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Board participation, toeholds and the cross-border effect

Author

Listed:
  • Hamberg, Mattias
  • Overland, Conny
  • Lantz, Björn

Abstract

Research shows that the bid announcement return (BAR) of the acquiring firm is lower for cross-border than domestic acquisition announcements. The current lack of economically based explanations for this effect, labeled the cross-border effect by Moeller and Schlingemann (2005), motivates our study. We use unique hand-collected corporate governance data to study how the relationships between acquiring and target firms prior to a bid announcement affect the cross-border effect. Our tests show that non-operating associations between the acquiring and target firms, in the form of board participation and toeholds, have a positive effect on the BAR. The cross-border effect disappears when we control for board participation and toeholds. Thus, we suggest that the cross-border effect is at least partly a consequence of information asymmetries and the adverse selection problem that they generate.

Suggested Citation

  • Hamberg, Mattias & Overland, Conny & Lantz, Björn, 2013. "Board participation, toeholds and the cross-border effect," International Business Review, Elsevier, vol. 22(5), pages 868-882.
  • Handle: RePEc:eee:iburev:v:22:y:2013:i:5:p:868-882
    DOI: 10.1016/j.ibusrev.2013.01.004
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    More about this item

    Keywords

    Board participation; Cross-border acquisitions; Cross-border effect; Toeholds Sweden;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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