Accepted Manuscript

Title: The Role of Dividend Policy in Cross-Border Mergers

and Acquisitions

Authors: Margarita Kaprielyan, Kevin Brady

PII: S1042-444X(18)30142-7
DOI: https://doi.org/10.1016/j.mulfin.2018.11.003
Reference: MULFIN 571

To appear in: J. of Multi. Fin. Manag.

Received date: 15 June 2018

Revised date: 15 November 2018
Accepted date: 16 November 2018

Please cite this article as: Kaprielyan M, Brady K, The Role of Dividend Policy in Cross-
Border Mergers and Acquisitions, Journal of Multinational Financial Management
(2018), https://doi.org/10.1016/j.mulfin.2018.11.003

This is a PDF file of an unedited manuscript that has been accepted for publication.
As a service to our customers we are providing this early version of the manuscript.
The manuscript will undergo copyediting, typesetting, and review of the resulting proof
before it is published in its final form. Please note that during the production process
errors may be discovered which could affect the content, and all legal disclaimers that
apply to the journal pertain.
 The Role of Dividend Policy in Cross-Border Mergers and Acquisitions

Margarita Kaprielyan1
Assistant Professor of Finance
Love School of Business

PT
Elon University
2075 Campus Box

RI
Elon, NC 27244
Phone: (561)578 – 2818

SC
mkaprielyan@elon.edu

U
Kevin Brady
Visiting Professor in Finance
N
A
Gus Machado School of Business
M

St. Thomas University

Phone: (561)213-0841
D

kbrady@stu.edu
TE

1
Contact Author
EP

Highlights:
 Likelihood of only bidder paying dividend increases in shareholder protection difference
 Likelihood of equity financing when the bidder pays a dividend is lower
CC

 Method of payment depends on dividend policy and legal environment

 Bid premium depends on dividend policy and legal environment
 Post-merger dividend policy is primarily driven by bidder’s policy
A

Abstract
Recent studies show that characteristics of mergers and acquisitions (M&A) between U.S. firms
depend on the dividend policies of bidders and targets in accordance with predictions of
asymmetric information, catering, and clientele theories. We extend these findings by using
variation in shareholder protection and link dividend policy to cross-border M&A deal
characteristics using agency theory. After confirming the agency-based predictions of the

1
outcome model of dividends within the context of our sample, we show that the dividend-paying
statuses of bidders and targets affect the method of payment, the bid premium, and the future
dividend policy of the combined entity in cross-border deals, and that the effects are often
different from the previous findings in the U.S. deals. Our paper also shows that the firm-level
dividend policy status of bidders and targets provides insight on M&A characteristics beyond
those identified in prior studies using only differences in country-level governance measures.

Keywords: cross-border mergers and acquisitions; dividend policy; bid premium; method of

PT
payment; corporate governance

JEL Classification: G34, G35

RI
SC
“When a British firm fully acquires a Swedish firm, the possibilities for
legal expropriation of investor diminish. Because the controlling
shareholders of the Swedish company are compensated in such a friendly
deal for the lost private benefits of control, they are more likely to go

U
along. By replacing the wasteful expropriation with publicly shared profits
and dividends, such acquisitions enhance efficiency.”

La Porta et al., 2000

N
A
M

1. Introduction
D

We investigate how bidder and target dividend policies impact deal characteristics in
TE

cross-border M&A. The role of dividend policy in M&A has only recently been examined with a

focus on domestic transactions between U.S. firms. Dereeper and Turki (2012, 2013, and 2016)
EP

show that differences in the dividend policies between bidders and targets affect the method of
CC

payment, deal completion rate, bid premiums, and future dividend policy in U.S. transactions.

These authors use asymmetric information theory to predict variation in the method of payment,
A

and clientele and/or catering theory to explain the findings related to other deal characteristics.

We extend this research globally using agency theory to link cross-border M&A

outcomes with the dividend policies of the parties to the transaction. There is evidence that the

agency conflict between controlling and minority shareholders lowers firm value and can

2
motivate cross-border investments. In terms of lower firm values, La Porta, Lopez-de-Silanes,

Shleifer, and Vishny (1997) suggest minority shareholders require higher rates of return (i.e.,

place a lower value on the expected future cash flows) on firms in countries with weak legal

environments, and Pinkowitz, Stulz, and Williamson (2006) find investors place a significantly

PT
lower value on the existing liquid assets, such as cash, of firms in countries with poor

shareholder rights.

RI
In terms of motivating cross-border investments, La Porta et al. (1997) find that countries

SC
with weak legal protection of shareholders tend to have smaller and narrower financial markets,

which suggests the domestic market for corporate control is limited. This opens the door for

U
foreign bidders to capture the loss in the target firm’s value due to agency conflicts. Indeed,

N
Krugman (2000) and Aguiar and Gopinath (2005) provide evidence that foreign direct
A
investment (FDI) is driven by undervalued target country assets, and Rossi and Volpin (2004)
M

find that in cross-border transactions the acquirer is usually from a country with better

shareholder rights compared to the target’s nation. Rossi and Volpin (2004) suggest that bidders
D

from countries with strong shareholder protections may improve corporate governance of target
TE

firms, which corresponds with Coffee’s (1999) convergence in global corporate governance
EP

theory.

However, firm-level governance varies within countries regardless of the degree of

CC

country-level shareholder protection (e.g., Klapper and Love, 2002; Mitton, 2004). In other

words, there are poorly governed firms in countries that have strong shareholder protections and
A

vice-versa. To the extent that paying a dividend is a proxy of stronger governance at the firm

level, we conjecture that the dividend-paying statuses of the bidder and target can provide

3
insights in cross-border M&A outcomes beyond the differences in country-level governance

found in Rossi and Volpin (2004).

We begin by using a sample of cross-border deals completed between 1990-2017 to test

if differences in country-level shareholder protection between the bidder and target countries

PT
help explain differences in the probability of different combinations of dividend-paying statuses

of bidders and targets.1 The purpose of this test is to confirm the link between agency theory of

RI
dividends within the context of cross-border M&A. La Porta, Lopez-de-Silanes, Shleifer, and

SC
Vishny (2002) propose two possibilities for the relationship between dividends and shareholder

protection. The outcome hypothesis predicts dividends are positively associated with the level of

U
shareholder protection as investors, supported by stronger protection, can force managers to pay

N
dividends. The substitution hypothesis predicts dividends are negatively associated with the level
A
of shareholder protection as stronger protections substitute for the need to use dividends to
M

manage the agency conflict.

