61 Pages Posted: 13 Aug 2013 Last revised: 17 Dec 2015
Date Written: October 18, 2015
We test the hypothesis that foreign direct investment promotes corporate governance spillovers in the host country non-target firms. Using firm-level data from 22 countries, we find that cross-border M&A activity is associated with subsequent improvements in the governance of target firms’ rivals. The spillover is more pronounced when the acquirer’s country has stronger investor protection than the target’s country, and when the target operates in a competitive industry. Cross-border M&As also lead to increases in valuation and reductions in overinvestment of non-target firms. Our results suggest that the international market for corporate control promotes functional convergence in corporate governance.
Keywords: Foreign direct investment, Corporate governance, Cross border mergers and acquisitions, Spillovers
JEL Classification: G32, G34, G38
Suggested Citation: Suggested Citation
Albuquerque, Rui A. and Brandao Marques, Luis and Ferreira, Miguel A. and Matos, Pedro P., International Corporate Governance Spillovers: Evidence from Cross-Border Mergers and Acquisitions (October 18, 2015). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 390/2014; Darden Business School Working Paper No. 2309117. Available at SSRN: https://ssrn.com/abstract=2309117 or http://dx.doi.org/10.2139/ssrn.2309117
By Alex Edmans