By means of an international sample of cross-border mergers and acquisitions (M&As)
involving firms with outstanding Eurobonds from the US, Europe, and other countries around the world, we show that bond performance around M&A announcements is sensitive to cross-country differences in creditor protection and claims enforcement in a court of law.
Bidder and target bonds perform significantly better when they become exposed to a jurisdiction with stronger creditor rights or with more efficient enforcement of creditor claims. These spillover effects in better creditor protection outweigh the effects of legal origin and exposure to other more general corporate governance measures such as the rule of law or better anti-director rights. The spillovers are intensified by the ability of creditors to perform insolvency arbitrage across legal systems, and are higher for longer maturity bonds, bonds issued by firms with high asset risk, and bonds issued by firms with a higher likelihood of financial distress.
We empirically examine whether and how the doctrine of enhanced judicial scrutiny that emerged from Revlon and its progeny actually affects M&A transactions. Combining hand-coding and machine-learning techniques, we assemble data...Read more
Relative performance evaluation (RPE) in CEO compensation can be used as a commitment device to pay CEOs for their revealed relative talent. We find evidence consistent with the talent-retention hypothesis, using two different approaches. First,...Read more
Efficient contracting depends upon imposing risk on the party with superior access to information. Yet the parties in mergers and acquisitions transactions now commonly use Representation and Warranty Insurance (“RWI”) to shift this risk to a...Read more
Mergers and acquisitions are often motivated by the intention of creating value from intangible assets. We develop a novel word list of intangibles and apply it to takeover announcements. Deals presented with more “intangibles talk” complete more...Read more