RFS Advance Access published online on March 26, 2008
Review of Financial Studies, doi:10.1093/rfs/hhn018
Corporate Governance Transfer and Synergistic Gains from Mergers and Acquisitions
Faculty of Business Administration, Chinese University of Hong Kong
School of Management, George Mason University
Address correspondence to Fei Xie, School of Management, George Mason University, 4400 University Drive, Fairfax, VA 22030; Telephone: (703) 993-9761; e-mail: fxie{at}gmu.edu.
JEL Classification: G34, G14, K22
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Abstract |
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We present evidence on the benefits of changes in control from mergers and acquisitions. We find that the stronger the acquirer's shareholder rights relative to the target’s, the higher the synergy created by an acquisition. This result supports the hypothesis that acquisitions of firms with poor corporate governance by firms with good corporate governance generate higher total gains. We also find that the synergy effect of corporate governance is shared by target shareholders and acquiring shareholders, in that both target returns and acquirer returns increase with the shareholder-rights difference between the acquirer and the target.
We thank an anonymous referee, Bill Christie, Mara Faccio, Ronald Masulis, Robert McDonald (the co-editor), Matthew Spiegel (the editor), Haibo Tang, and seminar participants at American University, Chinese University of Hong Kong, Clemson University, George Mason University, Georgetown University, HKUST, Michigan State University, North Carolina State University, Rice University, San Diego State University, Singapore Management University, SUNY-Buffalo, Syracuse University, UC-Riverside, UC-San Diego, University of Delaware, University of Hong Kong, University of Pittsburgh, UT-Dallas, University of Wisconsin-Milwaukee, Vanderbilt University and Virginia Tech for helpful comments.