Our results support the outcome model of dividends. We find that as the country-level
D

difference in shareholder protection between the bidder and target increases, the more likely that
TE

the bidder pays a dividend and the target does not; and 2) the less likely the bidder does not pay
EP

and the target does pay. This suggests that minority shareholders are able to extract dividends

with the support of stronger shareholder protections. Our finding is robust to controlling for a
CC

host of country-, deal-, and firm-level characteristics that are related to dividends.

These preliminary tests provide in-sample evidence that confirms an agency explanation
A

of dividends. In some cases, the agency theory of dividends makes different predictions than the

asymmetric information, catering, and clientele theories used in Dereeper and Turki (2012, 2013,

1
There are 4 combinations: 1) both pay dividends; 2) both do not pay dividends; 3) only bidder pays; and 4) only
target pays.

4
and 2016) in terms of a dividend’s effect on M&A outcomes. This motivates us to test if the

method of payment, the bid premium, and the future dividend policy of the combined entity

depend on the dividend-paying statuses of the parties to cross-border M&A transactions.

For example, information asymmetry predicts a higher probability equity is used to

PT
finance the transaction between U.S. firms when the bidder pays dividends, as the dividend sends

a credible signal to the target of the bidder’s quality (Dereeper and Turki, 2012). However, given

RI
the cross-section variation in the legal environment of the countries of the bidder and the target,

SC
the bidder’s dividend may only provide a credible signal if the bidder is domiciled in a country

that has the legal structure to protect the minority shareholders’ claims to dividends. Moreover, if

U
equity is used in a cross-border deal where the bidder pays, the controlling shareholders of the

N
foreign target will receive equity with a dividend that is unlikely to be cut (e.g., Lintner, 1956;
A
Brav et al., 2005). This makes it more likely the firm will be better governed and/or come under
M

the scrutiny of capital markets more often (e.g., Easterbrook, 1984), which reduces the private

benefits of control the majority shareholders of the target previously enjoyed. Thus, it is an
D

empirical question whether the dividend policy of the bidder in cross-border transactions has an
TE

effect on the method of payment and if such a relation exists whether it depends on the variation
EP

in the shareholder’s protection.

As another example, Dereeper and Turki (2016) find that when bidders pay with equity in
CC

U.S. domestic M&A, the future dividend policy shifts towards that of the target. They attribute

this result to the catering theory of dividends (Baker and Wurgler, 2004), which argues that
A

managers cater to the payout preferences of shareholders.2 The agency theory, however, predicts

that if the bidder pays a dividend and the target does not, the future dividend policy will align

2
In an earlier version of the paper, Dereeper and Turki (2012) also used the clientele theory to explain this finding.

5
with that of the bidder’s as the target shareholders take the dividend policy of the bidder as a

signal of better governance and lower risk of expropriation and do not want it to change. Our

results show that the bidder’s pre-merger dividend policy is positively associated with the post-

merger policy, while the target’s policy is less influential in the post-merger dividend policy.

PT
Our paper extends globally both the theoretical reasoning and empirics of how dividend

policy affects M&A outcomes that Dereeper and Turki (2012, 2013, and 2016) first studied in

RI
mergers between U.S. firms. As mentioned above, some of our results differ in the cross-border

SC
merger context, which broadens our understanding of the interplay between M&A deal

characteristics and dividend policy.3 Our findings may help guide financial managers that make

U
cross-border acquisition decisions.

N
We also add to the literature on differences in country-level versus firm-level governance
A
(e.g., Klapper and Love, 2002; Mitton, 2004). Our results show that M&A outcomes depend not
M

only on differences in country-level shareholder protections found in Rossi and Volpin (2004),

but also firm-level governance as proxied by a firm’s dividend paying status. For example, when
D

we run baseline regressions with few controls, and without the dividend-paying statuses of the
TE

bidders and targets, we find that an increase in the difference of minority shareholders’
EP

protection between the acquirer and the target’s country is associated with a higher likelihood of

at least some equity being used in the transaction. This is consistent with Rossi and Volpin
CC

(2004). But when we run we run baseline regressions with few controls, and without the

difference of minority shareholders’ protection between the acquirer and the target’s country, we
A

find that when bidders pay a dividend it is less likely at least some equity is used in the

3
Our findings on the bid premium are generally consistent with those in Dereeper and Turki, (2012) and Rossi and
Volpin (2004).

6
transaction. Furthermore, when we add the full battery of deal- and firm-level controls, the

former result disappears while the latter result holds.

This is the first indication that the dividend-paying status of parties adds independent

information to characteristics and outcomes in cross-border M&A beyond differences in country-

PT
level shareholder protection. We position the paper as an association study that provides

evidence on the relationship between dividend policy and cross-border M&A characteristics that

RI
opens the door for future research possibilities. For example, there are agency-based

SC
explanations of share repurchases (Howe, He, and Kao, 1992), and because repurchases have

become a growing mode of payout (e.g., Manconi, Peyer, and Vermaelen, 2014), differences in

U
the repurchasing policies between bidders and targets in cross-border M&A may add another

N
dynamic to this literature. Additionally, more refined empirical tests of the interplay between
A
firm- and country-level governance characteristics on M&A outcomes are a promising avenue
M

for future research.

This paper proceeds as follows. Section II contains the literature review and states our
D

hypotheses. Section III details the sample. Section IV contains the methodology and results.
TE

Section V concludes.
EP

2. Literature Review

2.1. Investment Policy and Dividend Policy

CC

Miller and Modigliani (1961) demonstrate the firm’s dividend policy does not affect

shareholder wealth given the firm’s investment and dividend policies are independent and
A

assuming perfect capital markets. Under the modern form of public corporate ownership there is

an agency relationship between insiders (i.e., managers and/or controllers) and outsiders (i.e.,

shareholders) which results in the firm bearing agency costs (Jensen and Meckling, 1976).

