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

53 Pages Posted: 21 Nov 2016 Last revised: 16 Sep 2017

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: September 2017

Abstract

We examine whether an external governance mechanism, Bilateral Investment Treaties (BITs), remove impediments to cross-border mergers by protecting the property rights of foreign acquirers. 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. Most of this increase is driven by deals flowing from developed economies to developing economies. The effect of BITs is concentrated in target countries with medium levels of political risk, consistent with views that BITs are ineffective for countries with very high country risk and unnecessary for countries with low country risk. Overall the results suggest that some countries outsource legal protection when institutions are not fully developed.

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 (September 2017). 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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