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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
References: Add references at CitEc
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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