Adopting Better Corporate Governance: Evidence from Cross-Border Mergers

38 Pages Posted: 19 Jul 2003 Last revised: 20 Feb 2008

See all articles by Arturo Bris

Arturo Bris

IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance

Neil Brisley

University of Waterloo - School of Accounting and Finance

Christos Cabolis

IMD; Yale SOM International Center for Finance

Date Written: February 1, 2008

Abstract

Cross-border mergers allow firms to alter the level of protection they provide to their investors, because target firms usually import the corporate governance system of the acquiring company by law. Therefore, cross-border mergers provide a natural experiment to analyze the effects of changes in corporate governance on firm value, and on an industry as a whole. We construct measures of the change in investor protection induced by cross-border mergers in a sample of 7,330 'national industry years' (spanning 39 industries in 41 countries in the period 1990-2001). We find that the Tobin's Q of an industry - including its unmerged firms - increases when firms within that industry are acquired by foreign firms coming from countries with better shareholder protection and better accounting standards. We present evidence that the transfer of corporate governance practices through cross-border mergers is Pareto improving. Firms that can adopt better practices willingly do so, and the market assigns more value to better protection.

Keywords: Corporate governance, market regulation, cross-border acquisitions

Suggested Citation

Bris, Arturo and Brisley, Neil and Cabolis, Christos, Adopting Better Corporate Governance: Evidence from Cross-Border Mergers (February 1, 2008). EFA 2003 Glasgow, Forthcoming. Available at SSRN: https://ssrn.com/abstract=424884 or http://dx.doi.org/10.2139/ssrn.424884

Arturo Bris (Contact Author)

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

European Corporate Governance Institute (ECGI)

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

HOME PAGE: http://www.ecgi.org

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

Neil Brisley

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38887 (Phone)

Christos Cabolis

IMD ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland
+41 21 618 0742 (Phone)
+41 21 618 0707 (Fax)

Yale SOM International Center for Finance ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-7108 (Phone)
203-432-8931 (Fax)

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