What is Different About Government-Controlled Acquirers in Cross-Border Deals?

56 Pages Posted: 17 Mar 2010

See all articles by Chuan Rose Liao

Chuan Rose Liao

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

George Andrew Karolyi

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: September 2009

Abstract

We examine the motives for and consequences of 5,317 failed and completed cross-border acquisitions constituting $619 billion of total activity that were led by government-controlled acquirers over the period from 1990 to 2008. We benchmark this activity at the aggregate country level and also at the deal level with cross-border acquisitions involving corporate acquirers over the same period. We find that government-led deal activity is relatively more intense for geographically-closer countries, but also relatively less sensitive to differences in the level of economic development of the acquirer’s and target’s home countries, in the quality of their legal institutions and accounting standards, and to how stringent are restrictions on FDI flows in their countries. Government-led acquirers are more likely to pursue larger targets with greater growth opportunities and more financial constraints. But, the share-price reactions to the announcements of such acquisitions are not different. Among those deals involving government-controlled acquirers, we do find important differences involving sovereign wealth funds (SWFs). SWF-led acquisitions are less likely to fail, they are more likely to pursue acquirers that are larger in total assets and with fewer financial constraints, and the market reactions to SWF-led acquisitions, while positive, are statistically and economically much smaller. We discuss policy implications in terms of recent regulatory changes in the U.S. and other countries that seek to restrict foreign acquisitions by government-controlled entities.

Keywords: Cross-border acquisitions, sovereign acquirers

JEL Classification: F3, G15, G32, G38

Suggested Citation

Liao, Chuan Rose and Karolyi, George Andrew, What is Different About Government-Controlled Acquirers in Cross-Border Deals? (September 2009). AFA 2011 Denver Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1571560 or http://dx.doi.org/10.2139/ssrn.1571560

Chuan Rose Liao

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States

George Andrew Karolyi (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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