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Cross-border mergers and acquisitions and default risk

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  • Koerniadi, Hardjo
  • Krishnamurti, Chandrasekhar
  • Tourani-Rad, Alireza

Abstract

We examine the impact of cross-border mergers on acquirers' post-merger default risk using a sample of 375 US acquiring firms from 1997 to 2011. After controlling for cultural, institutional, geographic and managerial factors between the US and target firm countries, we find that on average, cross-border transactions decrease the level of default risk of the acquiring firms. Our results are consistent with the asymmetric information hypothesis that managers take advantage of the overvaluation and volatility of their stock prices. We also observe that the geographic distance and industrial relatedness play significant roles in affecting post-merger default risk but find limited evidence indicating the relevance of institutional environments and cultural factors on changes in default risk. Managers use cross-border mergers to manage the extant risk of their firms. However, their incentives to use cross-border mergers to manage risk are mitigated by option compensation.

Suggested Citation

  • Koerniadi, Hardjo & Krishnamurti, Chandrasekhar & Tourani-Rad, Alireza, 2015. "Cross-border mergers and acquisitions and default risk," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 336-348.
    • Handle: RePEc:eee:finana:v:42:y:2015:i:c:p:336-348
    DOI: 10.1016/j.irfa.2015.08.009
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    2. Fascia, Michael, 2019. "Working Paper Series," OSF Preprints s7fg9, Center for Open Science.
    3. Yang Zhang, 2018. "Corporate Governance Effects on Risk Management and Shareholder Wealth: The Case of Mergers and Acquisitions," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 4-2018, January-A.
    4. Dainelli, Francesco & Bet, Gianmarco & Fabrizi, Eugenio, 2024. "The financial health of a company and the risk of its default: Back to the future," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    5. Li, Bin & Liang, Yilan & Shahab, Yasir & Gull, Ammar Ali & Ashraf, Naeem, 2022. "Parent-subsidiary dispersion, cost of debt and debt default: Evidence from China," Economic Modelling, Elsevier, vol. 107(C).
    6. Safiullah, Md & Phan, Dinh Hoang Bach & Nurul Kabir, Md., 2024. "Green innovation and corporate default risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 95(C).
    7. Guo, Jianquan & Cheng, He, 2024. "Performance feedback on sales growth and M&A: Evidence from China," Japan and the World Economy, Elsevier, vol. 69(C).
    8. Krishnamurti, Chandrasekhar & Shams, Syed & Pensiero, Domenico & Velayutham, Eswaran, 2019. "Socially responsible firms and mergers and acquisitions performance: Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    9. Ephraim Kwashie Thompson & Changki Kim, 2020. "Post-M&A Performance and Failure: Implications of Time until Deal Completion," Sustainability, MDPI, vol. 12(7), pages 1-31, April.
    10. Nurhazrina Mat Rahim & Ruhani Hj. Ali, 2018. "The Role of Country-Level Differences in Influencing ASEAN Firms’ Cross-Border Mergers and Acquisitions (CBMAs) Success," Capital Markets Review, Malaysian Finance Association, vol. 26(1), pages 36-55.
    11. Saqib Aziz & Michael Dowling & Jean-Jacques Lilti, 2016. "Bank Acquisitiveness and Financial Crisis Vulnerability," Post-Print hal-01393953, HAL.
    12. Wang, Kun Tracy & Wu, Yue & Sun, Aonan, 2021. "Acquisitions and the cost of debt: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Cross-border mergers; Default risk; Idiosyncratic risk;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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