Comment – Discussion of ‘Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisitions’ by Marina Martynova and Luc Renneboog
Comment – Discussion of ‘Spillover of corporate governance standards in crossborder mergers and acquisitions’ by Marina Martynova and Luc Renneboog Abe de Jong INTRODUCTION The corporate governance structures and practices in companies are strongly influenced by the countries where firms are incorporated. Legal rights for shareholders, creditors and directors, the enforcement of these rights and prevailing practices determine the strengths of a country’s governance regime. Cross-border mergers and acquisitions (M&As) provide a fascinating experiment where firms may face dramatic changes in their governance regimes. The acquired firm from a foreign country becomes subject to the governance regime of the domestic acquiring company. In their contribution to this volume, Martynova and Renneboog exploit the governance regime changes in this setting and empirically describe the value relevance of governance regime shifts and resulting spillover effects. Martynova and Renneboog investigate cross-border acquisitions because the governance structures of the acquiring and acquired firms influence the valuation effects in the acquisitions. The idea is that acquirers from countries with strongly shareholder-oriented governance regimes will impose this regime on target companies from countries with weaker regimes. The authors refer to this hypothesis as the positive spillover by law hypothesis in full takeovers. For partial acquisitions, the spillover effect is expected to occur on a voluntary basis, which is referred to as the (positive) spillover by control hypothesis. Where the acquiring company is from a country with a weaker regime, the reasoning inverts. This leads to the negative spillover by law hypothesis for full acquisitions, where the...
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