A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers

73 Pages Posted: 21 Nov 2016 Last revised: 16 Jul 2020

See all articles by Vineet Bhagwat

Vineet Bhagwat

George Washington University - Department of Finance

Jonathan Brogaard

University of Utah - David Eccles School of Business

Brandon Julio

Lundquist College of Business, University of Oregon

Date Written: March 18, 2020

Abstract

We examine whether Bilateral Investment Treaties (BITs), an external governance mechanism, stimulate cross-border mergers by protecting the property rights of foreign acquirers. Exploiting the staggered adoption and bilateral nature of the treaties, we find that BITs have a large positive effect on cross-border mergers. The probability and dollar volume of mergers between two given countries more than doubles after the signing of a BIT. The increase is driven by deals flowing from developed economies to developing economies and is concentrated in target countries with medium levels of political risk. The results suggest BITs are effective in expanding the global market for corporate control, particularly in the developing world.

Keywords: cross-border merger, acquisitions, legal institutions, investment treaty

JEL Classification: G34, K33

Suggested Citation

Bhagwat, Vineet and Brogaard, Jonathan and Julio, Brandon, A BIT Goes a Long Way: Bilateral Investment Treaties and Cross-border Mergers (March 18, 2020). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2872989 or http://dx.doi.org/10.2139/ssrn.2872989

Vineet Bhagwat (Contact Author)

George Washington University - Department of Finance ( email )

2023 G Street
Washington, DC 20052
United States

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Brandon Julio

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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