Cross-border acquisitions and insider ownership

As in several other recent studies, we find that investors react more negatively when firms announce cross-border acquisitions than domestic acquisitions (c.f. Moeller and Schlingemann, 2005; Mantecon, 2009). Without an economically-based explanation, such findings cast doubt on the merits of acquisitions in foreign markets. We make use of unique hand-collected corporate governance data to examine associations between the acquiring and target firms. Foreign acquirers are often outsiders without access to the target firm’s board and without contact with pre-bid owners of the target firm. These two factors have positive associations with announcement returns, and they explain differences between cross-border and domestic acquisitions. We thus suggest that cross-border acquisitions are not per se value destructive but are rather a form of acquisition characterized by outsider owners.