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RFS Advance Access originally published online on January 29, 2008
Review of Financial Studies 2008 21(2):605-648; doi:10.1093/rfs/hhm089
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© 2008 London Mathematical Society

The Value of Investor Protection: Firm Evidence from Cross-Border Mergers

Arturo Bris
IMD, ECGI, and Yale International Center for Finance

Christos Cabolis
ALBA Graduate Business School and Yale International Center for Finance

Address correspondence to: Arturuo Bris, Chemin de Bellerive 23, P.O.Box 915, CH-1001 Lausanne, Switzerland; telephone: +41 21 6180111; fax: +41 21 6180707, e-mail: arturo.bris{at}imd.ch.

JEL Classification: F3, F4, G3


  Abstract

International law prescribes that in a cross-border acquisition of 100% of the target shares, the target firm becomes a national of the country of the acquiror, and consequently subject to its corporate governance system. Therefore, cross-border mergers provide a natural experiment to analyze the effects of changes in corporate governance on firm value. We construct measures of the change in investor protection in a sample of 506 acquisitions from 39 countries. We find that the better the shareholder protection and accounting standards in the acquiror's country, the higher the merger premium in cross-border mergers relative to matching domestic acquisitions.

We are grateful to Bernard Black, Ted Frech, Mariassunta Giannetti, Will Goetzmann, Klaus Gugler, Campbell Harvey (the editor), Yrjö Koskinen, Clement Krouse, Catherine Labio, Matthew Rhodes-Kropf, Florencio López de Silanes, David Smith, René Stulz, two anonymous referees, and seminar participants at the University of Western Ontario-Ivey School, University of Alberta, Universidad Carlos III, UNC-Chapel Hill, Drexel University, the 2004 BSI Gamma Foundation Corporate Governance Conference in Vienna, the 2005 EFA meetings, the 2005 MFS meetings in Athens, and the Fourth Asian Corporate Governance Conference in Seoul for helpful comments and suggestions on earlier versions of this paper. We thank Ricardo Gimeno and José Caballero for excellent research assistance. We are grateful for generous financial support from the BSI Gamma Foundation. This paper is the recipient of the First Jaime Fernández de Araoz Award in Corporate Finance, and we are grateful to the Fernández de Araoz family for their support.


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