7
Specifically, when managers act as agents for the owners of the firm, they may make value-

destroying investments because of hubris (Roll, 1986), to gain power and prestige (Jensen,

1989), to reduce employment risk (Amihud and Lev, 1981), or to entrench themselves (Shleifer

and Vishny, 1989).

PT
In contrast to the independence assumption in Miller and Modigliani (1961), the existing

literature suggests a link between investment policy (of which M&A is a part) and dividend

RI
policy in the presence of agency relationships. Specifically, the payment of dividends can be

SC
used to reduce the agency costs that arise from the separation of ownership and control (e.g.

Rozeff, 1982; Easterbrook, 1984; Jensen, 1986) by forcing the insiders to periodically pay cash

U
to the owners and by raising the probability the firm will need to come under the scrutiny of the

N
capital markets to fund future projects. Aivazian, Booth, and Cleary (2003) note that paying a
A
dividend directly lowers a firm’s free cash flow available to fund projects. La Porta, Lopez-de-
M

Silanes, Shleifer, and Vishny (2000) suggest that paying dividends can enhance the efficiency of

a firm’s investments. Thus, there is evidence of a relationship between dividend and investment
D

policy.
TE

2.2. Dividend Policy and M&A: Evidence from the U.S.

EP

Academics only recently started exploring the relationship between M&A and dividend

policy. In a series of papers, Dereeper and Turki (2012, 2013, and 2016), explore how
CC

differences in the dividend policies between bidders and targets in U.S. domestic mergers and

acquisitions impacts the method of payment, premium paid, bidder returns, future payout policy,
A

and the probability of deal completion. In terms of the premium paid, they find positive

association between the premium paid and the difference between the preexisting acquirer’s and

target’s dividend payout ratios in cash transactions. They link this premium to target firms’

8
shareholders demanding extra compensation in cash deals because, by not receiving shares in the

transaction, they are excluded from acquirers’ ongoing, relatively generous dividend policy.

In terms of the method of payment, Dereeper and Turki (2012) find that dividend paying

status of the acquirer increases the likelihood of the equity transaction, and that bidder

PT
announcement returns are higher (i.e., less negative) in stock transactions when the bidder pays a

dividend compared to when they do not. They attribute this effect to the dividend providing the

RI
market with credible information about the firm’s value by signaling bidder’s quality. The

SC
dividend of the bidder also lowers adverse selection costs for the target shareholders, who

become more willing to accept bidder’s equity.

U
In terms of the future dividend policy of the merged entity, Dereeper and Turki (2016)

N
note that the restructuring may make it an ideal time for the new entity to review and update its
A
dividend policy. They demonstrate that in equity-financed deals the dividend payout ratio of the
M

combined firm is positively associated with the target’s preexisting dividend policy. Their result

is consistent with catering and clientele-based theories which claim firms pay dividends to
D

satisfy investor preferences for cash distributions (e.g., Baker and Wurgler, 2004; Allen,
TE

Bernardo, and Welch, 2000).

EP

It is important to note the differences between our research and those in the papers by

Dereeper and Turki (2012, 2013, 2016). Their focus is on the relationship between dividend
CC

policy and M&A transactions between U.S. firms and is rooted in information asymmetry and

catering/clientele theories. In cross-border M&A, dividends may also act as a mechanism

A

capturing the decreased value in firms ascribed to agency problems in countries with lower

protection for the minority shareholders. Rossi and Volpin (2004) find that acquirers are more

likely to be from countries with stronger corporate governance and the likelihood of stock used

9
as a method of payment increases in the deals where acquirers are from countries with better

shareholder protection, supporting agency theory. Thus, we use the natural cross-country

variation in shareholder protections and financial market development as an ideal setting to

investigate the link between dividend policy and M&A in a context of agency theory, which

PT
extends the empirical findings for asymmetric information and clientele theories in U.S. M&As.

RI
SC
2.3. Dividend Policy and M&A: International Hypotheses

La Porta et al. (1998) find significant cross-country variation in the legal rules protecting

U
shareholders and in the quality of their enforcement. Weak legal protection incentivizes owners

N
to become majority controllers in their firms. In this case, the controllers directly appoint the
A
managers they desire and the traditional agency relationship (i.e., that is extensively discussed in
M

the literature describing the conflict in U.S. firms) between managers and owners is less

important. Rather, the agency conflict that takes precedence in poor legal protection
D

environments exists between controlling and minority shareholders. Shleifer and Vishny (1989)
TE

discuss the ways in which these controllers can expropriate corporate assets for themselves. They
EP

include outright theft, excessive compensation packages, overpaying for related firms, and

transfer pricing with affiliated companies.4 La Porta et al. (1998) note that it is difficult to resolve
CC

this type of internal governance failure; for example, La Porta et al. (2002) find minority

shareholders lack the power to force controllers to pay dividends and find support for positive
A

relation between country-level shareholder protection and dividends.

4
These types of value destroying actions are particularly prevalent when there is a large difference between voting
rights and cash flow rights (La Porta et al., 1998).

10
 There are three primary external governance remedies for internal corporate governance

failures. First, the legal system of the country in which the firm operates can provide incentives

for managers to act in the interest of shareholders and provide an avenue for legal recourse when

they do not (La Porta et al., 1998). Second, outside blockholders can use their ownership stake as

PT
a platform to draw attention to managerial policies that are inconsistent with shareholder wealth

maximization (e.g., see Holderness (2003) for a review). Third, the threat of a takeover can

RI
motivate insiders to act in the interest of shareholders for fear they might lose their control of the

SC
firm (Jensen, 1986).

However, existing academic research suggests external governance mechanisms are

U
severely muted in some countries. First, the laws governing shareholder rights and the quality of

N
their enforcement are poor in many countries (La Porta et al., 1998). From the discussion above,
A
the legal environment causes the internal governance failure, rendering the legal system moot as
M

an external governance force in countries with poor legal protection. Second, in many countries

blockholder activism is nonexistent as the controlling shareholders are often the only
D

blockholders, and they also control most of the voting rights (La Porta et al., 1998). Third,
TE

limited access to capital in countries with underdeveloped financial markets mitigates the
EP

usefulness of a takeover threat as a corporate disciplinary measure (La Porta et al., 1997).

