Corporate Governance and State Expropriation Risk

Col, Burcin; Errunza, Vihang R.

doi:10.2139/ssrn.1785125

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Corporate Governance and State Expropriation Risk

Pace University Finance Research Paper No. 2011/01

52 Pages Posted: 14 Mar 2011 Last revised: 27 Aug 2019

See all articles by Burcin Col

Burcin Col

Pace University-Lubin School of Business

Vihang R. Errunza

McGill University - Desautels Faculty of Management

Date Written: December 1, 2013

Abstract

Recent studies show that the transfer of corporate governance structure across borders has significant valuation consequences. It is equally important to consider the valuation effect of state expropriation risk as well as its interaction with quality of corporate governance. Using a sample of cross-border acquisitions during 1989-2009, we find that targets, which operate under some degree of state expropriation risk, receive a significantly lower premium. The target shareholders are not fully rewarded for the improvement in firm governance since the benefits of improvement are mitigated under predation. Our results provide evidence for twin-agency theory of Stulz (2005) through cross-border mergers.

Keywords: Cross-border mergers, state expropriation, corporate governance

JEL Classification: G15, G34, G38

Suggested Citation: Suggested Citation

Col, Burcin and Errunza, Vihang R., Corporate Governance and State Expropriation Risk (December 1, 2013). Pace University Finance Research Paper No. 2011/01, Available at SSRN: https://ssrn.com/abstract=1785125 or http://dx.doi.org/10.2139/ssrn.1785125