The Market for Corporate Control and Risk-taking: Evidence from Global M&A Laws

British Journal of Management (forthcoming)

45 Pages Posted: 7 Jun 2021 Last revised: 31 May 2022

See all articles by Santosh Koirala

Santosh Koirala

University of Birmingham, Birmingham Business School

Sandeep Rao

Dublin City University Business School

Hisham Farag

University of Birmingham - Birmingham Business School

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School

Date Written: May 29, 2021

Abstract

In this study, we examine the effect of the market for corporate control (MCC) on firm risk-taking exploiting the staggered enactment of country-level merger and acquisition (M&A) laws of thirty-four countries as a plausibly exogenous source of variation in MCC. Consistent with the theoretical argument of temporal traps, our empirical study shows that MCC brings unintended consequences by discouraging value-relevant corporate risk-taking. Further examination of the heterogeneous effect of enabling institutions, our investigation reveals that country-level investor protection and transparency environment positively moderates the effect of MCC. Our study highlights the complementary role played by institutions to translate the effect of MCC towards discouraging value-destroying investment conservatism.

Keywords: Market for corporate control, short-termism, corporate risk-taking, firm value, investor protection, rule of law, Mergers and Acquisitions (M&A)

JEL Classification: G34, G32, K20, K30

Suggested Citation

Koirala, Santosh and Rao, Sandeep and Farag, Hisham and Marshall, Andrew P., The Market for Corporate Control and Risk-taking: Evidence from Global M&A Laws (May 29, 2021). British Journal of Management (forthcoming), Available at SSRN: https://ssrn.com/abstract=3856195 or http://dx.doi.org/10.2139/ssrn.3856195

Santosh Koirala

University of Birmingham, Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Sandeep Rao (Contact Author)

Dublin City University Business School ( email )

Glasnevin Campus
Dublin 9
Ireland

HOME PAGE: http://www.sandeepkrao.com

Hisham Farag

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Andrew P. Marshall

University of Strathclyde - Strathclyde Business School ( email )

100 Cathedral Street
Glasgow G4 0LN
United Kingdom
44 0141 548 3894 (Phone)

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