Cross-Border Takeovers, Corruption, and Related Aspects of Governance
Utrecht University - Utrecht University School of Economics; Radboud University - Economics Department, IMR
Deloitte Consulting, Netherlands
published version available: U. Weitzel & S. Berns (2006): “Cross-border Mergers, Government Effectiveness, and Related Aspects of Corruption”, Journal of International Business Studies, 37, 786-806.
We use a panel of 4979 cross-border and domestic takeovers to test the relation between host country corruption and premiums paid for local targets. Host country corruption is negatively associated with target premiums, after correcting for other governance related factors such as political stability, legal systems, and financial disclosure standards. We estimate that deterioration in the corruption index by one point (on a ten point scale) is, on average, associated with a reduction of 21% of local targets' premiums. Our results do not support the notion that local corruption constitutes a significant market barrier to foreign investors. It rather represents a discount on local takeover synergies, which affects foreign and domestic acquirers alike. However, we find that the major effects of corruption can alternatively be explained by government effectiveness, pointing towards an endogenous relationship between bribery and bureaucracy.
Number of Pages in PDF File: 39
Keywords: corruption, mergers and acquisitions, multinational enterprise, governance, foreign direct investment, institutions
JEL Classification: G34, M00, M14, K42
Date posted: June 19, 2006 ; Last revised: February 10, 2013