Impact of corporate governance, financial and regulatory factors on firms’ acquisition ability
ISSN: 1472-0701
Article publication date: 18 March 2020
Issue publication date: 22 April 2020
Abstract
Purpose
The capital markets witness phenomenal shifts of corporate control. With the shift of world economy into a global one, there has been a rapid increase in the volume of acquisitions. The previous studies shed light on the motives behind acquisition and impact of acquisition on both bidding and target firms. The purpose of this study is to bridge a gap in literature by exploring the factors affecting the acquisition ability (AA) of the firms. The study has analyzed the role of financial strength, corporate governance and regulatory influence on AA of acquiring firm.
Design/methodology/approach
Cross-sectional data has been analyzed with respect to Pakistan stock exchange for a period of 2004-2017 by using logit regression.
Findings
Analysis indicates that firm-specific variables are important determinants in firm’s decision to acquire. Chief Executive Officer duality and presence of institutional shareholders on the board contribute to this important phenomenon in the life of the acquiring firms. Bidding firm’s financial strength is also another important consideration while going for corporate control transfer transactions. The empirical results indicate the better AA for firms characterized by minimum capacity usage, lower level of intangible assets, lower debt levels and lower advertising expenses. However, the regulatory factor has no significant role in firms’ AA. The findings of the study are helpful for managers, regulators and policymakers.
Originality/value
Analyzing the role of financial strength, corporate governance and regulatory influence on AA of acquiring firm is a rare study, especially in an emerging country such as Pakistan.
Keywords
Acknowledgements
The authors would like to thank Editor in Chief, Associate Editor, and the anonymous referees for their valuable comments. We would also like to take this opportunity to thank International Islamic University, Islamabad, COMSATS University Islamabad, Wah Campus and University of Wah, Wah Cantonment, Pakistan for sparing us to conduct this valuable research.
Citation
Awan, T., Shah, S.Z.A., Khan, M.Y. and Javeed, A. (2020), "Impact of corporate governance, financial and regulatory factors on firms’ acquisition ability", Corporate Governance, Vol. 20 No. 3, pp. 461-484. https://doi.org/10.1108/CG-07-2019-0214
Publisher
:Emerald Publishing Limited
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