DP3889 Cross-Country Determinants of Mergers and Acquisitions

Author(s): Stefano Rossi, Paolo Volpin
Publication Date: May 2003
Keyword(s): corporate governance, investor protection, mergers and acquisitions
JEL(s): G21, G28, G32
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3889

This Paper studies the determinants of mergers and acquisitions around the world during the 1990s by focusing on differences in laws and regulation across countries. We find that the volume of M&A activity and the premium paid are significantly larger in countries with better investor protection. This result indicates that an active market for mergers and acquisitions is a more important component of the corporate governance regime of countries with better investor protection. We also show that in cross-border deals, the targets are typically from countries with poorer investor protection than the acquirers. Hence, cross-border transactions play a governance role by improving the degree of investor protection within target firms. This finding suggests that an increase in cross-border transactions may generate a worldwide convergence of corporate governance systems.