Post by Sapphire Capital on Jul 12, 2008 20:50:21 GMT 4
Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions
MARINA MARTYNOVA
University of Sheffield Management School; Tilburg University - Department of Finance
LUC RENNEBOOG
Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI)
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February 1, 2008
CentER Discussion Paper Series No. 2008-18
ECGI - Finance Working Paper No. 197/2008
TILEC Discussion Paper No. 2008-008
Abstract:
In cross-border acquisitions, the differences between the bidder and target corporate governance have an important impact on the takeover returns. We measure the difference in the bidder and target corporate governance (in terms of shareholder, minority shareholder, and creditor orientation) with newly constructed indices. 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 this bootstrapping effect.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1096059_code524065.pdf?abstractid=1094661&mirid=3
MARINA MARTYNOVA
University of Sheffield Management School; Tilburg University - Department of Finance
LUC RENNEBOOG
Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI)
--------------------------------------------------------------------------------
February 1, 2008
CentER Discussion Paper Series No. 2008-18
ECGI - Finance Working Paper No. 197/2008
TILEC Discussion Paper No. 2008-008
Abstract:
In cross-border acquisitions, the differences between the bidder and target corporate governance have an important impact on the takeover returns. We measure the difference in the bidder and target corporate governance (in terms of shareholder, minority shareholder, and creditor orientation) with newly constructed indices. 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 this bootstrapping effect.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1096059_code524065.pdf?abstractid=1094661&mirid=3