Takeovers, market monitoring, and international corporate governance

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Abstract
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.