Firm Size, Sovereign Governance, and Value Creation : Evidence from the Acquirer Size Effect

This paper examines the relationship between firm size, sovereign governance, and value-creation in acquisitions. The takeover literature suggests that size can enable managerial entrenchment and value-destruction. However, in weak governance environments, size might have off-setting benefits, including increased market power and political connections. Using a sample of 17,647 takeovers from 45 countries, we show that large firms in weak governance countries do takeovers that generate higher stock-returns, are more likely to be friendly, take less time to complete, and increase operating performance. Further, the benefits of larger size increase with the importance of political connections in the acquirer's country