Martynova, Marina; Renneboog, Luc --- "Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisition" [2010] ELECD 400; in Pacces, M. Alessio (ed), "The Law and Economics of Corporate Governance" (Edward Elgar Publishing, 2010)

Book Title: The Law and Economics of Corporate Governance

Editor(s): Pacces, M. Alessio

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848448971

Section: Chapter 3

Section Title: Spillover of Corporate Governance Standards in Cross-Border Mergers and Acquisition

Author(s): Martynova, Marina; Renneboog, Luc

Number of pages: 60

Extract:

3. Spillover of corporate governance
standards in cross-border mergers
and acquisitions*
Marina Martynova and Luc Renneboog

1. INTRODUCTION

Cross-border merger and acquisition (M&A) activity has increased signifi-
cantly over the last 15 years (Moeller and Schlingemann, 2005). Expansion
through cross-border acquisitions enables companies to exploit differences
in tax systems and to capture rents resulting from market inefficiencies,
such as national controls over labour and resources markets (Scholes and
Wolfson, 1990; Servaes and Zenner, 1994). An additional source of take-
over synergy in cross-border M&As may be induced by improvements in
the governance of the bidding and target firms as a result of spillovers of
corporate governance standards between the two firms.
Wang and Xie (2009) show that both bidder and target firms benefit
from corporate governance improvements in domestic US mergers and
acquisitions. They use the firm-level shareholder rights indices of Gompers
et al. (2003) and show that takeover synergies increase with the differences
in the index between the bidder and the target. We hypothesize that the
scope for potential improvements in corporate governance is even greater
in cross-border M&As as the difference between the bidder and target
quality of corporate governance is amplified by the significant variation in
national corporate governance standards. Therefore, our main question is:
do differences in the quality of corporate governance standards between
the bidder and target countries explain part of the expected value creation


* This chapter is reprinted with permission of the Journal of Corporate ...