Corporate Governance and Returns to EE Firm Acquisitions in Tax Havens: A Test on Indian Firms

Studies have shown that cross border acquisitions by emerging economy firms yield positive stockholder returns. A non-trivial fraction of cross border acquisitions by emerging economy firms are in tax havens. We argue that, because of weak corporate governance in emerging economies and the secrecy afforded by tax havens, such acquisitions yield lower stockholder returns than cross border acquisitions in other destinations. We also argue that the negative effect of tax haven destinations is greater for acquisitions by firms with greater corporate insider ownership and firms that are less actively traded in the stock market. Empirical tests in a sample of nearly 800 cross border acquisitions by Indian firms from 2002 to 2011 support our hypotheses. Our study contributes to the literatures on cross border acquisitions by emerging economy firms, tax havens, and corporate governance.