Article ID Journal Published Year Pages File Type
1001359 International Business Review 2013 15 Pages PDF
Abstract

Research shows that the bid announcement return (BAR) of the acquiring firm is lower for cross-border than domestic acquisition announcements. The current lack of economically based explanations for this effect, labeled the cross-border effect by Moeller and Schlingemann (2005), motivates our study. We use unique hand-collected corporate governance data to study how the relationships between acquiring and target firms prior to a bid announcement affect the cross-border effect. Our tests show that non-operating associations between the acquiring and target firms, in the form of board participation and toeholds, have a positive effect on the BAR. The cross-border effect disappears when we control for board participation and toeholds. Thus, we suggest that the cross-border effect is at least partly a consequence of information asymmetries and the adverse selection problem that they generate.

► Announcement returns are lower for cross-border than domestic acquisitions. ► In the M&A literature, this underperformance is called a cross-border effect. ► We study bid return differences between cross-border and domestic acquisitions. ► Acquirers sitting on the target firm's board and with toeholds earn higher returns. ► The cross-border effect is explained by foreign acquirers being outsiders.

Related Topics
Social Sciences and Humanities Business, Management and Accounting Business and International Management
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