Ownership structure and operating performance of acquiring firms: The case of English-origin countries

This paper provides empirical evidence on the relation between concentrated ownership and the long term operating performance of acquiring firms. We investigate the performance around 287 takeovers in English-origin countries other than the US by following the classification of La Porta et al. [La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. The Journal of Political Economy, 106(6), 1113-1155]. Our principal finding is that the relationship between concentrated ownership and the level and change in operating cash flow returns after takeovers is non-linear. Value creating deals are associated with higher levels of concentration consistent with decreasing agency costs as the dominant shareholder's wealth invested in the acquiring firm increases. We also find, although all acquiring firms are from English-origin countries, that greater investor protection, as measured by the updated anti-director rights index in Djankov et al. [Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2006). The law and economics of self-dealing. Working Paper], has a positive impact on operating performance from acquisitions. We do not find a link between performance and their new anti-self-dealing index. (C) 2007 Elsevier Inc. All rights reserved.