Creditor rights, claims enforcement, and bond performance in mergers and acquisitions

• Published in: Journal of international business studies Vol. 48; no. 2; pp. 174 - 194
• Main Authors: Renneboog, Luc, Szilagyi, Peter G., Vansteenkiste, Cara
• Format: Journal Article
• Language: English
• Published: London Palgrave Macmillan 01.02.2017; Palgrave Macmillan UK
• Subjects: Acquisitions & mergers; Arbitrage; Bond issues; Business and Management; Business Strategy/Leadership; Claims; Courts; Creditors; Cross border transactions; Enforcement; Eurobonds; Insolvency; International Business; International cooperation; Jurisdiction; Management; Maturity; Mergers; Obligations; Organization; Psychological distress; Transactions; legal enforcement; bondholder value; Eurobonds; G32; creditor rights; G34; G12; cross-border mergers and acquisitions (M&As); G14; event study
• ISSN: 0047-2506; 1478-6990
• DOI: 10.1057/s41267-016-0031-2

This article shows that country-level differences in creditor protection affect bond performance around cross-border M&A announcements. Using Eurobonds and a global sample of 1,100 cross-border M&As, we find that the bondholders of bidding firms respond more positively to deals that expose their firm to a jurisdiction with stronger creditor rights and more efficient claims enforcement through courts. Positive creditor protection spillovers are enhanced by now-global jurisdictional cooperation in multinational insolvencies and creditors' ability to do insolvency arbitrage. The spillover effects we observe are stronger for firms with higher asset risk, longer maturity bonds, and a higher likelihood of financial distress.