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Corporate Governance and Acquisitions: Acquirer Wealth Effects in the Netherlands

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Author Info
Jong, A. de
Poel, A.M. van der
Wolfswinkel, M. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
Abstract

We examine 865 acquisitions by Dutch industrial firms over the period 1993–2004. Theoretical work based on principal–agent problems predicts that managers of exchange-listed corporations may pursue acquisitions even when these do not add value for the shareholders. Corporate governance structures serve to constrain managers in their acquisition activity. In this chapter we measure the shareholder wealth effects of acquisitions and the factors that determine these wealth effects, including the governance characteristics of corporations. Firms in the Netherlands are interesting from the perspective of corporate governance, because the managerial board has a relatively strong position vis-à -vis shareholders. Several takeover defenses commonly used in the Netherlands not only limit shareholder influence during takeover battles, but also in absence of such fights. On the other hand, ownership is relatively concentrated, which may provide shareholders with the incentives and power to monitor the management. The average abnormal stock return following acquisition announcements is 1.1%, which is a significant positive effect. There is only a significant negative impact of the so-called structured regime, a situation where several shareholder rights are delegated to the supervisory board. This result suggests that governance improves acquisition decisions.

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Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2007-016-F&A Revision_Date: 2008-09-26.

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Date of creation: 28 Mar 2007
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Handle: RePEc:dgr:eureri:300010454

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Keywords: Mergers & acquisitions Corporate governance The Netherlands Event study

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  3. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August. [Downloadable!] (restricted)
  4. Renneboog, L.D.R. & Szilagyi, P.G., 2006. "How Relevant is Dividend Policy under Low Shareholder Protection?," Discussion Paper 2006-019, Tilburg University, Tilburg Law and Economic Center.
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  5. Raghuram Rajan & Henry Servaes & Luigi Zingales, . "The Cost of Diversity: The Diversification Discount and Inefficient Investment," CRSP working papers 463, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  6. Martynova, Martina & Renneboog, L.D.R., 2006. "Mergers and acquisitions in Europe," Discussion Paper 6, Tilburg University, Center for Economic Research. [Downloadable!]
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  7. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November. [Downloadable!] (restricted)
  8. Maloney, Michael T & McCormick, Robert E & Mitchell, Mark L, 1993. "Managerial Decision Making and Capital Structure," Journal of Business, University of Chicago Press, vol. 66(2), pages 189-217, April. [Downloadable!] (restricted)
  9. Martynova, M. & Renneboog, L.D.R., 2006. "Mergers and Acquisitions in Europe," Discussion Paper 2006-003, Tilburg University, Tilburg Law and Economic Center.
  10. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December. [Downloadable!] (restricted)
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  11. Moeller, Sara B. & Schlingemann, Frederik P., 2005. "Global diversification and bidder gains: A comparison between cross-border and domestic acquisitions," Journal of Banking & Finance, Elsevier, vol. 29(3), pages 533-564, March. [Downloadable!] (restricted)
  12. Mitchell, Mark L & Lehn, Kenneth, 1990. "Do Bad Bidders Become Good Targets?," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 372-98, April. [Downloadable!] (restricted)
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