The Value Of Law And Investor Protection In Cross-Border Block Share Purchases

The cross-border block share purchases represent a unique form of corporate restructuring that allow firms to alter the level of shareholder protection, while leaving the target firms continuing as a going concern. In this study, I empirically investigate the announcement effects in stock returns and long-term stock market performance for target firms being large share acquired by foreign companies. In addition, 1 test the governance transfer hypotheses which state that target firms usually import the higher quality of shareholder protection of foreign acquirers in more-protective legal system.This study documents the relationships between stock market performance and legal protection of shareholders' rights by employing a cross-country block purchases sample. I find that the announcement returns for target firms are positive, and they are significantly higher for targets acquired by companies coming from countries with higher level of shareholder protection. In the long run, target firms from countries with poor shareholder protection significantly under perform the local market index. I do not find the evidence on cross-border governance transfer in the long run. This study is the first attempt to document both the announcement effects and long-term stock market performance of cross-country block purchases, associated with the different legal systems and shareholder protection in both target and acquiring firms.