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The Geography of Block Acquisitions

By Harvard Law School Program on Corporate Governance

(Editor?s note: This post by Jun-Koo Kang and Jin-Mo Kim is part of the series of posts on corporate governance articles accepted for publication in prominent Finance Journals.)

Our forthcoming article in the Journal of Finance entitled The Geography of Block Acquisitions, extends the literature on geographic proximity by studying how corporate governance activities of block acquirers in targets and target announcement returns are affected when the acquirers are located near the targets.

Using a sample of 799 partial acquisitions in the U.S. during the 1990 to 1999 period, we find that:

Block acquirers exhibit a strong preference for targets located near them, indicating that geographic proximity plays an important role in determining acquirers? choice of targets.

Geographically proximate block acquirers are more likely to be involved in post-acquisition governance activities in targets than are remote block acquirers. Specifically, we find that these acquirers are more likely to have their representatives on the target?s board and to replace poorly performing target management after block share purchases.

Geographically proximate targets experience both higher abnormal announcement returns and better post-acquisition operating performance than those of other acquisitions. The positive valuation effects are more pronounced when there are greater information asymmetries, and when acquirers have their representatives on the targets? boards.

The full paper is available for download here.

Full post as published by The Harvard Law School Corporate Governance Blog on April 10, 2008 (boomark / email).