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National corporate governance institutions and post-acquisition target reorganization

Author: Capron, Laurence ; Guillén, MauroINSEAD Area: StrategyPublisher: Fontainebleau : INSEAD-Wharton Alliance Center for Global Research and Development (ACGRD) 2008.Language: EnglishDescription: 51 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: We examine the characteristics of national systems of corporate governance to theorize about the nature of shareholders’ and employees’ interests when it comes to reorganization, under the assumption that the firm is coalitional in nature. We argue that corporate governance institutions prevalent in the countries of origin of the merging firms enable or constrain the ability of the acquirer to reorganize the target. Using a cross-national dataset of corporate acquisitions and post-acquisition reorganization, we found support for our predictions that stronger legal protection of shareholder rights in the acquirer country compared to the target country increases the acquirer’s ability to restructure the target’s assets and leverage its resources, while the protection of employee rights in the target country restricts the acquirer’s ability to restructure the target’s assets and transfer resources to and from the target.
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We examine the characteristics of national systems of corporate governance to theorize about the nature of shareholders’ and employees’ interests when it comes to reorganization, under the assumption that the firm is coalitional in nature. We argue that corporate governance institutions prevalent in the countries of origin of the merging firms enable or constrain the ability of the acquirer to reorganize the target. Using a cross-national dataset of corporate acquisitions and post-acquisition reorganization, we found support for our predictions that stronger legal protection of shareholder rights in the acquirer country compared to the target country increases the acquirer’s ability to restructure the target’s assets and leverage its resources, while the protection of employee rights in the target country restricts the acquirer’s ability to restructure the target’s assets and transfer resources to and from the target.

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