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
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: Suggested Citation