The shareholder value creation effects of corporate governance on the internationalisation of emerging market firms

The rapid international expansion of firms from emerging economies has caught media attention worldwide and attracted considerable academic interests over the last decade. Previous research has emphasised emerging market firms' motivations and strategies for internationalisation. Understanding of whether their internationalisation through cross-border mergers and acquisitions (CM&As) has created value for shareholders is still relatively limited. There is also little empirical evidence on the value implications of good corporate governance for emerging market CM&As. Using a unique and manually collected firm-level dataset, this paper examines the stock returns upon CM&A announcements made by Chinese multinationals listed in the Hong Kong Stock Exchange from 1991 to 2011, where firms are subjected to stricter international reporting rules and accounting standards. The empirical findings support our hypotheses that CM&As by EMNEs create shareholder value. We also found that the magnitude of created value is positively associated with the effectiveness of corporate governance, which mainly stems from moderation of principal-principal rather than principal-agent conflicts as perceived by international investors.