Acquirer Countries Research Articles

Global board reforms and corporate acquisition performance

This paper examines the effect of board reforms on corporate acquisition performance using data from 31 countries. Using a difference-in-differences design, we find that the implementation of board reforms in the acquirer's country significantly increases acquirer returns. The increase is driven by reforms involving board independence, but not reforms involving audit committee independence nor the separation of CEO and board chair roles. Further analysis shows that the uplift in acquisition performance following improvements in board independence is strongest in acquirers with more agency problems. The ‘Board reform strengthening’ effect is concentrated in larger acquirers, with more free cash flows, executing large and public-target deals and operating in countries with ex-ante poor investor protection. The empirical evidence indicates that reforming board independence effectively alleviates agency problems between managers and shareholders and improves corporate acquisition performance.

Monetary policy and cross-border acquisitions

This study investigates the impact of monetary policy on cross-border acquisitions involving US target firms. The results show that US target firms receive significantly lower acquisition premia and cumulative abnormal returns (CARs) when the US Fed and the acquirer country's monetary policies are both restrictive compared to when they are expansive. The cumulative abnormal returns to the target around the merger announcement are roughly 11–13% lower when the Fed is restrictive, relative to when both the acquirer and target countries have expansive monetary policies. Additionally, deals conducted during periods when the monetary policy of the acquirer's country is restrictive are less likely to be financed in cash. The results suggest that monetary policy has a significant impact on target acquisition outcomes and method of financing in cross-border acquisitions.

Taxes and the location of targets

We use firm-level data to investigate the impact of taxes on the international location of targets in M&A, allowing for domestic acquisitions and heterogeneous responses by companies. The statutory tax rate in the target country is found to have a negative impact on the probability of an acquisition in that country. In addition, the estimated size of the effect is found to depend on whether (i) acquirer is a domestic or a multinational enterprise; (ii) the acquisition is domestic or cross-border; and (iii) the acquirer's country has a worldwide or territorial tax system.

Method of payment and risk mitigation in cross-border mergers and acquisitions

We argue that the method of payment in cross-border mergers and acquisitions (M&As) can mitigate country-level governance risk for the acquirer. We find a greater use of stock as the method of payment in cross-border deals involving targets from countries with high governance risk relative to that in the acquirer's country. This increased use of stock in riskier cross-border deals is consistent with the optimal reaction of the acquirer to avoid overpayment, even though we also show that the use of stock (instead of cash) as the method of payment in cross-border deals is associated with a lower likelihood of deal completion. Furthermore, for more recent periods (i.e., after 2000) we show that the use of stock (cash) has increased (decreased) significantly in cross-border deals, resulting in convergence with the method of payment used in domestic deals.

Cross-border M&As and innovative activity of acquiring and target firms

This paper analyzes the effects of cross-border mergers and acquisitions (M&As) on the innovation of European firms. The results indicate a considerable increase in post-acquisition innovation in the merged entity. This is mainly driven by inventors based in the acquirer's country, while innovation in the target's country tends to decline. The asymmetry of effects between acquiring and target firms increases with pre-acquisition differences in knowledge stocks, indicating a relocation of innovative activities towards more efficient usage within multinational firms. Instrumental variable techniques as well as a propensity-score matching approach indicate that the effect of cross-border M&As on innovation is causal.

Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect

This paper examines the relationship between acquirer size, sovereign governance, and value-creation in acquisitions. Prior literature indicates that larger acquirers' acquisitions create less shareholder wealth in developed markets, arising primarily from agency and entrenchment problems. However, in weak governance environments, size might have off-setting benefits, including increased market power and political connections. We use a sample of 17,647 takeovers from 45 countries to examine the acquirer size effect around the world. We find that the acquirer size effect exists internationally, but is smaller in magnitude in weak governance markets. Compared with larger acquirers in strong governance countries, large acquirers in weak governance countries do takeovers that generate higher stock-returns and increase post-takeover operating performance. Their deals are also more likely to be friendly, and take less time to complete. We also find that the benefits of larger acquirer size increase with the importance of political connections in the acquirer's country. The results suggest that country-governance can moderate the impact of corporate characteristics, such as corporate size.

The Effect of Acquisitions on the Performance of European Credit Institutions: Panel Data Analysis for the 90s

The aim of our research is to study the effect of financial acquisitions over European Union credit entities performance overcoming three limitations found in previous studies: most studies have been done for the United States market (characterised by higher regulatory restrictions for banking expansion both geographically and in products); they have not considered jointly acquisitions of other banks and acquisitions of other non-banking financial entities; and they have suffered from statistical limitations. Therefore, our study becomes the first one that analyses bank performance derived from both the acquisition of another bank and the acquisition of other non-banking financial entities, using panel data methodology during the period 1992-2000 for a sample of 2196 banks, where 240 acquisitions can be observed. The results show an increase in the acquirer's long-term profitability. In both acquisitions, when the target is a credit entity and when it is a non-banking financial entity, an increase in the acquirer's performance can be observed. Domestic acquisitions and those developed inside the European Union are more profitable than the ones taken outside EU. Lastly, the acquirer's country legal system does not affect the performance obtained, which continues being positive in the long run.

The Effect of Acquisitions on the Performance of European Credit Entities During the 90s: Panel Data Analysis

The aim of our research is to study the effect of financial acquisitions over European Union credit entities performance overcoming three limitations found in previous studies: most studies have been done for the United States market (characterised by higher regulatory restrictions for banking expansion both geographically and in products); they have not considered jointly acquisitions of other banks and acquisitions of other non-banking financial entities; and they have suffered from statistical limitations. Therefore, our study becomes the first one that analyses bank performance derived from both the acquisition of another bank and the acquisition of other non-banking financial entities, using panel data methodology during the period 1992-2000 for a sample of 2196 banks, where 240 acquisitions can be observed. The results show an increase in the acquirers' long-term profitability. In both acquisitions, when the target is a credit entity and when it is a non-banking financial entity, an increase in the acquirer's performance can be observed. Domestic acquisitions and those developed inside the European Union are more profitable than the ones taken outside EU. Lastly, the acquirer's country legal system does not affect the performance obtained, which continues being positive in the long run.

Cross-border mergers and acquisitions: the European–US experience

Our study, utilizing logit and multiple regression models, tests the hypothesis that macroeconomic variables, in particular bond yields, exchange rates, and stock prices, influenced the number and direction of cross-border acquisitions between firms in the United States and each of four European countries: Germany, Italy, the United Kingdom, and France. While the logit model results suggest that bond yields explain the trends in cross-border acquisitions, the regression results show the US stock prices to be a good explanatory variable. In general, the results suggest that foreign acquisitions occur more frequently when bond yields in the acquirer's country are higher than those from the country of the firm being acquired. In addition, a depressed US stock market relative to foreign stock markets encourages foreign acquisition of US companies.