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Firm size, sovereign governance, and value creation: Evidence from the acquirer size effect
Author(s)
Date Issued
2014-06
Date Available
2016-02-12T15:30:00Z
Abstract
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.
Other Sponsorship
Australian Research Council
Type of Material
Journal Article
Publisher
Elsevier
Journal
Journal of Corporate Finance
Volume
26
Start Page
57
End Page
77
Copyright (Published Version)
2014 Elsevier
Language
English
Status of Item
Peer reviewed
This item is made available under a Creative Commons License
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23
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