Bond Performance in Mergers and Acquisitions: The Impact and Spillover of Governance and Legal Standards

47 Pages Posted: 24 Mar 2008

See all articles by Peter G. Szilagyi

Peter G. Szilagyi

Central European University; Judge Business School - University of Cambridge

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: November 15, 2007

Abstract

This paper shows that bond performance around M&A announcements is extremely sensitive to cross-country differences in governance and legal standards, using deals involving European bidders with outstanding Eurobonds. Firstly, stakeholder-oriented corporate governance ensures that Continental European bonds fare better in and respond less to the risk effects of M&As. Secondly, bonds fare worse in cross-border M&As ceteris paribus, but perform better when they become exposed to a stakeholder-oriented governance regime or a more creditor-friendly jurisdiction. The creditor protection spillovers we identify are much greater in scope than has been previously assumed, and are intensified by the ability of creditors to arbitrage across legal systems.

Keywords: Mergers and acquisitions, bond performance, creditor rights, legal arbitrage, corporate governance

JEL Classification: G34, G32, G12, G14

Suggested Citation

Szilagyi, Peter G. and Renneboog, Luc, Bond Performance in Mergers and Acquisitions: The Impact and Spillover of Governance and Legal Standards (November 15, 2007). ECGI Finance Working Paper No. 125; EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=907141 or http://dx.doi.org/10.2139/ssrn.907141

Peter G. Szilagyi

Central European University ( email )

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Budapest, 1051
Hungary
+36-1-887-5092 (Phone)
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HOME PAGE: http://people.ceu.edu/peter_szilagyi

Judge Business School - University of Cambridge ( email )

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HOME PAGE: http://www.jbs.cam.ac.uk/faculty-research/fellows-associates-a-z/peter-g-szilagyi/

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
Netherlands
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI)

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

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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