Firm Size, Sovereign Governance, and Value Creation: Evidence from the Acquirer Size Effect

41 Pages Posted: 3 Mar 2011 Last revised: 9 May 2014

See all articles by Mark Humphery-Jenner

Mark Humphery-Jenner

UNSW Business School; Financial Research Network (FIRN)

Ronan Powell

University College Dublin (UCD) - Michael Smurfit Graduate School of Business

Date Written: 2014

Abstract

This paper examines the relationship between firm size, sovereign governance, and value-creation in acquisitions. The takeover literature suggests that size can enable managerial entrenchment and value-destruction. However, in weak governance environments, size might have off-setting benefits, including increased market power and political connections. Using a sample of 17,647 takeovers from 45 countries, we show that large firms in weak governance countries do takeovers that generate higher stock-returns, are more likely to be friendly, take less time to complete, and increase operating performance. Further, the benefits of larger size increase with the importance of political connections in the acquirer’s country.

Keywords: Governance, Regulation, Takeovers, Size-Effect

JEL Classification: G34, G38, K22, K23

Suggested Citation

Humphery-Jenner, Mark and Powell, Ronan G., Firm Size, Sovereign Governance, and Value Creation: Evidence from the Acquirer Size Effect (2014). Journal of Corporate Finance, 2014, Vol. 26, pp. 57-77, DOI: 10.1016/j.jcorpfin.2014.02.009, Available at SSRN: https://ssrn.com/abstract=1773426 or http://dx.doi.org/10.2139/ssrn.1773426

Mark Humphery-Jenner (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Ronan G. Powell

University College Dublin (UCD) - Michael Smurfit Graduate School of Business ( email )

Blackrock, Co. Dublin
Ireland

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