All three of these reasons are interconnected. La Porta et al. (1997, 1998) note that
CC

consequences of weak legal protection are concentrated ownership structures and

underdeveloped debt and equity markets. The narrow financial markets limit firms’ access to
A

external finance. Importantly, this implies that the domestic market for corporate control is at

best a limited governance tool in certain countries.

11
 There is evidence that firm values are lower in low shareholder protection countries. La

Porta et al. (1997) suggest minority shareholders require higher rates of return (i.e., place a lower

value) on firms in countries with weak shareholder rights. Pinkowitz et al. (2006) find that the

market value of a firm’s liquid assets in a country with poor investor protection is less than half

PT
of what is worth in other countries.

The lower firm values and limited domestic takeover market discussed above suggest

RI
foreign bidders can capture the loss in target value created by the agency costs between

SC
controlling shareholders and minority shareholders. Gomes (2000) discusses a reputation effect,

where a large shareholder can develop a reputation for not extracting private benefits of control,

U
with the reputation effect leading to higher share price. Additionally, dividends are an effective

N
tool to constrain owner-manager’s discretion over the free cash flow sending a signal that owner-
A
manager will restrict her ability to extract private benefits of control. Pinkowitz et al. (2006)
M

support this theory and find that the payment of an annual dividend equivalent to one percent of

a firm’s assets in a country with below-median minority shareholder rights increases firm value
D

by five percentage points more than in countries with above-median shareholder rights.
TE

Collectively, the discussion above suggests a link between agency problems, dividend
EP

policy, and cross-border M&A. Our hypotheses are motivated by those in the series of papers by

Dereeper and Turki (2012, 2013, 2016), and in our empirical analysis we also test to see if the
CC

dividend policy adds additional insights to our understanding of M&A outcomes beyond the

differences in legal protection differences found in Rossi and Volpin (2004). In the interest of
A

brevity, and because we discuss our theoretical predictions in the introduction of the paper, we

simply state our hypotheses in null form:

12
 H1 (null): In cross-border M&A deals, the method of payment is not affected by the

dividend-paying statuses of the bidder and target.

H2 (null): In cross-border M&A deals, the bid premium is not affected by the dividend-

paying statuses of the bidder and target.

PT
H3 (null): In cross-border M&A deals, the future dividend policy of the combined entity

is not affected by the dividend-paying statuses of the bidder and target.

RI
3. Sample

SC
To test country- and firm-level hypotheses, we collect a sample of firms that initiated

cross-border mergers between 1/1/1990 and 12/31/2017 from the SDC Platinum database. It is

U
our intent to examine the cross-sectional variation in cross-border mergers, thus we restrict our

N
sample to cross-border mergers. We also require that both the bidder and the target are publicly
A
traded to ensure dividend data is available and only to transactions where more than 51% of
M

target’s shares are owned after the merger. Table I contains the number of targets and acquirers

in cross-border transactions between 1990 and 2017 by country. The sample size is 5,069
D

transactions, although the sample size fluctuates based on the model due to the country-level and
TE

firm-level data availability. While Table I shows that firms in the US, UK, and Canada are
EP

heavily involved on both sides of cross-border acquisitions, approximately 60% of the sample is

not in these countries which provides adequate cross-country variation in which to test our
CC

hypotheses.5
A

We collect a variety of country-, deal-, and firm level characteristics for our empirical

analysis. The anti-self-dealing index data and whether the country is common or civil law from

5
This percentage is, however, reduced when we require other country- and firm-level data.

13
the website of Andrei Shleifer.6 Annual GDP per capita, GDP growth, and stock market

capitalization to GDP are obtained from World Bank.7 We collect dividend paying status and

firm-level data from Datastream, Compustat North America, Compustat Global, and CRSP.

Company is included in the dividend analysis if total common dividends, dividend per share,

PT
dividend yield, or dividend payout ratio is available on one of the databases. Dividend payout is

calculated as dividends divided by net income, while dividend yield is directly obtained from

RI
Datastream or calculated as dividend per share/price for U.S. firms.

SC
The variables of most interest in our study are: BPTN = a dummy variable that takes the

value of 1 if the bidder paid a dividend but the target did not in year prior to the merger

U
announcement and 0 otherwise (i.e., bidder payer, target nonpayer); BPTP = a dummy variable

N
that takes the value of 1 if both the bidder and the target paid a dividend in year prior to the
A
merger announcement and 0 otherwise (i.e., bidder payer, target payer); BNTP = a dummy
M

variable that takes the value of 1 if the bidder did not pay a dividend but the target did in the year

prior to the merger announcement and 0 otherwise (i.e., bidder nonpayer, target payer);
D

Mixed_Stock = 1 if method of payment at least partially made with the acquirer’s equity or fully
TE

made with equity, and 0 for cash only transactions; Bid Premium = natural log of the price
EP

offered deflated by the target’s price 4 weeks prior to the announcement; PayoutBid[+1,+5] and

YieldBid[+1,+5] are the average post-merger dividend payout and dividend yield of the
CC

combined firm over year after the transactions through year 5, respectively.8 Other explanatory

and control variables are defined in Appendix.

A

6
The website with definitions is http://kianpinglim.com/researchnews/2012/02/professor-andrei-shleifers-data-sets/
7
The website with definitions is http://datatopics.worldbank.org/world-development-indicators/
8
We combine stock and mixed method of payments as in Chang (1998).

14
 In Table II, we present firm-level characteristics of the acquirer and the target. In

dividend-paying characteristics, our sample shows that 74% of bidders are payers while only

49% of targets are. Of the four possibilities of dividend policy combinations, 32% are bidder pay

and target do not (BPTN), while only 7% are bidder does not pay and target does not (BNTP).

PT
This is consistent with our conjecture that bidders may use dividends to relive agency issues in

cross-border acquisitions.9

RI
In deal characteristics, the average bid premium is 55.37%, which is higher compared to

SC
the 46% sample in Dereeper and Turki (2012). This is consistent with several of our conjectures,

such that foreign targets may be undervalued significantly which would allow the bidder to pay

U
higher premiums and still extract value in the deal, and that bidders must pay the controlling

N
shareholders a higher premium for them to give up the private benefits of control.10 Table II also
A
shows that 53% of cross-border deals used at least some equity and 62% were horizontal (same
M

industry) mergers in our sample.

