Corporate Governance Reforms Around the World and Cross-Border Acquisitions
E. Han Kim
University of Michigan, Stephen M. Ross School of Business
Tsinghua University - School of Economics & Management
May 15, 2013
Ross School of Business Paper No. 1189
This paper provides comprehensive, detailed documentation of major corporate governance reforms (CGRs) undertaken by 26 advanced and emerging economies. Have these reforms impacted corporate investment decisions by altering investor protection (IP)? To answer this question, we estimate the CGRs’ impacts on foreign acquirers’ tendency to pick better performing firms in emerging markets. We argue the cherry picking is partly due to emerging countries’ weaker IP than acquirer countries’, predicting a positive relation between the degree of cherry picking and the gap in the strength of IP. If the CGRs strengthen IP, the gap will decrease (increase) following a CGR in a target’s (acquirer’s) country, moderating (intensifying) the cherry picking tendency. This is what we find when we estimate difference-in-differences in cherry picking before and after a CGR. These results not only demonstrate the CGRs’ impacts, but also imply the IP gap between capital exporting and importing countries distorts firm-level allocation of foreign capital inflows and reduces the benefits of globalization.
Number of Pages in PDF File: 40
Keywords: Corporate Governance Reforms, Investor Protection, Target Selection, Control Premiums
JEL Classification: F21, G34, K22
Date posted: May 15, 2013 ; Last revised: July 23, 2013
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