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Journal of International Business Studies

, Volume 37, Issue 6, pp 786–806 | Cite as

Cross-border takeovers, corruption, and related aspects of governance

  • Utz Weitzel
  • Sjors Berns
Article

Abstract

We use a panel of 4979 cross-border and domestic takeovers to test the relation between host country corruption and premiums paid for local targets. Host country corruption is negatively associated with target premiums, after correcting for other governance-related factors such as political stability, legal systems, and financial disclosure standards. We estimate that deterioration in the corruption index by one point (on a 10-point scale) is, on average, associated with a reduction of 21% of local targets' premiums. Our results do not support the notion that local corruption constitutes a significant market barrier to foreign investors; rather, it represents a discount on local takeover synergies, which affects foreign and domestic acquirers alike. However, we find that the major effects of corruption can alternatively be explained by government effectiveness, pointing towards an endogenous relationship between bribery and bureaucracy.

Keywords

corruption mergers and acquisitions multinational enterprise governance foreign direct investment institutions 

Notes

Acknowledgements

We thank Harry Garretsen, Gerrit Faber, Gerhard Kling, Peter Rodriguez, and four anonymous referees for insightful comments. We also thank Nico den Hartog for his help with the collection of the data. The usual disclaimers apply.

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© Academy of International Business 2006

Authors and Affiliations

  1. 1.Utrecht School of Economics, University UtrechtUtrechtThe Netherlands
  2. 2.Deloitte ConsultancyUtrechtThe Netherlands

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