Essays on cross-border mergers and acquisitions

Abstract

Cross-border M&As are important corporate decisions. They are different from domestic M&As in that acquirers have potentially more investment opportunities, but also greater challenges. This thesis provides new evidence on why acquirers undertake cross-border deals, and how they manage the additional challenges that arise in cross-border deals. The thesis first examines the role of country-level innovation in driving the decision to make cross-border instead of domestic M&As. Country-level and country-pair-level evidence shows that acquirers in low-innovation countries are more likely to do a cross-border deal, and are more likely to acquire a target in a relatively higher-innovation country. Deal-level evidence suggests that higher-innovation acquirers in low-innovation countries are more likely to undertake cross-border deals, and earn higher returns from cross-border deals than from domestic deals. Further, acquirers in low-innovation countries typically target relatively higher-innovation targets in cross-border deals than in domestic, holding other factors constant. The thesis then investigates the choice of payment method in cross-border M&As as a mechanism to manage the additional risks when compared to domestic deals. It shows that an all cash option is the preferred payment method for all M&A deals, but that its use in cross-border deals is significantly more likely than in domestic. Further, it finds an increase in the use of stock in cross-border deals involving higher relative risk target countries. For more recent periods, the use of stock (cash) has increased (decreased) significantly in cross-border deals, resulting in the close convergence with payment method used in domestic deals. Further analysis shows that the relative risk of cross-border deals has increased for bidders in more recent periods, suggesting that bidders during this period targeted higher-risk countries. The observed increased use of stock in more recent cross-border deals is consistent with risk reduction theories related to information asymmetry and overpayment. Lastly, the thesis examines the cross-country and cross-border determinants of the choice between partial and majority (i.e., controlling) acquisitions, and provides new country-level evidence showing that acquirers balance the choice between partial and majority acquisitions based on the legal, economic and financial regimes. In particular, stronger shareholder protection, better disclosure quality, and more developed equity markets all encourage majority as opposed to partial acquisitions. Further, there are significantly more partial acquisitions in cross-border M&As, which is strongly related to the costs to acquire information abroad. In particular, greater geographic distance, different language, or different legal and economic regimes all result in more partial acquisitions between two countries.