Corporate Multinationality and Acquirer Returns

Abstract

This paper provides evidence on how corporate multinationality from the perspective of acquiring firms relates to M&A returns. Using multivariate regressions and a large dataset of over 6,000 M&As (both cross-border and domestic) by UK firms during 1987 to 2014, the paper finds multinationality to be associated with significantly higher short-run announcement returns and long-run operating performance. While the multinationality premium (higher M&A returns for multinationals) persists over time, it seems to be restricted to firms with superior resource/managerial capabilities and minimal agency problems. Finally, the multinationality premium appears to be driven by foreign acquisitions into advanced economies. The results are robust to correcting for sample selection bias and controlling for several firm and deal characteristics, as well as accounting for firm-, industry-, and yearfixed effects. Collectively, the findings imply that multinationality could be a source of value creation for acquiring firms, particularly in foreign acquisitions, which tend to be complex, and thereby, require superior managerial capabilities to succeed.

Governance structures and the compensation of powerful corporate leaders in financial firms during M&As

“…Cross-border acquisitions are quantitatively important because they account for an increasing proportion of UK M&A activities (Agyei-Boapeah et al, 2019). Therefore, it is important to ascertain whether cross-border deals affect directors' pay in substantially different ways from domestic deals.…”

“…We follow similar reasoning and procedures to assign values to firms based on their board age and other directorships held. This is because both board age and other directorship can enrich the experience of the board and enhance firm value (Agyei-Boapeah et al, 2019), but can also impact firms negatively (Abdul Wahab et al, 2018). Abdul Wahab et al (2018) find boards with older members to have little incentive to engage in tax planning, while the UK Corporate Governance Code (2018) suggests that multiple directorships could place too much demands on directors' time and, consequently, affect their effectiveness.…”

“…Finally, Sanders (2001) shows that the use of equity-based compensation may influence or reflect managerial risk appetite and encourage them to pursue risky/complex projects, such as cross-border acquisitions (Agyei-Boapeah et al, 2019;Ozkan, 2012). This motivates us to investigate how larger and riskier cross-border acquisitions (relative to less risky domestic acquisitions) may influence boards' total compensation and their equity-based compensation.…”

Portability of firm corporate governance in mergers and acquisitions

“…; (ii) is this impact moderated by the corporate governance quality of the bidder's domestic country? Firm investment decisions, especially mergers and acquisitions, are an important source of value-creation or destruction for shareholders (Agyei-Boapeah, Fosu, and Ntim, 2020;Humphery-Jenner and Powell, 2011;Tunyi and Ntim, 2016). An important source of value-creation through M&As is induced by improving governance standards of the target firm.…”