Corporate Governance Reforms Around the World and Cross-Border Acquisitions

40 Pages Posted: 15 May 2013 Last revised: 23 Jul 2013

E. Han Kim

University of Michigan, Stephen M. Ross School of Business

Yao Lu

Tsinghua University - School of Economics & Management

Date Written: May 15, 2013

Abstract

This paper provides comprehensive, detailed documentation of major corporate governance reforms (CGRs) undertaken by 26 advanced and emerging economies. Have these reforms impacted corporate investment decisions by altering investor protection (IP)? To answer this question, we estimate the CGRs’ impacts on foreign acquirers’ tendency to pick better performing firms in emerging markets. We argue the cherry picking is partly due to emerging countries’ weaker IP than acquirer countries’, predicting a positive relation between the degree of cherry picking and the gap in the strength of IP. If the CGRs strengthen IP, the gap will decrease (increase) following a CGR in a target’s (acquirer’s) country, moderating (intensifying) the cherry picking tendency. This is what we find when we estimate difference-in-differences in cherry picking before and after a CGR. These results not only demonstrate the CGRs’ impacts, but also imply the IP gap between capital exporting and importing countries distorts firm-level allocation of foreign capital inflows and reduces the benefits of globalization.

Keywords: Corporate Governance Reforms, Investor Protection, Target Selection, Control Premiums

JEL Classification: F21, G34, K22

Suggested Citation

Kim, E. Han and Lu, Yao, Corporate Governance Reforms Around the World and Cross-Border Acquisitions (May 15, 2013). Ross School of Business Paper No. 1189. Available at SSRN: https://ssrn.com/abstract=2265263 or http://dx.doi.org/10.2139/ssrn.2265263

E. Han Kim (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-2282 (Phone)
734-763-3117 (Fax)

Yao Lu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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