In country-level characteristics, the mean and median anti-self-dealing indexes of the

D

bidders and the targets are the same (0.58 (0.64) for the mean (median) for both). This is
TE

somewhat surprising given the finding in Rossi and Volpin (2004) that bidders come from higher
EP

protection countries.11 This lends credence to our conjecture that the dividend-paying statuses,

which proxy for firm-level governance, of parties to cross-border M&A deals may play a role
CC

beyond country-level governance differences. Table II also shows that bidder per capita GDP

and the GDP growth rate are also similar to targets, which we use to control for firm life cycle
A

and financial development, respectively.

9
This is an unconditional result. We include many controls in our regression models to address other explanations.
10
We recognize there are other explanations, such as different sample years, extra synergies, etc.
11
Our sample covers 15 new years of data which may account for the result.

15
 In terms of firm-level characteristics, we find that bidders are significantly larger ($10.5

billion vs. $0.85 billion), more liquid, more profitable, and have similar leverage and collateral

as targets. Somewhat surprisingly, bidders have exhibit higher growth rates in sales (10.5% vs.

0%), which may imply that cross-border deals are not motivated by “buying growth”.

PT
Generally speaking, the summary statistics are supportive of our conjectures and provide

a foundation to continue with our multivariate regressions.

RI
4. Methodology and Results

SC
4.1. Country and Firm Level Analysis of Dividend Policy of Bidder and Target

First, we provide evidence on the “outcome” versus “substitution” agency theories of

U
dividends put forth La Porta et al. (2000) within our cross-border M&A sample. The extant

N
evidence tends to support the outcome model of dividends. For example, La Porta et al. (2002)
A
find that companies from countries with greater minority shareholder protection are more likely
M

to pay a dividend, and Rossi and Volpin (2004) find that acquirers are more likely to come from

countries with better legal environments. Hence, we expect that as the difference in the minority
D

shareholders’ protection between the bidder’s and the target’s countries increases, so is the
TE

likelihood that the bidder pays a dividend and the target does not.
EP

The results tabulated in Table III show that as the difference in the legal protection of

minority shareholders between the bidder and target increases (Anti-Self Dealing Diff), the
CC

likelihood increases that the bidder pays a dividend and the target does not (Column 1, 2.093***

figure); the likelihood is unaffected of both parties paying (Column 4, -1.011 figure); and the
A

likelihood decreases that the bidder does not pay, and the target does pay (Column 7, -2.909***

figure). These three results hold whether the payment’s method is cash or at least some equity

16
(Column 2-3; 5-6; and 8-9, respectively), and controlling for a variety of country-, deal-, and

firm-level characteristics.

Our results suggest that minority shareholders are able to extract dividends with the

support of stronger shareholder protections, which supports the prediction of the outcome model

PT
of dividends. Thus, we have in-sample evidence that is consistent with an agency explanation of

dividends and motivate our other hypotheses tests.

RI
4.2. Method of Payment

SC
To investigate whether the acquirer’s or target’s dividend policy has an effect on the

method of payment, we estimate logistic regressions where the method of payment in the

U
transaction is made with at least some equity or cash only. The dependent variable in the models

N
presented in Table IV is Mixed_Stock is 1 if the consideration is described as mixed or stock and
A
0 if consideration offered is cash only.12 Consistent with Rossi and Volpin (2004), we find that
M

an increase in the difference of minority shareholders’ protection between the acquirer and the

target’s country (Anti-Self Dealing Diff) leads to an increase in the likelihood of at least some
D

equity is used (Table IV, Column 1, 0.528** figure).

TE

In light of La Porta et al. (2002) findings of a positive relation between the country-level
EP

shareholders’ protection and the dividends, if a dividend is only a proxy of country-level

corporate governance, we would expect to observe positive relation between the dividend paying
CC

status of the acquirer and the likelihood of the stock method of payment. Contrarily, we observe

that if the acquirer pays a dividend, the equity method of payment is less likely (Table IV,
A

Column 2, -0.617*** figure). This is an indication that the dividend-paying status of parties adds

independent information to the method of payment choice in cross-border M&A.

12
We combine mixed and stock method throughout the study, as in Chang (1998), to ensure that our sub-samples
have sufficient amount of observations.

17
 Furthermore, when we add the full complement of deal- and firm- level controls, the

coefficient on Anti-Self Dealing Diff is no longer significant (Column 3), while the coefficient of

Bidder Payer remains negative and significant at the 10% level (Column 4). One explanation for

our finding that equity is less likely to be used in the cross-border transaction when the bidder

PT
pays a dividend is that the controlling shareholders are unwilling to relinquish their private

benefits of control for the stock of the better governed, dividend-paying bidder.

RI
Additionally, our results contrast with the findings in the U.S. M&A’s reported by Turki

SC
and Dereeper (2012), in which the likelihood of equity deal increases in the acquirer’s dividend

yield of the firm. Since the signaling effect of dividends found by Turki and Dereeper (2012)

U
may be dependent on the strength of the acquirer’s country level of shareholder’s protection, we

N
investigate role of dividends when the acquirer comes from higher versus lower shareholders’
A
protection country. To conduct the analysis, we create an indicator variable Pos. Anti-Self
M

Dealing Diff that equals 1 if the difference in the shareholder protection between bidder and

targets’ countries is greater than 0, and 0 otherwise. We interact Pos.Anti-SelfDiff with the
D

Bidder Payer indicator variable.13

TE

The results presented in Table IV, Columns 5 and 6, show positive association between
EP

bidder’s dividend paying status and the likelihood of equity payment, if the bidder comes from

the higher protection country. For completeness, we repeat the analysis with an interaction term
CC

between Neg.Anti-SelfDiff, which equals 1 if the bidder is from lower protection country that the

target, and Bidder Payer. We find that if the bidder pays a dividend and is from a lower
A

protection country, the likelihood of target accepting some equity decreases even further (Table

13
To ensure valid interpretation of the interaction terms in non-linear models, we use Ai and Norton (2003) delta
method and present the marginal effect of the interaction terms and its significance at the bottom of Table IV.

