Cross-Border Mergers and Differences in Corporate Governance


  • The authors would like to thank Bernard Black, David Denis, Jay Hartzell, Murali Jagannathan, Srini Krishnamurthy, Adair Morse, David Ravenscraft, Hong Yan and seminar participants at Binghamton University, Georgetown University, University of North Carolina, University of Oklahoma, University of Washington and the FMA European Meeting for helpful comments. A previous version of this paper won the Best Paper Award at the 2004 FMA European meetings.

Kelsey Wei

Naveen Jindal School of Management

The University of Texas at Dallas

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Mail Station 31


TX 75080-3021



We examine whether corporate governance differences affect firm valuation in cross-border mergers. We find that takeover premiums are decreasing in the quality of the foreign acquirer's home country governance for deals completed with stock, suggesting that the acquirers compensate target shareholders for the resulting exposure to inferior corporate governance regimes. Correspondingly, we find that the acquiring firm stockholders' abnormal returns at the merger announcement are increasing in the quality of corporate governance for stock offers. Finally, we find that foreign acquirers from countries with better corporate governance are more likely to make stock offers.