Does takeover activity affect stock price crash risk? Evidence from international M&A laws |
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| Institution: | 1. La Trobe Business School, La Trobe University, Melbourne, VIC 3086, Australia;2. Monash Business School, Monash University, Melbourne, VIC 3080, Australia;3. UQ Business School, The University of Queensland, Brisbane, QLD 4072, Australia;1. School of Business, Renmin University of China, Beijing 100872, China;2. School of Public Finance, Central University of Finance and Economics, Beijing 100081, China;3. Department of Accounting, University of Melbourne, Melbourne, VIC 3010, Australia;4. Gordon Ford College of Business, Western Kentucky University, Bowling Green, KY 42101, Kentucky, United States;2. Department of Economics Chinese University of Hong Kong, Hong Kong;3. School of Accountancy, Central University of Finance and Economics, 39 South College Road, Haidian District, Beijing, P.R. China |
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| Abstract: | We exploit the staggered initiation of merger and acquisition (M&A) laws across countries as a plausibly exogenous shock to the threat of takeover to examine whether the market for corporate control has a real effect on firm-level stock price crash risk. Using a difference-in-differences regression on a large sample of firms from 32 countries, we find that stock price crash risk significantly decreases following the passage of M&A laws. This effect is stronger for firms domiciled in countries with poorer investor protection and information environments and for firms with weaker firm-level governance. Further, financial reporting opacity and overinvestment significantly decrease in the post-M&A law periods. Our study suggests that an active takeover market has a disciplining effect on managerial bad news hoarding and leads to lower future crash risk. |
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