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 firmʹs shareholders are not fully understood. The documented evidence that a countryʹs legal environment and level of investor protection affect firmʹs value suggests that these same factors should also impact on the profitability of CBA. The paper contributes to the literature by examining the implications of the legal tradition of the targetʹs country of domicile on biddersʹ gains, using a sample of UK acquiring firms. The findings, which are controlled for several factors that are known to affect acquirersʹ gains, show that the difference in the legal tradition of the targetʹs 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 outperform 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 shareholdersʹ wealth. Finally, the legal tradition of the targetʹs nation interacts with several deal- and firm-specific factors in shaping the gains to acquiring firms.