; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Better governance in the acquirer's country (G34) | Higher gains from cross-border acquisitions (F23) |
| Governance indicators (control of corruption, rule of law, government effectiveness) (H11) | Acquirer returns (G34) |
| Governance of the target country (G38) | Acquirer returns (G34) |
| Acquisitions of public firms for cash (when acquirer has strong governance and target has weak governance) (G34) | Greater returns (G11) |
| Insider ownership (G34) | Acquirer returns (G34) |