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M&As in Africa – effects of law and governance

Lundqvist, Alex ; Liljeblom, Eva LU ; Löflund, Anders and Maury, Benjamin (2019) In International Journal of Emerging Markets 14(5). p.873-898
Abstract

Purpose: The cultural and legal differences between foreign acquirers and African target firms can be substantial. There is also a large variation in cultures and legal systems within Africa. However, there is limited research on merger and acquisition (M&A) performance by foreign firms in Africa. The purpose of this paper is to fill this gap by exploring the “spillover by law” hypothesis (Martynova and Renneboog, 2008) that focuses on the influence of the external environment on the governance and performance of foreign M&As in Africa. Design/methodology/approach: The data set covers 415 M&A transactions by foreign firms in Africa during the period of 1999–2016. Dynamic data covering the country’s legal, cultural and... (More)

Purpose: The cultural and legal differences between foreign acquirers and African target firms can be substantial. There is also a large variation in cultures and legal systems within Africa. However, there is limited research on merger and acquisition (M&A) performance by foreign firms in Africa. The purpose of this paper is to fill this gap by exploring the “spillover by law” hypothesis (Martynova and Renneboog, 2008) that focuses on the influence of the external environment on the governance and performance of foreign M&As in Africa. Design/methodology/approach: The data set covers 415 M&A transactions by foreign firms in Africa during the period of 1999–2016. Dynamic data covering the country’s legal, cultural and political environment are collected from the World Bank, the Heritage Foundation and Transparency International. Findings: The authors find that the legal environment significantly affects the returns of bidders on African firms. For complete acquisitions, bidder returns are significantly higher when the bidder’s country has higher shareholder protection and higher creditor protection compared with the target firm’s country. The results show that the effects are significant when there is a full control change (including a change in the target firm’s nationality) but not in the case of partial control transfers. The results are consistent with the “spillover by law” hypothesis. Originality/value: The authors contribute to the literature on cross-border M&As by separately studying the valuation effects of full, majority and minority changes in control; by being the first study of the legal spillover effects in Africa; and by being the most extensive study of the legal determinants of the valuations of non-African acquirers of African firms.

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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Africa, Creditor protection, Investor protection, Legal environment, Mergers and acquisitions
in
International Journal of Emerging Markets
volume
14
issue
5
pages
873 - 898
publisher
Emerald Group Publishing Limited
external identifiers
  • scopus:85070285621
ISSN
1746-8809
DOI
10.1108/IJOEM-05-2018-0223
language
English
LU publication?
yes
id
5d94b3b2-97c7-4898-8c69-ba98b4f955ac
date added to LUP
2019-08-26 15:08:12
date last changed
2020-01-13 11:57:02
@article{5d94b3b2-97c7-4898-8c69-ba98b4f955ac,
  abstract     = {<p>Purpose: The cultural and legal differences between foreign acquirers and African target firms can be substantial. There is also a large variation in cultures and legal systems within Africa. However, there is limited research on merger and acquisition (M&amp;A) performance by foreign firms in Africa. The purpose of this paper is to fill this gap by exploring the “spillover by law” hypothesis (Martynova and Renneboog, 2008) that focuses on the influence of the external environment on the governance and performance of foreign M&amp;As in Africa. Design/methodology/approach: The data set covers 415 M&amp;A transactions by foreign firms in Africa during the period of 1999–2016. Dynamic data covering the country’s legal, cultural and political environment are collected from the World Bank, the Heritage Foundation and Transparency International. Findings: The authors find that the legal environment significantly affects the returns of bidders on African firms. For complete acquisitions, bidder returns are significantly higher when the bidder’s country has higher shareholder protection and higher creditor protection compared with the target firm’s country. The results show that the effects are significant when there is a full control change (including a change in the target firm’s nationality) but not in the case of partial control transfers. The results are consistent with the “spillover by law” hypothesis. Originality/value: The authors contribute to the literature on cross-border M&amp;As by separately studying the valuation effects of full, majority and minority changes in control; by being the first study of the legal spillover effects in Africa; and by being the most extensive study of the legal determinants of the valuations of non-African acquirers of African firms.</p>},
  author       = {Lundqvist, Alex and Liljeblom, Eva and Löflund, Anders and Maury, Benjamin},
  issn         = {1746-8809},
  language     = {eng},
  month        = {07},
  number       = {5},
  pages        = {873--898},
  publisher    = {Emerald Group Publishing Limited},
  series       = {International Journal of Emerging Markets},
  title        = {M&As in Africa – effects of law and governance},
  url          = {http://dx.doi.org/10.1108/IJOEM-05-2018-0223},
  doi          = {10.1108/IJOEM-05-2018-0223},
  volume       = {14},
  year         = {2019},
}