On the interactions between corporate governance and mergers & acquisitions.What can we learn from analysing european transactions?

To explain the huge M&A failure rates in a largely US-based literature, academic research has pointed out the role of the principal-agent conflict of interest between shareholders and managers. Effective corporate governance should prevent managers from pursuing M&As driven by these empire-building or risk-reducing motives. However, this view originates from the Anglo-Saxon corporate governance model, characterized by highly dispersed ownership and huge managerial power. It is not sure it is even unlikely that these same conclusions would apply in a Continental European context, where ownership is typically much more concentrated (e.g., La Porta et al., 1998). However, conflicts of interest between controlling and minority investors (so-called principal-principal conflicts of interest) can lead to the expropriation of minority shareholders in settings characterized by concentrated ownership, limited institutional protection of minority shareholders, and weaker corporate governance instruments. We contend that these principal-principal conflicts of interest might at least in part explain why M&A failure rates are also substantial in countries outside the USA/UK. By means of this project, we plan study the impact of various aspects of corporate governance on M&A decisions in Europe. In addition, we will examine how the acquirers corporate governance systems affect value creation in European takeovers. Finally, we will investigate spillover effects by studying changes in corporate governance following European transactions.

Keywords:Corporate governance, Principal-agent conflicts, Principal-principal conflicts, Mergers & acquisitions, Europe

Disciplines:Applied economics, Economic history, Macroeconomics and monetary economics, Microeconomics, Tourism