Cross-Border Takeovers, Corruption, and Related Aspects of Governance

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.

39 Pages Posted: 19 Jun 2006 Last revised: 10 Feb 2013

Utz Weitzel

Utrecht University - Utrecht University School of Economics; Radboud University - Economics Department, IMR

Sjors Berns

Deloitte Consulting, Netherlands

Abstract

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.

Keywords: corruption, mergers and acquisitions, multinational enterprise, governance, foreign direct investment, institutions

JEL Classification: G34, M00, M14, K42

Suggested Citation

Weitzel, Utz and Berns, Sjors, Cross-Border Takeovers, Corruption, and Related Aspects of Governance. 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.. Available at SSRN: https://ssrn.com/abstract=909546

Utz Weitzel (Contact Author)

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Radboud University - Economics Department, IMR ( email )

Nijmegen, 6500 HK
Netherlands

Sjors Berns

Deloitte Consulting, Netherlands ( email )

P.O. Box 85104
Utrecht, 3508 AC
Netherlands

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