Does Takeover Activity Affect Stock Price Crash Risk? Evidence from International M&A Laws

63 Pages Posted: 26 Jan 2018 Last revised: 21 Aug 2020

See all articles by Balasingham Balachandran

Balasingham Balachandran

La Trobe Business School, La Trobe University; Financial Research Network (FIRN)

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Hoang Luong

The University of Queensland - UQ Business School

Lily Nguyen

The University of Queensland - UQ Business School

Date Written: June 3, 2020

Abstract

We exploit the staggered initiation of merger and acquisition (M&A) laws across countries as a plausibly exogenous shock to the threat of takeover to examine whether the market for corporate control has a real effect on firm-level stock price crash risk. Using a difference-in-differences regression on a large sample of firms from 32 countries, we find that stock price crash risk significantly decreases following the passage of M&A laws. This effect is stronger for firms domiciled in countries with poorer investor protection and information environments and for firms with weaker firm-level governance. Further, financial reporting opacity and overinvestment significantly decrease in the post-M&A law periods. Our study suggests that an active takeover market has a disciplining effect on managerial bad news hoarding and leads to lower future crash risk.

Keywords: International M&A laws; Crash risk; Bad news hoarding; Financial reporting opacity; Overinvestment

JEL Classification: G10, G30, G34

Suggested Citation

Balachandran, Balasingham and Duong, Huu Nhan and Luong, Hoang and Nguyen, Lily, Does Takeover Activity Affect Stock Price Crash Risk? Evidence from International M&A Laws (June 3, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3109489 or http://dx.doi.org/10.2139/ssrn.3109489

Balasingham Balachandran

La Trobe Business School, La Trobe University ( email )

La Trobe Business School
La Trobe University
Bundoora, Victoria 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Hoang Luong (Contact Author)

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Lily Nguyen

The University of Queensland - UQ Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
171
Abstract Views
1,323
Rank
261,759
PlumX Metrics