Abstract

This thesis extends the growing literature relating shareholder protection and greater valuation. Using a governance index built from 24 firm-level takeover defenses over a sample of 491 mergers from 1990 to 2001, we provide evidence that investors value a change in corporate governance. We find that firms acquired by bidders with relatively greater investor protection experience significantly greater abnormal returns. On average, 2.49 percent in additional abnormal return is recorded when bidders with above median shareholders rights acquire firms with below median investor protection. In contrast, we do not find evidence that bidders benefit from the increased social surplus created in transactions where the target corporate governance is improved. The thesis also examines the relationship between the protection of minority shareholder at the firm-level and the probability of a takeover bid, a stock settlement and the premium paid. Although no statistically significant relation is established between the investor rights and the takeover premium, we are able to confirm a negative correlation with the intensity of M&A activity, providing additional support for the efficiency hypothesis. Evidence is also provided that the method of payment is influenced by the previous degree of shareholders rights in the target and acquiring firm but not by the change in corporate governance following a takeover bid.