Academic journal article IUP Journal of Business Strategy

The Interface of Corporate Governance with M&A: Research Themes

Academic journal article IUP Journal of Business Strategy

The Interface of Corporate Governance with M&A: Research Themes

Article excerpt


The 21st century has led to the emergence of Corporate Governance (CG) regulations. CG norms started gaining ground as a reaction to various accounting frauds and corporate scandals. These corporate scandals have led either to the emergence or improvement of the CG regulations. In the US, Enron and WorldCom scams led to the enactment of Sarbanes Oxley Act, 2002. In India, Satyam scam forced the Ministry of Corporate Affairs to revise the CG regulations to ensure protection to the shareholders. Similarly, corporate failures of HIH and One.Tel in Australia led to the CLERP 9 reforms. Failure of Parmalat in Italy forced the country to take a regulatory interest.

In the era of globalization, Mergers and Acquisitions (M&As) are looked at as a means to diversify nationally as well as globally. CG practices and regulations in different countries have implications for M&A activity. The interface of CG and M&A gained attention since Manne (1965) used the term market for corporate control. Manne (1965) proposed that a firm becomes more attractive for takeovers by other firms with more efficient management when the acquirers feel that they can run the target in a more efficient way. This inefficiency of the target is reflected in their lower stock prices relative to what it could have been if the firm would have been run by a more efficient management. Since then, there has been logical interest among the scholars to explore the interface between CG and M&As to see whether M&As are affected by the governance practices of a firm or of a country.

This review paper is aimed at exploring the extant literature on CG-M&A research and to systematically present the work done in this domain so far. The review has a particular interest in identifying the emerging areas of research in the area of CG in the context of M&A.

Data and Methodology

This review includes the work done in the area of CG-M&A literature during the 21st century. It includes papers from 2001 to 2018. Review of CG-M&A literature was conducted by searching and selecting the papers through Google Scholar search engine. Initially, papers were searched by using the keywords 'CG' and 'M&A' which happen to appear in the title of the article. It gave out a result of 57 articles. Out of these, the articles which did not specifically address the CG issues with regard to M&A were excluded. Papers available in a language other than English were also excluded from the review. So, in the final review of CG-M&A research 30 articles were included (Table 1).

On the basis of this review, nine themes have been identified which could be the potential areas for research in the CG-M&A literature.

Methods Used in CG-M&A Research

Varied methodologies have been used to explore the relationship of CG with the firms' performance. Majority of the studies have used event study methodology (Masulis et al., 2007; Bebchuk et al., 2008; Martynova and Renneboog, 2008; Chen and Young, 2010; Hoorn and Hoorn, 2011; Mehrotra et al., 2011; Grogan, 2012; Rani et al., 2013a and 2013b; Rani et al., 2014; Smith, 2014; Fu et al., 2016; and Maxim, 2016).

Event studies have been used to examine the impact of governance practices of a firm on its performance during M&A announcement period and post-M&A period (e.g., Bebchuk et al., 2008; Hoorn and Hoorn, 2011; and Rani et al., 2013a, 2013b, 2014). Event studies have also been used to know if the focus of CG is on creditors or on shareholders (Mehrotra et al., 2011), to know if synergies in M&As can be owed to the CG practices of a firm or of a country (Martynova and Renneboog, 2008), to know the impact of anti-takeover provisions on the returns (Masulis et al., 2007), and to examine the importance of shareholders' approval in the decision making of an organization during M&A period (Fu et al., 2016).

Some of the researchers have created a CG Index (CGI) to categorize and classify the companies on the basis of their governance practices (e. …

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