Chapter 3: Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisition
s* Marina Martynova and Luc Renneboog INTRODUCTION 1. Cross-border merger and acquisition (M&A) activity has increased significantly over the last 15 years (Moeller and Schlingemann, 2005). Expansion through cross-border acquisitions enables companies to exploit differences in tax systems and to capture rents resulting from market inefficiencies, such as national controls over labour and resources markets (Scholes and Wolfson, 1990; Servaes and Zenner, 1994). An additional source of takeover synergy in cross-border M&As may be induced by improvements in the governance of the bidding and target firms as a result of spillovers of corporate governance standards between the two firms. Wang and Xie (2009) show that both bidder and target firms benefit from corporate governance improvements in domestic US mergers and acquisitions. They use the firm-level shareholder rights indices of Gompers et al. (2003) and show that takeover synergies increase with the differences in the index between the bidder and the target. We hypothesize that the scope for potential improvements in corporate governance is even greater in cross-border M&As as the difference between the bidder and target quality of corporate governance is amplified by the significant variation in national corporate governance standards. Therefore, our main question is: do differences in the quality of corporate governance standards between the bidder and target countries explain part of the expected value creation * This chapter is reprinted with permission of the Journal of Corporate Finance (Elsevier): M. Martynova, M. and L. Renneboog (2008), ‘Spillover of Corporate Governance Standards in Cross-border Mergers and...
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