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Cross-Border Reverse Mergers: Causes and Consequences


Jordan I. Siegel


Harvard Business School

Yanbo Wang


Boston University School of Management

September 24, 2013

Harvard Business School Strategy Unit Working Paper No. 12-089

Abstract:     
We study non-U.S. companies that have used reverse mergers as a means to adopt U.S. corporate law (and sometimes U.S. securities law as well). Early adopters of cross-border reverse mergers and those firms that hired a Big Four auditor exhibited superior corporate governance outcomes. Later adopters of cross-border reverse mergers were likely to strategically mimic the early entrants only to gain access to U.S. capital markets — that is, they took some governance actions but not others — and are shown to be likely to have worse corporate governance outcomes over time. Firm-level origins in China initially appears to be a significant negative determinant of at least some corporate governance outcomes, but the variable loses its statistical power when examining the most comprehensive data set on cross-border reverse mergers yet assembled and when including a battery of relevant control variables. Adoption of Nevada’s corporate law is associated with some of the most serious restatements involving real corporate governance and data manipulation problems. In summary, the evidence supports the existence of strategic mimicry, which the capital market did not fully discern for many years. It also supports the explanatory power of reputational bonding to explain the fact that adoption of U.S. institutions can be used either to build reputation or to exploit relatively weak U.S. cross-border law enforcement.

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Date posted: December 22, 2012 ; Last revised: September 25, 2013

Suggested Citation

Siegel, Jordan I. and Wang, Yanbo, Cross-Border Reverse Mergers: Causes and Consequences (September 24, 2013). Harvard Business School Strategy Unit Working Paper No. 12-089. Available at SSRN: http://ssrn.com/abstract=2192472 or http://dx.doi.org/10.2139/ssrn.2192472

Contact Information

Jordan I. Siegel (Contact Author)
Harvard Business School ( email )
Morgan Hall 231
Soldiers Field
Boston, MA 02163
United States
617-495-6303 (Phone)
617-496-5859 (Fax)
Yanbo Wang
Boston University School of Management ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
6173585871 (Phone)
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References:  34
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