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Corporate Governance Convergence by Contract: Evidence from Cross-Border Mergers

  • Arturo Bris
  • Christos Cabolis

Cross-border mergers allow firms to alter the level of protection they provide to their investors, because target firms usually import the corporate governance system of the acquiring company. This article extends the existing literature by evaluating the effect of changes in corporate governance induced by cross-border mergers on industry value, instead of focusing on cross-country comparisons. We construct measures of the change in investor protection induced by cross-border mergers in a sample of 9,277 industry-country-year observations. We find that the Tobin's Q of an industry increases when firms within the industry are acquired by foreign firms coming from countries with better corporate governance. In addition, we show that acquisitions of firms in countries with less protective regimes--French and German legal origin--have a negative impact on the acquiror's value. Conversely, target industries benefit from acquisitions by firms from countries with better corporate governance--English and Scandinavian legal origin. Ours is among the first studies to document in a panel-data framework that improving investor protection creates value.

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File URL: http://icfpub.som.yale.edu/publications/2654
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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm293.

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Date of creation: 01 Sep 2002
Date of revision: 01 Jan 2003
Handle: RePEc:ysm:somwrk:ysm293
Contact details of provider: Web page: http://icf.som.yale.edu/

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  1. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, 06.
  2. Shleifer, Andrei & Vishny, Robert W., 1986. "Large Shareholders and Corporate Control," Scholarly Articles 3606237, Harvard University Department of Economics.
  3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  4. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December.
  5. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
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  7. Ari Hyytinen & Iikka Kuosa & Tuomas Takalo, 2003. "Law or Finance: Evidence from Finland," European Journal of Law and Economics, Springer, vol. 16(1), pages 59-89, July.
  8. Hietala, Pekka T, 1989. " Asset Pricing in Partially Segmented Markets: Evidence from the Finnish Market," Journal of Finance, American Finance Association, vol. 44(3), pages 697-718, July.
  9. Eckbo, B Espen, 1985. "Mergers and the Market Concentration Doctrine: Evidence from the Capital Market," The Journal of Business, University of Chicago Press, vol. 58(3), pages 325-49, July.
  10. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
  11. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
  12. Stulz, Rene M, 1981. "On the Effects of Barriers to International Investment," Journal of Finance, American Finance Association, vol. 36(4), pages 923-34, September.
  13. Daines, Robert, 2001. "Does Delaware law improve firm value?," Journal of Financial Economics, Elsevier, vol. 62(3), pages 525-558, December.
  14. Hertzel, Michael G, 1991. " The Effects of Stock Repurchases on Rival Firms," Journal of Finance, American Finance Association, vol. 46(2), pages 707-16, June.
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