How do Mergers and Acquisitions Affect Bondholders in Europe? Evidence on the Impact and Spillover of Governance and Legal Standards

L.D.R. Renneboog, P.G. Szilagyi

Research output: Working paperDiscussion paperOther research output

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Abstract

This paper contributes to the comparative corporate governance literature by showing how cross-country differences in governance and legal standards affect the bondholder wealth effects of European merger and acquisitions (M&As).Using investment-grade Eurobonds, we find some remarkable results.Firstly, M&As involving European firms are considerably more bondholderfriendly than are US domestic deals.Bidding firm bondholders earn economically significant positive returns, while target bondholders incur positive but insignificant returns. Overall, acquisitions do generate value to European bidding firms, but most of the wealth effect is captured by the bondholders.Secondly, bondholder gains in both bidding and target firms are systematically higher in M&As that involve Continental European firms.Thirdly, bidder abnormal bond returns are lower in cross-border deals.However, this is counterbalanced if creditor rights and the efficiency of credit contract enforcement are stronger in the target country. There is also strong evidence that, consistent with crossborder spillovers, improved creditor protection redistributes wealth from shareholders to bondholders.Finally, we document that bondholder wealth changes are subject to changes in asset risk and to a negative listing effect similar to that previously reported for changes in shareholder wealth.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages42
Volume2006-55
Publication statusPublished - 2006

Publication series

NameCentER Discussion Paper
Volume2006-55

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Governance
Mergers and acquisitions
Spillover
Bondholders
Bidding
Cross-border
Wealth
Wealth effect
European firms
Shareholder wealth
Country differences
Corporate governance
Eurobonds
Bond returns
Contract enforcement
Assets
Shareholders
Credit
Creditor rights

Keywords

  • bondholder returns
  • Eurobonds
  • mergers and acquisitions
  • creditor rights
  • takeover
  • corporate governance
  • shareholders abnormal returns
  • M&A
  • insolvency

Cite this

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abstract = "This paper contributes to the comparative corporate governance literature by showing how cross-country differences in governance and legal standards affect the bondholder wealth effects of European merger and acquisitions (M&As).Using investment-grade Eurobonds, we find some remarkable results.Firstly, M&As involving European firms are considerably more bondholderfriendly than are US domestic deals.Bidding firm bondholders earn economically significant positive returns, while target bondholders incur positive but insignificant returns. Overall, acquisitions do generate value to European bidding firms, but most of the wealth effect is captured by the bondholders.Secondly, bondholder gains in both bidding and target firms are systematically higher in M&As that involve Continental European firms.Thirdly, bidder abnormal bond returns are lower in cross-border deals.However, this is counterbalanced if creditor rights and the efficiency of credit contract enforcement are stronger in the target country. There is also strong evidence that, consistent with crossborder spillovers, improved creditor protection redistributes wealth from shareholders to bondholders.Finally, we document that bondholder wealth changes are subject to changes in asset risk and to a negative listing effect similar to that previously reported for changes in shareholder wealth.",
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How do Mergers and Acquisitions Affect Bondholders in Europe? Evidence on the Impact and Spillover of Governance and Legal Standards. / Renneboog, L.D.R.; Szilagyi, P.G.

Tilburg : Finance, 2006. (CentER Discussion Paper; Vol. 2006-55).

Research output: Working paperDiscussion paperOther research output

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