Firm Governance And Shareholder Value Creation: A Study Of Cross-border Acquisitions By U.s. Acquiring Firms

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Firm Governance And Shareholder Value Creation: A Study Of Cross-border Acquisitions By U.s. Acquiring Firms

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Title: Firm Governance And Shareholder Value Creation: A Study Of Cross-border Acquisitions By U.s. Acquiring Firms
Author: Basuil, Dynah A
Abstract: Cross-border acquisitions have become an important part of the arsenal of strategies that firms deploy in internationalizing their operations. With the significant resources that are generally involved in such transactions and the wide range of performance outcomes, it is important that studies examine the factors that contribute to the performance of such acquisitions. My study seeks to do that. By drawing primarily on agency theory, I examine the role of firm governance in the creation of value from the perspective of shareholders at U.S. acquiring firms in international acquisitions. Further, guided by the tenets of transaction cost economics and resource dependency theory, I examine whether the relationship between different firm governance mechanisms and shareholder value creation is contingent on environmental and firm factors.Study findings indicate that the presence of certain governance mechanisms facilitate the realization of shareholder value from the standpoint of bidding firms. Specifically, firms with bigger boards, longer outside director tenure, and greater inside and outside director ownership were associated with superior acquisition performance. Moreover, contrary to agency theory predictions, my results indicate that that CEO influence has a positive impact on bidder returns. In addition, my findings also indicate that the relationship between firm governance and shareholder value creation is contingent on certain contextual factors. For example, among bidding firms with limited cross-border acquisition experience, the presence of outside directors with longer tenures and inside directors with more limited tenures results in the choice of acquisitions that create greater value. My study has important implications for both the theory and managerial practice. From a theoretical perspective, its contribution lies in highlighting the role of firm governance mechanisms as important determinants of performance in cross-border acquisitions. From an empirical perspective, the use of BHAR methodology in assessing long-terms wealth effects highlights its usefulness in the examination of shareholder value creation in other key strategic decisions. In addition, my study emphasizes the importance of using multiple theoretical perspectives in the study of a complex phenomenon such as cross-border acquisitions. While agency theory remains the dominant theory in the study of the effects of corporate governance, my results suggest that it needs to be complemented by other theoretical perspectives such as stewardship and resource dependency theories. Finally, from a managerial standpoint, I expect my findings to provide guidance to firms interested cross-border acquisitions. While transactional attributes are undoubtedly important, my findings emphasize the importance of considering the role of governance structures in place in facilitating the creation of value in such transactions.
Date: 2011-10-11

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