18
IV, Columns 7 and 8).14 We interpret the results, as the target shareholders becoming more

willing to accept bidder’s equity if the bidder pays a dividend if the bidder is also from a better

protection country. The dividend may send a credible signal of the bidder’s quality to the target’s

shareholders, but only if the bidder comes from a country characterized by more investor-

PT
friendly legal environment.

RI
4.3. Bid-Premium and Pre-Merger Dividend Policy

SC
Next, we investigate the effect of the pre-merger dividend policy of the acquirer and the

target on the bid premium. The results of the bid premium regressions on the dividend paying

U
statuses of both acquirer and target, with standard errors clustered by the target’s country, are

N
presented in Table V. We observe that if the bidder pays a dividend and target does not, the
A
premium paid by the bidder is greater in the cash transactions (Table V, Column 2, 0.033**
M

figure), and is not affected by the difference between the bidder’ and target’s dividend policy in

stock transactions (Table V, Column 3, -0.009 figure). The findings are consistent with Dereeper
D

and Turki (2012), who find that in cash financed mergers in the U.S., bid premium increases in
TE

the difference of the acquirer and target’s dividend policy pre-merger, as the acquirer must
EP

compensate the target’s shareholders for the loss of the dividends after the merger. They also

find no relationship between the dividend policy differences and the premium in equity deals.
CC

If in U.S. transactions the bid premium is higher in cash transactions when bidder has a

more generous dividend policy than the target, since the target shareholders demand to be
A

compensated, the findings in Table V, Column 2 may be driven by the transactions where all of

14
In untabulated results, we interact the BidderPayer indicator variable with BidderHighProtection
(BidderLowProtection) indicator variable that equals 1 if the bidder is from a country with anti-self-dealing index
above (below) the median and 0 otherwise. The sign of the coefficients and the statistical significance is the same as
when using the difference in the anti-self-dealing index between the bidder and target countries.

19
the target shareholders benefit from the higher bid premium. Rossi and Volpin (2004) find that

bid premium is higher when the target is from the higher protection country and interpret the

finding with the bid premium measuring gain for all shareholders. Their findings also reject the

possibility that the bid premium measures private benefits of control, since acquirers from low

PT
protection countries do not pay higher premiums.

Thus, we expect that if the target comes from higher protection country, the target

RI
shareholders will demand compensation from the bidder with more generous dividend policy. If

SC
the target comes from the low protection country and the gain from the premium will not benefit

all of the shareholders, more generous dividend policy of the bidder should not have effect on the

U
bid premium.

N
To test this prediction, we split the sample into subsamples where the target is from high
A
(low) protection country with the anti-self-dealing index above (below) the median. The results
M

signal that bid premium measures gain available for all shareholders in high protection countries

and target shareholders demand compensation for giving up the bidder’s policy by accepting
D

cash. The coefficient on BPTN (bidder payer and target non-payer) is positive and significant at
TE

the 5% level in cash transactions (Table V, Model 5). If the target is from low protection country
EP

characterized by weak legal environment, the bidder’s dividend may not benefit the target’s

shareholders as they have limited ability to extract the dividend from the bidder. The results
CC

support the prediction and the coefficient on BPTN in cash transactions is insignificant (Table V,

Model 6). We also observe that in stock transactions between dividend-paying bidder and non-
A

paying target, bid premium is lower (Table V, Model 8). One possible explanation may be that

bidders that pay dividends and acquirer targets that don’t pay a dividend from low protection

20
countries with equity may pay less since the dividend policy of the acquirer may have some

benefits for the target’s value in stock transactions.

4.4. Pre-Merger and Post-Merger Dividend Policy

Finally, we examine the dividend policy of the combined firm after the merger and

PT
present the results in Table VI. The results in Panel A (Panel B) use the dividend payout ratio

RI
(dividend yield) in the 5 years post-merger as the proxy for future dividend policy. Results

tabulated in Table VI indicate that the bidder’s pre-merger dividend policy is positively

SC
associated with the future policy of the merged entity, as the coefficient of PayoutAcq

(YieldBid) is positive and significant in all models in Panel A (Panel B).

U
The role of the target’s policy is generally insignificant, as the coefficient of PayoutTarg
N
(YieldTarg) is insignificant in most models. When PayoutTarg is significant, it is dominated in
A
magnitude by the bidder’s pre-merger dividend policy (e.g., the coefficient is three times larger
M

(0.312 vs. 0.107 on PayoutAcq compared to PayoutTarg in Panel A, Column 1).

D

Our finding contrasts with that in Dereeper and Turki (2016). They find that the post-
TE

merger dividend U.S. domestic M&A transactions is driven by the target’s pre-merger policy,

which they attribute to the catering theory of dividends. To lend more support to our agency
EP

explanation, in Columns 2 and 3, we look at the subsample where the bidder is from a high
CC

protection country (the anti-self-dealing index is above the median) and find that the target’s pre-

merger dividend policy does not matter. However, if the bidder is from a low protection country
A

(Column 4, Panel A, Table VI), target’s dividend policy has statistically significant effect on the

post-merger policy. One explanation is that if the bidder is from low protection country, the

dividend policy may be adjusted to the target’s in order to improve the corporate governance or

retain the shareholders of the target.

21
 Additionally, when we interact the payout of the target pre-merger with Mixed/Stock

method of payment, we do not find support in the models without firm, deal, and country level

characteristics (Column 5, Panel A, Table VI). However, when we include the control variables,

we find that in stock mergers, where the target shareholders would become the bidder’s

PT
shareholders post-merger, the dividend policy post-merger is adjusted to the target’s pre-merger

policy if the acquirer is from low protection country (Column 9, Panel A, Table VI).

RI
Overall, the result in Table 6 results suggest that in cross-border M&A, the bidder’s pre-

SC
merger dividend policy is the driving force behind the new entity’s post-merger dividend

policy.15

U
N
A
M
D
TE
EP
CC
A

15
We recognize that the inferences in these models are limited by the drastically reduced sample sizes which occurs
because we require a 5-year pre- and post-merger dividend policy.

