RFS Advance Access published online on September 12, 2009
Review of Financial Studies, doi:10.1093/rfs/hhp070
Shareholders at the Gate? Institutional Investors and Cross-Border Mergers and Acquisitions
Universidade Nova de Lisboa
INSEAD
University of Southern California
Send correspondence to P. Matos, USC Marshall School of Business, 3670 Troussale Parkway, BRI 308, Los Angeles, CA 90089-1427; telephone: (213) 740-6533; fax: (213) 740-6650. E-mail: pmatos{at}usc.edu.
JEL Classification: G15, G23, G34
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Abstract |
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We study the role of institutional investors in cross-border mergers and acquisitions (M&As). We find that foreign institutional ownership is positively associated with the intensity of cross-border M&A activity worldwide. Foreign institutional ownership increases the probability that a merger deal is cross-border, successful, and the bidder takes full control of the target firm. This relation is stronger in countries with weaker legal institutions and in less developed markets, suggesting some substitutability between local governance and foreign institutional investors. The results are consistent with the hypothesis that foreign institutional investors act as facilitators in the international market for corporate control; they build bridges between firms and reduce transaction costs and information asymmetry between bidder and target. We conclude that cross-border portfolio investments of institutional money managers and cross-border M&As are complements in promoting financial integration worldwide.
We thank Michael Weisbach (the editor), two anonymous referees, Martinj Cremers, Mariassunta Giannetti, Todd Gormley, John Griffin, Andrew Karolyi, Simi Kedia, Anzhela Knyazeva, Florencio Lopez-de-Silanes, Marina Martynova, Enrico Perrotti, Jose-Luis Peydro, Stefano Rossi, Stefan Ruenzi, Michael Schill, and Laura Starks; participants at the University of Texas–Austin Institutional Investors Conference, the 18th Financial Economics and Accounting Conference at New York University, the ninth Conference of the ECB-CFS Research Network, the 2007 European Finance Association meetings in Ljubljana, the Third McGill Conference on Global Asset Management Conference, the Korean Development Institute Conference on "Market for Corporate Control: Comparative Perspectives," and the Third Financial Intermediation Research Society Conference; and seminar participants at Barclays Global Investors, Bruegel, European Central Bank, European Union Commission, Stockholm School of Economics, University of Amsterdam, University of Cologne, and University of Southern California. This research is supported by a research grant from the Fundação para a Ciência e Tecnologia (FCT/POCI 2010).