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

54 Pages Posted: 2 Sep 2002

See all articles by Arturo Bris

Arturo Bris

IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance

Christos Cabolis

IMD; Yale SOM International Center for Finance

Date Written: September 2002

Abstract

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.

Keywords: Corporate Governance, Market Regulation, Cross-border Acquisitions

JEL Classification: F3, F4, G3

Suggested Citation

Bris, Arturo and Cabolis, Christos, Corporate Governance Convergence by Contract: Evidence from Cross-Border Mergers (September 2002). Available at SSRN: https://ssrn.com/abstract=321101

Arturo Bris (Contact Author)

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

Christos Cabolis

IMD ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland
+41 21 618 0742 (Phone)
+41 21 618 0707 (Fax)

Yale SOM International Center for Finance ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-7108 (Phone)
203-432-8931 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
2,024
Abstract Views
11,602
Rank
14,663
PlumX Metrics