Legal Systems and Gains from Cross-Border Acquisitions

While cross-border-acquisitions (CBA) constitute a significant and expanding proportion of the total mergers and acquisitions transactions, their benefits and costs to the acquiring firm's shareholders are not fully understood. The documented evidence that a country's legal environment and level of investor protection affect firm's value suggests that these same factors should also impact on the profitability of CBA. The paper con- tributes to the literature by examining the implications of the legal tradition of the target's country of domicile on bidders' gains, using a sample of UK acquiring firms. The findings, which are controlled for several factors that are known to affect acquirers' gains, show that the difference in the legal tradition of the target's nation plays a significant role in influencing the gains from CBA of UK acquirers. They also show that during both the announcement period and in the long-run acquiring firms of targets based in civil-law countries out-perform acquirers of targets based in common-law countries. In addition, acquiring a firm in markets that have higher restrictions on capital mobility, or stricter capital controls, can add more value to shareholders' wealth. Finally, the legal tradition of the target's nation interacts with several deal- and firm-specific factors in shaping the gains to acquiring firms