Choice of acquisition form, domestic liquidity costs for US cross-listed firms, and convergence in information environment : an investor protection perspective : a dissertation submitted in fulfilment of the requirements for the degree of Doctor of Philosophy in Finance, Department of Commerce, Massey University
This dissertation contains three empirical studies that examine the effect of
investor protection on three different aspects of corporate governance: mergers and
acquisitions, US cross-listings, and convergence of information environment around the
The first study investigates the relation between investor protection and the choice
of acquisition form (partial versus full acquisition). I argue that if private benefits are a
motivation for mergers and acquisitions, an acquirer is more likely to bid for a controlling
fraction (but not a hundred percent) of a target firm in countries with weak investor
protection because in these countries private benefits of control are an important asset.
The empirical results support this argument: compared to full mergers, partial
acquisitions are the preferred form of acquisition when target countries do not effectively
protect minority investors. Partial acquisitions are also more common among foreign
acquirers from countries with poor legal systems. Finally, I show that firm-level
corporate governance of the target firm is negatively related to the likelihood of partial
The second study examines the effect of investor protection on domestic liquidity
for cross-listed firms. If US cross-listing can improve a firm’s information environment
because of more stringent disclosure requirements in the US, I expect the information
improvement to be reflected in a reduction in domestic liquidity costs. The empirical
results are consistent with this prediction: local bid-ask spreads and price impact (a proxy
for the cost of adverse information) significantly decrease while local trading volume
significantly increases one year after US cross-listing. In addition, the liquidity
improvement is larger for cross-listed firms that are from poor investor protection
countries, and that are listed on the NYSE. The results in the second study are consistent
with the “bonding” argument by Coffee (2002).
The third study tests Coffee’s (1999) prediction of a convergence in corporate
governance around the world. Since information environment is a key factor of corporate
governance, it is important to see if there is a convergence in information environment
across countries over the past two decades. Using various common proxies for
information environment, I show that the quality of information environment generally
improves through time, but the improvement is larger for developed markets and
countries with better institutional quality.
In the third study, I also reproduce the main results in Bailey, Karolyi and Salva
(2006), and Fernandes and Ferreira (2008). These studies report similar divergence in
information environment for cross-listed firms post-US-listing, but fail to control for the
quality of information environment in the domestic market. After we control for this
market effect, we do not find support for their results: there is no improvement in
information environment for cross-listed firms, and no difference in the change between
developed and emerging countries.
1 The second and third empirical studies are co-authored work with my supervisor, Professor Henk
Berkman. For consistency, I use the first person ‘I’ throughout the dissertation.