International

International Corporate Governance Spillovers: Evidence from Cross-Border Mergers and Acquisitions

RFS 2019, Rui A. Albuquerque (Boston College), Luis Brandao-Marques (IMF), Miguel A. Ferreira (Nova), Pedro Matos (Virginia)

We test the hypothesis that foreign direct investment promotes corporate governance spillovers in the host country. Using firm-level data from 64 countries during the period 2005-2014, we find that cross-border M&A activity is associated with subsequent improvements in the governance of non-target firms when the acquirer country has stronger investor protection than the target country.

The effect is more pronounced when the target industry is more competitive. Cross-border M&As are also associated with increases in investment and valuation of non-target firms. Alternative explanations such as access to global financial markets and cultural similarities do not appear to explain our findings.