PengCheng Zhu

Impact on Target Firm Risk-Return Characteristics of Domestic and Cross-Border Mergers and Acquisitions in Emerging Markets

Using a large sample of partial cross-border mergers and acquisitions from emerging countries, we show that these acquisitions significantly reduce the risk of the target firms and that the risk reduction is directly related to the changes in the international shareholder base and the strength of the investor right protection of the acquirer. We also find that these acquisitions are value creating because we see improvements in both the short-term and long-term risk-adjusted stock performance in target firms during the postacquisition period.

Information Asymmetry and Acquisition Premiums in Domestic and Cross Border M&As in Emerging Markets

In this paper, we test and find a strong positive relationship between information asymmetry and acquisition premium in the acquisitions of emerging market firms. The results are based on a large sample of domestic and cross-border acquisitions in 20 emerging countries between 1990 and 2007. We also confirm that under higher level of information asymmetry, acquiring firms tend to use lower cash payments (i.e., higher stock payments) and they are more likely to acquire majority control (>50%) in the target firms. After considering the endogenous relationship among acquisition premium, payment method, and majority control based on a simultaneous equation model, the positive relationship between asymmetric information and acquisition premium continues to exist. We also conduct various robustness tests with respect to the choice of information asymmetry proxy, estimation period and the correction of sample selection bias and find that the results do not change. We argue that acquiring firms pay high premium in order to gain majority control in the target firms to mitigate the information asymmetry problem and to access more valuable private information resources that are not accessible to public investors.

Corporate Governance and Dividend Payout Policy: Beyond Country-Level Governance

We address the mixed empirical findings on how corporate governance affects dividend payout policy by analyzing a large sample of firms from 30 countries. Our results indicate that firms with better firm-level governance pay more dividends, even when we control for country-level governance. However, this relation is only pronounced in countries with low shareholder rights. In addition, we find that when shareholder rights index is high, firm-level governance is unrelated to dividend payout. Our results are robust to the choice of firm-level governance index, the inclusion of the originality of law, culture, creditors’ rights, alternative measures of dividend payout, the hierarchical modeling technology, and approaches to address endogeneity concerns. We also find that dividend payments are associated with higher firm value, and investors positively value the dividend payments of poorly governed firms.