Spillover of corporate governance standards in cross-border mergers and acquisitions

Marina Martynova and Luc Renneboog

Journal of Corporate Finance, 2008, vol. 14, issue 3, 200-223

Abstract: In cross-border acquisitions, the differences between the bidder and target corporate governance (measured by newly constructed indices capturing shareholder, minority shareholder, and creditor protection) have an important impact on the takeover returns. Our country-level corporate governance indices capture the changes in the quality of the national corporate governance regulations over the past 15 years. When the bidder is from a country with a strong shareholder orientation (relative to the target), part of the total synergy value of the takeover may result from the improvement in the governance of the target assets. In full takeovers, the corporate governance regulation of the bidder is imposed on the target (the positive spillover by law hypothesis). In partial takeovers, the improvement in the target corporate governance may occur on voluntary basis (the spillover by control hypothesis). Our empirical analysis corroborates both spillover effects. In contrast, when the bidder is from a country with poorer shareholder protection, the negative spillover by law hypothesis states that the anticipated takeover gains will be lower as the poorer corporate governance regime of the bidder will be imposed on the target. The alternative bootstrapping hypothesis argues that poor-governance bidders voluntarily bootstrap to the better-governance regime of the target. We do find support for the bootstrapping effect.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (119)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929-1199(08)00022-9
Full text for ScienceDirect subscribers only

Related works:
Chapter: Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisition (2010)
Working Paper: Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions (2008)
Working Paper: Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions (2008)
Working Paper: Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions (2008)
Working Paper: Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:14:y:2008:i:3:p:200-223

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().