Country-level determinants, takeover locations, and the gains to target firms

This study enhances the understanding of imperfect factor markets by examining the impact of country-level factors on takeover location decisions and the gains to target firms. The focus of this study is on eight East and Southeast Asian countries, where there have been significant changes regarding corporate governance structures and practices following the 1997-1998 Asian financial crisis. The results suggest that the likelihood that a completed deal is a cross-border acquisition rather than a domestic acquisition is higher for target countries with lower government quality, weaker investor protection, stronger restrictions on capital mobility, lower corporate tax rates, and more depreciated currencies. Further, the study documents that target firm shareholders experience positive and significant abnormal returns in both cross-border and domestic acquisitions around the announcement date; but cross-border target firms gain significantly higher returns than domestic target firms.