Determinants of the acquisition of listed versus unlisted firms in different legal and institutional environments

Why do some merger and acquisitions deals fail? A global perspective

“…Berggren and Jordahl (2005) and Nyström (2008), among others, mention property rights, and judiciary and courts impartiality to measure the quality of legal and institutional environment of countries. Feito‐Ruiz et al (2014) refer to the importance of these aspects in M&A deals and in deciding whether to acquire listed or unlisted firms; we extend their work and strengthen their empirical results that reveal the role of various legal and institutional environments. As defined in Table A1 with details, we therefore construct two variables: Legal protection and Property rights .…”

“…In other words, in an environment where financial markets are relatively underdeveloped and investors' protection rights are low, external financing can be costly or challenging to obtain. Similar issues are discussed in Feito‐Ruiz et al (2014), Doidge, Karolyi, and Stulz (2007), and Djankov, McLiesh, and Shleifer (2003). We extend these studies with a different focus and larger sample size.…”

“…The completion rates of M&A deals can also be attributed to the role of managerial opportunism and information asymmetries (Feito‐Ruiz, Fernández, & Menéndez‐Requejo, 2014). The related literature suggests that if the stock ownership concentration of the acquiring firms is low, it would be an opportunity for the incumbent managers to extract private benefits via new acquisitions (see Chang, 1998; Chen, Harford, & Li, 2007; Officer, 2007; Officer, Poulsen, & Stegemoller, 2009).…”

“…This occurs because in these situations both the information asymmetry and conflicts between TMTs and outside investors heighten, which has direct implications on assessing the value of announced M&A deals. Our empirical analyses consider this important dimension by using some country‐specific factors such as economic freedom index, underdeveloped financial markets, quality of institutions, legal protection and property rights (see e.g., Feito‐Ruiz et al, 2014; La Porta, Lopez‐de‐Silanes, Shleifer, & Vishny, 1998). It is important to note that Feito‐Ruiz et al (2014) clearly explain and hypothesize the association between managerial opportunism and decisions on M&A deals within the framework of the rule of law, investor protection, and the level of financial markets' development.…”

Applying Benford’s Law to Examine the Quality of Reported Income Numbers of Unlisted Firms

“…The shareholders of listed acquiring firms give higher value for an acquisition of unlisted firms as compared to the listed firms. At the time of the announcement of acquisition, shareholders of acquiring firms make positive abnormal stock returns when target firm is unlisted firm and make negative abnormal stock returns when target firm is listed firm (Rani et al, 2013;Feito-Reuiz et al, 2014). The abnormal returns due to the acquisition of unlisted firms are not sustainable in the long term due to limited accounting disclosures practices of unlisted firms (Ekkayokkaya et al, 2009).…”