Creditor Rights, Claims Enforcement, and Bond Returns in Mergers and Acquisitions

63 Pages Posted: 21 Mar 2016

See all articles by Luc Renneboog

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Peter G. Szilagyi

Central European University; Judge Business School - University of Cambridge

Cara Vansteenkiste

UNSW Australia Business School, School of Banking and Finance

Date Written: March 17, 2016

Abstract

By means of an international sample of cross-border mergers and acquisitions (M&As) involving firms with outstanding Eurobonds from the US, Europe, and other countries around the world, we show that bond performance around M&A announcements is sensitive to cross-country differences in creditor protection and claims enforcement in a court of law. Bidder and target bonds perform significantly better when they become exposed to a jurisdiction with stronger creditor rights or with more efficient enforcement of creditor claims. These spillover effects in better creditor protection outweigh the effects of legal origin and exposure to other more general corporate governance measures such as the rule of law or better anti-director rights. The spillovers are intensified by the ability of creditors to perform insolvency arbitrage across legal systems, and are higher for longer maturity bonds, bonds issued by firms with high asset risk, and bonds issued by firms with a higher likelihood of financial distress.

Keywords: bond returns, mergers and acquisitions, takeovers, creditor rights, claims enforcement, legal origin, shareholder protection

JEL Classification: G34, G32, G12, G14

Suggested Citation

Renneboog, Luc and Szilagyi, Peter G. and Vansteenkiste, Cara, Creditor Rights, Claims Enforcement, and Bond Returns in Mergers and Acquisitions (March 17, 2016). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 464/2016. Available at SSRN: https://ssrn.com/abstract=2749294 or http://dx.doi.org/10.2139/ssrn.2749294

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Peter G. Szilagyi

Central European University ( email )

Nador utca 9.
Budapest, 1051
Hungary
+36-1-887-5092 (Phone)
+36-1-887-5005 (Fax)

HOME PAGE: http://people.ceu.edu/peter_szilagyi

Judge Business School - University of Cambridge ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44-1223-764-026 (Phone)
+44-1223-339-701 (Fax)

HOME PAGE: http://www.jbs.cam.ac.uk/faculty-research/fellows-associates-a-z/peter-g-szilagyi/

Cara Vansteenkiste

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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