M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, January 10, 2011

Governance and returns on cross border transactions

Rene Stulz and his co-authors have a new paper, Globalization, Governance, and the Returns to Cross-Border Acquisitions, examining the returns cross border acquisitions.   Interesting, it looks like acquirers from countries where corporate governance is poor tend to over-pay.  That makes sense.  Also, it looks like the country of the acquirer doesn't explain as much of the stock returns as the industry and year of the acquisitions.  Bubbles matter.

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.



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