Acquirers’ corporate governance ratings and the likelihood of deal completion: Do stakeholders care about the agency hazards of European cross-border acquirers?

The corporate governance ratings of companies, which are published by independent agencies, are actively used by stakeholders to analyze agency hazards. However, little is known about whether stakeholders of European cross-border acquirers influence the outcomes of announced deals (in terms of completion vs. abandonment) based on these ratings. We argue that the agency costs of acquirers who have better corporate governance ratings are perceived to be lower, resulting in a higher likelihood of deal completion. Based on a sample of 1246 announced cross-border acquisitions undertaken by European MNEs, our results show that acquirer corporate governance ratings—as measured by Sustainalytics data—are positively associated with the likelihood of deal completion. Our study further shows that the relationship between acquirer corporate governance ratings and the likelihood of deal completion is stronger for large acquirers and public targets since such deals are subject to additional agency costs. This study contributes to agency theory, the literature on European acquisition outcomes, and the literature on European corporate governance.