Blockholder Heterogeneity and Conflicts in Cross-Border Acquisitions

44 Pages Posted: 27 Feb 2018

See all articles by Victor Zitian Chen

Victor Zitian Chen

University of North Carolina, Charlotte; University of North Carolina (UNC) at Charlotte - The Belk College of Business Administration

Bersant Hobdari

Copenhagen Business School

Yilei Zhang

University of North Carolina at Charlotte

Date Written: February 15, 2018

Abstract

We investigate the principal-principal (PP) conflicts between large blockholders in the context of cross-border acquisitions (CBAs). We focus on the conflicts between family blockholders and two groups of financial institutional investors – banks and mutual funds. We hypothesize that different types of blockholders have heterogeneous preferences with respect to the CBA decision and outcomes. We suggest that the PP conflicts in CBA differ across the blockholders. Banks are pressure sensitive and cooperative with the management because of their clientele relationship with firms, while mutual funds are subject to more financial scrutiny and independent from the management, making them pressure resistant. When in conflict with more powerful family blockholders, mutual funds will choose to exit after a CBA decision, whereas banks are more likely to stay. With an equally distributed voting power, family and mutual fund blockholders will be more motivated to monitor over each other and jointly discipline the management, leading to more careful selection of CBAs and higher overall shareholder value. However, such effects are weak in the case of family and banks. We find support for these conjectures using data on CBAs undertaken by US public firms over the period 2003-2016.

Keywords: Cross-border mergers and acquisitions, Principal-principal conflicts, Blockholders

JEL Classification: G32, G34

Suggested Citation

Chen, Victor Zitian and Hobdari, Bersant and Zhang, Yilei, Blockholder Heterogeneity and Conflicts in Cross-Border Acquisitions (February 15, 2018). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3124718

Victor Zitian Chen (Contact Author)

University of North Carolina, Charlotte ( email )

The Belk College of Business
Charlotte, NC 28223

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

University of North Carolina (UNC) at Charlotte - The Belk College of Business Administration ( email )

The Belk College of Business
Charlotte, NC 28223

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

Bersant Hobdari

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Yilei Zhang

University of North Carolina at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

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