Portable country governance and cross-border acquisitions

Jesse A Ellis, Sara B Moeller, Frederik P Schlingemann and René Stulz
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Jesse A Ellis: North Carolina State University
Sara B Moeller: University of Pittsburgh
Frederik P Schlingemann: University of Pittsburgh

Journal of International Business Studies, 2017, vol. 48, issue 2, No 2, 148-173

Abstract: Abstract The agency theory and law and finance literatures show good country governance encourages financial development, mitigates agency problems, and increases firm value. Drawing on these literatures, we develop a theory that benefits from good country governance are portable by firms across countries through cross-border acquisitions. Using acquisitions from 56 countries from 1990 to 2007, we find that acquirers can transport the benefits from good country governance, so that they gain more from acquiring targets with worse country governance than their own. As predicted, the acquirer’s stock-price reaction to acquisitions increases with the country governance distance between the acquirer and the target.

Keywords: portability theory; agency theory; theory on law and finance; event study methodology; cross-border acquisitions; country governance; bidder returns (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (33)

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DOI: 10.1057/s41267-016-0029-9

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