eThesis - Kauppakorkeakoulun sähköiset gradut

CREDITOR RIGHTS AND RISK-TAKING PURPOSE OF THE STUDY

In this Master’s thesis I study how creditor rights affect risk-taking of companies. Firstly, I analyze whether the level of creditor protection is associated with a higher probability of a diversifying acquisition. Secondly, I assess whether creditor protection is associated with a less risky mode of operation. Thirdly, I analyze factors, which could increase the probability of a diversifying acquisition. The main focus will be given to creditor rights’ effect on the probability to do a diversifying acquisition. Other analyses cover creditor rights’ effect on the post-merger performance of diversifying acquisitions, leverage, cash flow risk and the probability of companies operating in a low-recovery asset value industry to acquire a target from a high-recovery value industry.

DATA

My sample consists of 11785 completed mergers and acquisitions during a period of 1990–2010, which is gathered from SDC Platinium. The transactions are from in total of 37 countries. The financial data regarding the sample companies is retrieved from Thomson ONE banker and SDC Platinium. The creditor rights index used as the main explanatory variable is from Djankov et al (2007) and the shareholder rights index is constructed by Spamann (2010). The data of country level data is derived from various sources, mostly from the World bank databases.

RESULTS

I find an association between the level of creditor protection and probability to do a diversifying acquisition. Also the performance of diversifying acquisitions deteriorates in the strength of creditor rights. Additionally, I find a negative association between the level of creditor protection and leverage. I do not find strong empirical results on the potential association between creditor rights and cash flow risk and the probability of companies operating in a low-recovery asset value industry to acquire a target from a high-recovery value industry. The results are mostly in line with Acharya, Amihud and Litov (2009).

KEYWORDS

Investor protection, creditor rights, mergers & acquisitions, risk-taking