AIB 2012 Conference Proceedings - Academy of International ...

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Ownership and Premium in Foreign Acquisitions: Impact of Geographic Distance and Payment Method
Ajai Gaur, Rutgers University
Shavin Malhotra, Ryerson University
This paper examines the effect of geographic distance and payment method on equity participation and
premium payment decisions in cross border acquisitions. Drawing on insights from information economics, we
propose that firms seek flexible ownership arrangements by way of lower equity position, and make a premium
payment when faced with a high level of information asymmetry. Further, stock-based payment method
creates a bonding arrangement, minimizing the problems of adverse selection and moral hazard in high
asymmetric information environments. There is, however, a significant cost of such bonding arrangements.
The premium that firms pay in high asymmetric environment is significantly higher if firms use stock payments
as compared to cash. (For more information, please contact: Ajai Gaur, Rutgers University, USA:
ajai@business.rutgers.edu)
The Role of National Distances and Subsidiary Experience of Target Firm in Cross-border M&A
Hyejin Cho, Korea University
This paper investigates the effect of national distances (cultural, institutional, and economic) and subsidiary
experience of target firm on shareholder value of acquiring firm. An analysis of 2374 cross-border M&A
announcement transactions during 1995-2010 shows that acquiring firms experience abnormal stock returns
when there are economic and institutional distances between target firms and acquiring firms and when target
firm has a subsidiary experience. Moreover, the moderating role of subsidiary experience of target firm on the
effect of national distance and previous M&A experience of acquiring firms on shareholder value are discussed.
(For more information, please contact: Hyejin Cho, Korea University, Korea, South: hyejinstory@korea.ac.kr)
Privatization and Natural Advantage
Jean-Claude Cosset, HEC Montreal
Artyom Durnev, University of Iowa
Igor Oliveira dos Santos, HEC Montreal
This paper examines the role of natural advantage (e.g., substantial oil reserves or mineral deposits) in the
shaping of privatization policies. First, we analyze the role of agglomeration economies stemming from a natural
advantage in the government's reluctance in divesting from their natural advantage based state-owned firms.
Then, we examine from the firm size perspective the ultimate State ownership pattern in the natural advantage
based industries. In addition, we study the relation between the vulnerability to resource curse and the ultimate
State ownership. Finally, we pay attention to the accessibility to sea and its implications in privatization policies.
We find evidence that governments tend to retain higher ownership in natural advantage based when strong
agglomeration occurs in the corresponding industries, irrespective of political orientation. Also, we confirm the
existence of the too-big-to-relinquish firms in the natural advantage based industries, particularly located in
emerging economies. Finally, we conclude that accessibility to sea plays an important role in privatization
policies, regardless of resource abundance, country size, or geographical blessing (For more information, please
contact: Jean-Claude Cosset, HEC Montreal, Canada: jean-claude.cosset@hec.ca)
Session: 2.2.13 - Interactive
Track: 6 - Innovation and Knowledge Mgmt.
Organizational and Cultural Influences on Innovation
Presented On: July 2, 2012 - 10:45-12:00
Chair: Kalanit Efrat, Ruppin Academic Center
AIB 2012 Conference Proceedings
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