International Corporate Governance Spillovers: Evidence from Cross-Border Mergers and Acquisitions

We develop and test the hypothesis that foreign direct investment promotes corporate governance spillovers in the host country. Using firm-level data on cross-border mergers and acquisitions (M&A) and corporate governance in 22 countries, we find that crossborder M&A activity is associated with subsequent improvements in the governance of the target firms’ local rivals. This positive spillover effect is more pronounced when the acquirer firm is from a country with stronger shareholder protections and the target firm operates in a more competitive industry. Additionally, cross-border M&As improve the valuation and productivity of the target firms’ rivals. Our results suggest that the international market for corporate control promotes functional convergence in corporate governance. JEL classification: G32, G34, G38