Abstract

This study examines the impact of economic freedom in mergers and acquisitions (M&A) using a global sample of 6159 takeovers involving acquirers from 56 different countries and foreign targets from 130 countries. The results reveal that acquirers with an economic freedom advantage over their targets experience higher short-run and long-run abnormal returns after controlling for other important country and merger characteristics. At the same time, the level of economic freedom in the target country relative to the bidder country positively impacts target shareholders’ announcement wealth effects and merger premiums. The results are robust to various control variables, industry, year and country fixed effects, modifications to the target sample, and changes to the merger announcement window. These findings add to the institutional theory and suggest that differences in institutional quality, captured as economic freedom advantage, benefit bidders and targets in cross-border M&A.

Description

This is an open access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0/).

Publisher

Elsevier

Date of publication

2023

Language

english

Persistent identifier

http://hdl.handle.net/10950/4167

Document Type

Article

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