What is it about?
We examine the effect of international regulations governing the market for corporate control on firm risk-taking.
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Why is it important?
We show the unintended effect of international laws governing the market for corporate control deters corporate investment and values relevant risk-taking. Our investigation confirms that the takeover market is positively associated with firms engaging in real earnings smoothing to pursue their short-term objectives. Taken together, our evidence of earnings smoothing and value-destroying risk-taking implies that MCC could incentivise managers to pursue managerial myopia. We argue while MCC could induce higher managerial discipline, the disciplining alone could trigger corporate conservatism and managerial myopia. However, the quality of the national governance environment acts as enabling institutions to moderate this value-destroying investment conservatism.
Perspectives
We demonstrate that, when facing the external discipline of the MCC, threatened managers could pursue corporate conservatism to the extent of deterring value relevant risky investments.
Santosh Koirala
University of Birmingham
Read the Original
This page is a summary of: The Market for Corporate Control and Risk‐taking: Evidence from Global Merger and Acquisition Laws, British Journal of Management, June 2022, Wiley,
DOI: 10.1111/1467-8551.12625.
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