Takeovers, market monitoring, and international corporate governance

We theoretically and empirically examine the role of international takeover markets in curtailing dominant shareholder moral hazard for firms with higher value-added from acquisitions. In equilibrium, such firms strategically list shares in the markets of their targets and voluntarily dilute dominant shareholder control through capital-raising events to lower their expected acquisition costs. Empirical tests, using a sample of foreign firms cross-listing on U.S. stock exchanges during 1990-2003, support the framework. We find a strong influence of post-listing dilution of dominant shareholder control through capital-raising events on the likelihood of acquisitions and their cost to the acquirers, in both U.S. and non-U.S. markets.