The first essay in the dissertation examines the motives for and the consequences of corporate block acquisitions around the world. I propose and test a number of competing explanations for why corporations purchase (sell) equity stakes from (to) other firms. Using a broad sample of 24,143 minority block acquisitions by corporations from 43 countries, I find that the relief of financial constraints is the primary motive for the sale of equity stakes. Corporate block acquirers often have expertise in the targets’ industry, thereby helping to certify the investment opportunities of target firms and so allowing them to raise additional capital. There is little evidence in support of competing theories that corporate block acquirers lower contracting costs in the product market, that they effectively monitor insiders or that they capitalize on their overvalued stocks.
The second dissertation essay examines the motives for and consequences of 5,317 failed and completed cross-border acquisitions constituting $619 billion of total activity that were led by government-controlled acquirers over the period from 1990 to 2008. We find that government-led deal activity is relatively more intense for geographically-closer countries than that of corporate acquirers, but also relatively less sensitive to differences in the level of economic development of the acquirer’s and target’s home countries, in the quality of their legal institutions and accounting standards, and to how stringent are restrictions on FDI flows in their countries. Government-led acquirers are more likely to pursue larger targets with greater growth opportunities and more financial constraints than corporate acquirers. But, the share-price reactions to the announcements of such acquisitions are not different from those led by corporations. Among those deals involving government-controlled acquirers, we do find important differences involving sovereign wealth funds (SWFs). SWF-led acquisitions are less likely to fail, they are more likely to pursue acquirers that are larger in total assets and with fewer financial constraints, and the market reactions to SWF-led acquisitions, while positive, are statistically and economically much smaller.
The third essay studies the motives for cross-border mergers by corporations. Despite the fact that one-third of worldwide mergers involve firms from different countries, the vast majority of the academic literature on mergers studies domestic mergers. What little has been written about cross-border mergers has focused on public firms, usually from the United States. We provide an analysis of a sample of 73,015 cross-border mergers occurring between 1990 and 2007. We first characterize the patterns of who buys whom: Geography matters, with firms being much more likely to purchase firms in nearby countries than in countries far away. Purchasers are usually but not always from developed countries and they tend to purchase firms in countries with lower investor protection and accounting standards. A significant factor in determining acquisition patterns is currency movements; firms tend to purchase firms from countries relative to which the acquirer’s currency has appreciated. In addition a country’s stock market returns lead to acquisitions as well. Both the currency and stock market effect could reflect either misvaluation or wealth explanations. Our evidence is more consistent with the wealth explanation than the misvaluation explanation.