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Cross-border takeovers, corruption, and related aspects of governance

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  • Utz Weitzel

    (Utrecht School of Economics, University Utrecht, Utrecht, The Netherlands)

  • Sjors Berns

    (Deloitte Consultancy, Utrecht, The Netherlands)

Abstract

We use a panel of 4979 cross-border and domestic takeovers to test the relation between host country corruption and premiums paid for local targets. Host country corruption is negatively associated with target premiums, after correcting for other governance-related factors such as political stability, legal systems, and financial disclosure standards. We estimate that deterioration in the corruption index by one point (on a 10-point scale) is, on average, associated with a reduction of 21% of local targets' premiums. Our results do not support the notion that local corruption constitutes a significant market barrier to foreign investors; rather, it represents a discount on local takeover synergies, which affects foreign and domestic acquirers alike. However, we find that the major effects of corruption can alternatively be explained by government effectiveness, pointing towards an endogenous relationship between bribery and bureaucracy. Journal of International Business Studies (2006) 37, 786–806. doi:10.1057/palgrave.jibs.8400225

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Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

Volume (Year): 37 (2006)
Issue (Month): 6 (November)
Pages: 786-806

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Handle: RePEc:pal:jintbs:v:37:y:2006:i:6:p:786-806

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Cited by:
  1. Ralph Sonenshine & Kara M. Reynolds, 2012. "Determinants of Cross Border Merger Premia," Working Papers, American University, Department of Economics 2012-13, American University, Department of Economics.
  2. Malhotra, Shavin & Zhu, PengCheng, 2013. "Paying for cross-border acquisitions: The impact of prior acquirers’ decisions," Journal of World Business, Elsevier, Elsevier, vol. 48(2), pages 271-281.
  3. Owen, Sian & Yawson, Alfred, 2010. "Human development and cross-border acquisitions," Journal of Empirical Finance, Elsevier, Elsevier, vol. 17(4), pages 689-701, September.
  4. Ang, James & Knill, April & Mauck, Nathan, 2014. "Investment Opportunity Sets of Real Assets: An International Empirical Study Based on Ownership Types," MPRA Paper 53359, University Library of Munich, Germany.
  5. Owen, Sian & Yawson, Alfred, 2013. "Information asymmetry and international strategic alliances," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(10), pages 3890-3903.
  6. Jory, Surendranath R. & Madura, Jeff & Ngo, Thanh N., 2012. "Deal structure decision in the global market for divested assets," International Review of Financial Analysis, Elsevier, Elsevier, vol. 24(C), pages 104-116.
  7. Judge, William Q. & McNatt, D. Brian & Xu, Weichu, 2011. "The antecedents and effects of national corruption: A meta-analysis," Journal of World Business, Elsevier, Elsevier, vol. 46(1), pages 93-103, January.
  8. Malhotra, Shavin & Sivakumar, K. & Zhu, PengCheng, 2011. "Curvilinear relationship between cultural distance and equity participation: An empirical analysis of cross-border acquisitions," Journal of International Management, Elsevier, Elsevier, vol. 17(4), pages 316-332.
  9. Killian J. McCarthy & G.U. Weitzel, 2009. "Theory and evidence on mergers and acquisitions by small and medium enterprises," Working Papers, Utrecht School of Economics 09-21, Utrecht School of Economics.
  10. Jensen, Nathan M & Rahman, Aminur, 2011. "The silence of corruption : identifying underreporting of business corruption through randomized response techniques," Policy Research Working Paper Series 5696, The World Bank.
  11. Kiymaz, Halil, 2009. "The impact of country risk ratings on U.S. firms in large cross-border acquisitions," Global Finance Journal, Elsevier, vol. 20(3), pages 235-247.
  12. Hou, Wanrong & Li, Sali & Priem, Richard L., 2013. "How do CEOs matter? The moderating effects of CEO compensation and tenure on equity ownership in international joint ventures," Journal of International Management, Elsevier, Elsevier, vol. 19(2), pages 138-151.
  13. Kling, Gerhard & Weitzel, Utz, 2011. "The internationalization of Chinese companies: Firm characteristics, industry effects and corporate governance," Research in International Business and Finance, Elsevier, Elsevier, vol. 25(3), pages 357-372, September.

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