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A BIT goes a long way: Bilateral investment treaties and cross-border mergers

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  • Bhagwat, Vineet
  • Brogaard, Jonathan
  • Julio, Brandon

Abstract

We examine whether bilateral investment treaties (BITs), an external governance mechanism, stimulate cross-border mergers by protecting the property rights of foreign acquirers. Exploiting the staggered adoption and bilateral nature of the treaties, we find that BITs have a large positive effect on cross-border mergers. The probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. The increase is driven by deals flowing from developed economies to developing economies and is concentrated in target countries with medium levels of political risk. The results suggest BITs are effective in expanding the global market for corporate control, particularly in the developing world.

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  • Bhagwat, Vineet & Brogaard, Jonathan & Julio, Brandon, 2021. "A BIT goes a long way: Bilateral investment treaties and cross-border mergers," Journal of Financial Economics, Elsevier, vol. 140(2), pages 514-538.
    • Handle: RePEc:eee:jfinec:v:140:y:2021:i:2:p:514-538
    DOI: 10.1016/j.jfineco.2020.12.005
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    Cited by:

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    2. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2022. "Does terrorism affect greenfield investment? A structural gravity approach," ThE Papers 22/06, Department of Economic Theory and Economic History of the University of Granada..
    3. Radovan Kastratović & Predrag Bjelić, 2023. "The Effectiveness Of Bilateral Investment Treaties In Attracting Foreign Direct Investment: The Case Of Serbia," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 68(237), pages 37-68, April – J.
    4. Peter Egger & Alain Pirotte & Catharine Titi, 2023. "International investment agreements and foreign direct investment: A survey," The World Economy, Wiley Blackwell, vol. 46(6), pages 1524-1565, June.
    5. Wang, Yichen & Hu, Jun & Chen, Jia, 2023. "Does Fintech facilitate cross-border M&As? Evidence from Chinese A-share listed firms," International Review of Financial Analysis, Elsevier, vol. 85(C).
    6. Huang, Chenghao & Jin, Zhi & Tian, Siyang & Wu, Eliza, 2023. "The real effects of corruption on M&A flows: Evidence from China's anti-corruption campaign," Journal of Banking & Finance, Elsevier, vol. 150(C).

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    More about this item

    Keywords

    Cross-border acquisitions; Bilateral investment treaties; Property rights; Political risk;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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