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Corporate governance and convergence : in cross‐border mergers and acquisitions

Goorhuis, P.J.A. (2011) Corporate governance and convergence : in cross‐border mergers and acquisitions.

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Abstract:The purpose of this research is to investigate whether there are actual signs of corporate governance convergence through cross‐border mergers and acquisitions. This study used a qualitative method of case studies to investigate this question. In total, four cross‐border case studies were executed. The search for an answer on this question has been guided by a combination of three indicators of corporate governance: accounting and disclosure standards, shareholder rights and board structure and functioning. Furthermore, it was tried to determine what form of convergence was applicable by using a convergence typology created by Gilsson (2001): functional convergence, when existing governance institutions are flexible enough to respond to the demands of changed circumstances without altering the institutions' formal characteristics; formal convergence, when an effective response requires legislative action to alter the basic structure of existing governance institutions; and contractual convergence, where the response takes the form of contract because existing governance institutions lack the flexibility to respond without formal change, and political barriers restrict the capacity for formal institutional change. This research suggests that cross‐border mergers are a way to contractually transfer corporate governance systems. There are also signs of formal convergence. It is quite common in a cross‐border merger for the target to adopt the accounting standards, disclosure practices and governance structures of the acquirer. However, there are also hybrid possibilities in which the most protective corporate governance arrangements of both companies are incorporated. Especially in the case of Chile’s institutional environment it became apparent that quite some legislative action was undertaken to create an institutional setting that would create a valuable foreign investment climate. From the results of the case studies it can be learned that these changes are highly valued and that Chile is regarded as a country with a very stable institutional background. This research has indicated that there exists a diverse array of research studies that explore the scale and direction of the phenomenon of corporate governance convergence across as well as within individual countries. Combining the results of this research study gives the opportunity to generalize about this process. First, extant literature indicates that market integration leads to a demand for greater efficiency. On its turn, this tends to fuel convergence or adoption of Anglo‐American governance practices, quite regularly in adapted forms. Another generalization lies in the fact that capital market integration asks for a greater legitimacy in regard of institutional investors and international organizations, which also tends to drive convergence. Finally, the specific political and historical circumstances appear to impede convergence or create the need for corporations to adapt new corporate governance practices. Research on the evolution of corporate governance has shown that there is no clear answer on the question whether there is one ultimate corporate governance system to which all corporate governance systems converge. This is due to the fact that each model has strengths and weaknesses that only become clear in different environments or circumstances.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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