Country risk in cross-border acquisitions

Deal premiums are premiums paid on top of a target company’s market value in mergers & acquisitions and represent the expected additional value the combination of two companies has to shareholders. This research investigates the hypothesis that the deal premium is not only influenced by company- and deal specific conditions, but also by country specific characteristics. The term country risk captures all relevant country specific risks for foreign investors and consists of political, economic and financial components. In this thesis I use a sample of 19,542 global transactions of which 5,727 are cross-border from 2002 to 2012. To investigate the effect of country risk on deal premiums I use for panel data techniques and a test of percentile differences. I find that country risk variables partly explain the deal premiums in cross-border transactions and that their effect is even stronger for low-income, high risk countries. Furthermore, I find evidence that of the cross-border effect, which means that foreign acquirers pay more than domestic ones. Finally, acquisitions premiums are not different between countries that differ in their level of country risk.