The effect of creditor rights on the relationship of firm-level corporate governance and firm value in case of M&As

Abstract: This study examines the relationship of firm-level corporate governance and firm value, proposing a moderating effect by country-level creditor protection rights in case of M&As. In order to analyse this setting a sample of 331 deals over the period of 14 years (2002-2015) was evaluated. Evidence for a negative relationship of corporate governance and firm value could be found and provides support for the negative spillover theory. Moreover, proof for a negative moderating effect of creditor protection rights is in line with previous literature which suggests that stronger creditor protection rights result in lower risk-taking behaviour which consequently leads to lower firm value. This connection of creditor rights and risk-taking is therefore influencing corporate governance. Furthermore, stronger creditor protection rights are assumed to directly affect firm value. However, no definite conclusion regarding the assumed negative relationship of firm value and creditor protection rights can be drawn since this finding is lacking statistical significance.