Does takeover activity affect stock price crash risk? Evidence from international M&A laws
Balasingham Balachandran,
Huu Nhan Duong,
Hoang Luong (h.luong@business.uq.edu.au) and
Lily Nguyen
Journal of Corporate Finance, 2020, vol. 64, issue C
Abstract:
We exploit the staggered initiation of merger and acquisition (M&A) laws across countries as a plausibly exogenous shock to the threat of takeover to examine whether the market for corporate control has a real effect on firm-level stock price crash risk. Using a difference-in-differences regression on a large sample of firms from 32 countries, we find that stock price crash risk significantly decreases following the passage of M&A laws. This effect is stronger for firms domiciled in countries with poorer investor protection and information environments and for firms with weaker firm-level governance. Further, financial reporting opacity and overinvestment significantly decrease in the post-M&A law periods. Our study suggests that an active takeover market has a disciplining effect on managerial bad news hoarding and leads to lower future crash risk.
Keywords: International M&a laws; Crash risk; Bad news hoarding; Financial reporting opacity; Overinvestment (search for similar items in EconPapers)
JEL-codes: G10 G30 G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (27)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:64:y:2020:i:c:s0929119920301413
DOI: 10.1016/j.jcorpfin.2020.101697
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