M&As in Africa – effects of law and governance

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Purpose

The cultural and legal differences between foreign acquirers and African target firms can be substantial. There is also a large variation in cultures and legal systems within Africa. However, there is limited research on merger and acquisition (M&A) performance by foreign firms in Africa. The purpose of this paper is to fill this gap by exploring the “spillover by law” hypothesis (Martynova and Renneboog, 2008) that focuses on the influence of the external environment on the governance and performance of foreign M&As in Africa.

 

Design/methodology/approach

The data set covers 415 M&A transactions by foreign firms in Africa during the period of 1999–2016. Dynamic data covering the country’s legal, cultural and political environment are collected from the World Bank, the Heritage Foundation and Transparency International.

 

Findings

The authors find that the legal environment significantly affects the returns of bidders on African firms. For complete acquisitions, bidder returns are significantly higher when the bidder’s country has higher shareholder protection and higher creditor protection compared with the target firm’s country. The results show that the effects are significant when there is a full control change (including a change in the target firm’s nationality) but not in the case of partial control transfers. The results are consistent with the “spillover by law” hypothesis.

 

Originality/value

The authors contribute to the literature on cross-border M&As by separately studying the valuation effects of full, majority and minority changes in control; by being the first study of the legal spillover effects in Africa; and by being the most extensive study of the legal determinants of the valuations of non-African acquirers of African firms.

Original languageEnglish
Peer-reviewed scientific journalInternational Journal of Emerging Markets
Volume14
Issue number5
Pages (from-to)873-898
Number of pages26
ISSN1746-8809
DOIs
Publication statusPublished - 24.07.2019
MoE publication typeA1 Journal article - refereed

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Keywords

  • 511 Economics
  • Africa
  • Mergers and acquisitions
  • Investor protection
  • Legal environment
  • Creditor protection

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