22
5. Conclusion

This paper investigates the role bidder and target dividend policies play in cross-border

M&A’s. Recent research in this area has focused on transactions between U.S. firms and relied

on the clientele and asymmetric information theories of dividends to develop hypotheses. We fill

PT
a gap in the literature extending the findings in domestic M&A between U.S. firms in Turki and

Dereeper (2012, 2013, and 2016).

RI
Our cross-border results contribute to our understanding of how dividend policy impacts

SC
deal characteristics in M&A because our results in the cross-border setting differ from findings

in U.S. transactions. We reconcile these apparently conflicting results by demonstrating that in

U
the context of M&A’s, the dividend theories used to develop hypotheses regarding deal

N
characteristics naturally differ depending on whether the transaction is domestic or cross-border.
A
After confirming the agency-based predictions of the outcome model of dividends (e.g.,
M

La Porta et al., 2000) within the context of our sample, we show that when the bidder pays a

dividend and the target does not, equity is less likely to be used to finance the transaction.
D

However, when the bidder comes from a country of higher shareholder protection, bidder’s
TE

dividend paying status has a marginally positive effect on the likelihood of equity payment. We
EP

also find that the bid premium is slightly higher in cash transactions when a bidder comes from a

high protection country and pays a dividend. Our results also show that the bidder’s pre-merger
CC

dividend policy is positively associated with the post-merger policy, while the target’s policy

bares limited effect.

A

Our paper shows that the firm-level dividend policy status of bidders and targets provides

insight on M&A characteristics beyond those identified in prior studies using differences only in

23
country-level governance measures. In this way we open an avenue for future research that

explores more deeply the interplay between firm- and country-level governance.

PT
RI
SC
U
N
A
M
D
TE
EP
CC
A

24
References
Aivazian, V., Booth, L., and Cleary, S. (2003). Do emerging market firms follow different
dividend policies from US firms? Journal of Financial Research, 26(3), 371-387.
https://doi.org/10.1111/1475-6803.00064
Aguiar, M., and Gopinath, G. (2005). Fire-sale foreign direct investment and liquidity crises.
Review of Economics and Statistics, 87(3), 439-452.
https://doi.org/10.1162/0034653054638319
Allen, F., Bernardo, A. E., & Welch, I. (2000). A theory of dividends based on tax clienteles. The

PT
Journal of Finance, 55(6), 2499-2536. https://doi.org/10.1111/0022-1082.00298
Amihud, Y., & Lev, B. (1981). Risk reduction as a managerial motive for conglomerate
mergers. The Bell Journal of Economics, 605-617.

RI
Baker, M., & Wurgler, J. (2004). A catering theory of dividends. The Journal of Finance, 59(3),
1125-1165. https://doi.org/10.1111/j.1540-6261.2004.00658.x
Brav, Alon, John R. Graham, Campbell R. Harvey, and Roni Michaely (2005). "Payout Policy in

SC
the 21st Century." Journal of Financial Economics, 77 (3): 483-527.
https://doi.org/10.1016/j.jfineco.2004.07.004
Chang, S. (1998). Takeovers of privately held targets, methods of payment, and bidder
returns. The Journal of Finance, 53(2), 773-784. https://doi.org/10.1111/0022-

U
1082.315138
Coffee Jr, J. C. (1998). Future as history: The prospects for global convergence in corporate
N
governance and its implications. Nw. UL Rev., 93, 641.
DeAngelo, H., DeAngelo, L., and Stulz, R. (2006). Dividend policy and the earned/contributed
A
capital mix: a test of the life-cycle theory. Journal of Financial Economics 81 (2): 227-
254. https://doi.org/10.1016/j.jfineco.2005.07.005
M

Dereeper, S., and Turki, A. (2016). Dividend policy following mergers and acquisitions: US
evidence. Managerial Finance, 42(11), 1073-1090. https://doi.org/10.1108/MF-10-
2015-0293
D

Dereeper, S. and Turki, A. (2013). Dividend-paying merging firms and M&A deal completion.
Available at SSRN: http://ssrn.com/abstract=2200159
TE

Dereeper, S. and Turki, A. (2012). The dividend policy of the merged firm, method of payment,
and takeover premium. Available at SSRN: http://ssrn.com/abstract=2084892
Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2008). The law and economics
EP

of self-dealing. Journal of Financial Economics, 88(3), 430-465.

https://doi.org/10.1016/j.jfineco.2007.02.007
Easterbrook, F. H. (1984). Two agency-cost explanations of dividends. The American Economic
CC

Review 74 (4): 650-659.

Faccio, M., & Masulis, R. W. (2005). The choice of payment method in European mergers and
acquisitions. The Journal of Finance, 60(3), 1345-1388.
Gleason, K. C., Mathur, I., & Singh, M. (2000). Wealth effects for acquirers and divestors
A

related to foreign divested assets. International Review of Financial Analysis, 9(1), 5-20.
https://doi.org/10.1016/S1057-5219(99)00027-7
Gomes, A. (2000). Going public without governance: Managerial reputation effects. The Journal
of Finance, 55(2), 615-646. https://doi.org/10.1111/0022-1082.00221
Holderness, C. G. (2003). A survey of blockholders and corporate control. Economic Policy
Review - Federal Reserve Bank of New York 9 (1): 51-63.

25
Howe, K. M., He, J., & Kao, G. W. (1992). One‐ time cash flow announcements and free cash‐
flow theory: Share repurchases and special dividends. The Journal of Finance, 47(5),
1963-1975. https://doi.org/10.1111/j.1540-6261.1992.tb04691.x

Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The
American Economic Review, 76(2), 323-329. https://www.jstor.org/stable/1818789
Jensen, M. C. (1989). Eclipse of the public corporation. Harvard Business Review, 67(5): 61-74.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs

PT
and ownership structure. Journal of Financial Economics, 3(4), 305-360.
https://doi.org/10.1016/0304-405X(76)90026-X
Love, I., & Klapper, L. F. (2002). Corporate governance, investor protection, and performance

RI
in emerging markets. The World Bank.
Krugman, P. (2000). Fire-Sale FDI. In Edwards (Ed.), Capital Flows and the Emerging
Economies: Theory, Evidence, and Controversies. University of Chicago Press.

