The value of risk-taking in mergers: Role of ownership and country legal institutions

Narjess Boubakri, Jean-Claude Cosset, Dev Mishra () and Hyacinthe Y. Somé

Journal of Empirical Finance, 2023, vol. 70, issue C, 427-444

Abstract: We investigate whether high-risk-taking firms choose to acquire low-risk-taking firms by paying higher premiums and how the governance environment – embedded in country legal institutions and ownership structures – affects the perceived valuation effect of such acquisitions. We find evidence of a higher perceived valuation effect from an M&A deal when a higher risk-taking firm acquires lower risk-taking targets, which we call risk-taking transfer. However, benefits from such perceived valuation effects go entirely to the targets. The valuation impact of risk-taking transfer is greater when bidders feature better ownership quality (lower fraction of closely held shares), and the acquirer country strongly protects investors’ rights. The results are stronger for vertical and cross-border M&As and when acquirers secure full control of targets.

Keywords: Mergers and acquisitions; Agency theory; Governance; Corporate risk-taking; Ownership structure; Target premium (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 G34 G38 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:70:y:2023:i:c:p:427-444

DOI: 10.1016/j.jempfin.2022.12.015

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