International Corporate Governance Spillovers: Evidence from Cross-Border Mergers and Acquisitions

International Corporate Governance Spillovers: Evidence from Cross-Border Mergers and Acquisitions

Rui Albuquerque, Miguel Ferreira, Luis Brandão-Marques, Pedro Matos

Series number :

Serial Number: 
390/2014

Date posted :

January 01 2014

Last revised :

January 17 2014
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Keywords

  • foreign direct investment • 
  • Corporate governance • 
  • Cross border mergers and acquisitions • 
  • Spillovers

We develop and test the hypothesis that foreign direct investment promotes corporate governance spillovers in the host country. Using firm-level data on cross-border mergers and acquisitions (M&A) and corporate governance in 22 countries, we find that cross-border M&A activity is associated with subsequent improvements in the governance of the target firms? local rivals.

This positive spillover effect is more pronounced when the acquirer firm is from a country with stronger shareholder protections and if the target firm operates in a more competitive industry. Additionally, cross-border M&As improve the valuation and productivity of the target firms? rivals. Our results suggest that the international market for corporate control promotes the adoption of better corporate governance practices around the world.

Authors

Real name: 
Luis Brandão-Marques
Real name: 
Research Member
Darden School of Business, University of Virginia