SC
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1997). Legal determinants of
external finance. Journal of Finance, 1131-1150. https://doi.org/10.1111/j.1540-
6261.1997.tb02727.x
Mitton, T. (2004). Corporate governance and dividend policy in emerging markets. Emerging

U
Markets Review, 5(4), 409-426. https://doi.org/10.1016/j.ememar.2004.05.003
Porta, R. L., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and
N
finance. Journal of Political Economy, 106(6), 1113-1155.
https://doi.org/10.1086/250042
A
La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000). Investor protection and
corporate governance. Journal of Financial Economics, 58(1), 3-27.
M

https://doi.org/10.1016/S0304-405X(00)00065-9
La Porta, R., Lopez‐ de‐ Silanes, F., Shleifer, A., & Vishny, R. W. (2002). Agency problems
and dividend policies around the world. The Journal of Finance, 55(1), 1-33.
D

https://doi.org/10.1111/0022-1082.00199
Lintner, J. (1956). Distribution of incomes of corporations among dividends, retained earnings,
TE

and taxes. The American Economic Review, 46(2), 97-113.

https://www.jstor.org/stable/1910664
Manconi, A., Peyer, U., & Vermaelen, T. (2014). Buybacks around the world. European
EP

Corporate Governance Institute (ECGI)-Finance Working Paper, 436.

Miller, M. H., and Modigliani, F. (1961). Dividend policy, growth, and the valuation of
shares. The Journal of Business, 34(4), 411-433. https://www.jstor.org/stable/2351143
CC

Miller, M. H., and Rock, K. (1985). Dividend policy under asymmetric information. The
Journal of Finance, 40(4), 1031-1051. https://doi.org/10.1111/j.1540-
6261.1985.tb02362.x
Myers, S. C., and Majluf, N. S. (1984). Corporate financing and investment decisions when firms
A

have information that investors do not have. Journal of Financial Economics, 13(2), 187-
221. https://doi.org/10.1016/0304-405X(84)90023-0
Myers, S. C., & Rajan, R. G. (1998). The paradox of liquidity. The Quarterly Journal of
Economics, 113(3), 733-771. https://doi.org/10.1162/003355398555739
Pinkowitz, L., Stulz, R., & Williamson, R. (2006). Does the contribution of corporate cash
holdings and dividends to firm value depend on governance? A cross‐ country

26
 analysis. The Journal of Finance, 61(6), 2725-2751. https://doi.org/10.1111/j.1540-
6261.2006.01003.x
Roll, R. (1986). The hubris hypothesis of corporate takeovers. Journal of Business, 197-216.
https://www.jstor.org/stable/2353017

Rossi, S., & Volpin, P. F. (2004). Cross-country determinants of mergers and

acquisitions. Journal of Financial Economics, 74(2), 277-304.
https://doi.org/10.1016/j.jfineco.2003.10.001

PT
Rozeff, M. S. (1982). Growth, beta and agency costs as determinants of dividend payout
ratios. Journal of Financial Research, 5(3), 249-259. https://doi.org/10.1111/j.1475-
6803.1982.tb00299.x

RI
Shleifer, A., & Vishny, R. W. (1989). Management entrenchment: The case of manager-specific
investments. Journal of Financial Economics, 25(1), 123-139.
https://doi.org/10.1016/0304-405X(89)90099-8

SC
Turki, A. and Dereeper, S. (2012) The Informational Role of Acquirer Dividend Policy in
Corporate Takeovers (May 30, 2012). Available at
http://dx.doi.org/10.2139/ssrn.2078980

U
N
A
M
D
TE
EP
CC
A

27
Appendix

Firm-level controls16

Bidder Size – natural log of the acquirer’s market value 4 weeks prior to the announcement.

Target Size = natural log of the target’s market value 4 weeks prior to the announcement.

PT
Target Profitability = target’s Net Income/Assets for the fiscal year ending prior to the
announcement.

Target Liquidity = target’s Cash/Assets for the fiscal year ending prior to the announcement.

RI
Target Leverage = target’s Total Debt/Assets for the fiscal year ending prior to the

SC
announcement.

Target Collateral = target’s Net Property, Plant and Equipment divided by total assets for the
fiscal year ending prior to the announcement, which is a proxy for debt capacity of the company

U
as in Faccio and Masulis (2005).

N
Target CAGR = target’s three-year compounded sales growth rate, which controls for the life
cycle of the firm as in Gleason, Mathur, and Singh (2000).
A
Bidder Profitability (or Bidder Prof.) = acquirer’s Net Income/Assets for the fiscal year ending
M

prior to the announcement.

Bidder Liquidity = acquirer’s Cash/Assets for the fiscal year ending prior to the announcement.
D

Bidder Leverage = acquirer’s Total Debt/Assets for the fiscal year ending prior to the
TE

announcement.

Bidder Collateral = acquirer’s Net Property, Plant and Equipment divided by total assets for the
EP

fiscal year ending prior to the announcement, which is a proxy for debt capacity of the company.

Bidder CAGR = acquirer’s three-year compounded sales growth rate, which controls for the life
CC

cycle of the firm as in Gleason, Mathur, and Singh (2000).

Bidder M/B = acquirer’s market value of equity 4 weeks prior to the announcement divided by
the book value of the acquirer’s equity at the fiscal year-end prior to the bid and controls for the
A

bidder’s growth opportunities.

16
All the accounting variables and the bid premium are winsorized at 1%, unless the natural log of the variable is
used in the regression. Relative Size of the transaction is winsorized at 10%, as the variable is significantly skewed
even at 5%.

28
Deal-level controls

Tender = 1, if the transaction is a tender offer as reported in SDC, and 0 otherwise.

Contested = 1, if there is more than 1 bidder in the transaction, and 0 otherwise.

SameIndustry = 1, if Acquirer and Target 2-digit SIC code is the same.

PT
Relative Size = value of the transaction in U.S. dollars divided by the acquirer’s market value in
U.S. dollars 4 weeks prior to the announcement.

RI
Country-level controls

Target Anti-Self Dealing – anti-self-dealing index of the target’ country, which measures “legal

SC
protection of minority shareholders against expropriation by corporate insiders” (Djankov, La
Porta, Lopez-de-Silanes and Shleifer, 2008).

A_SMC = the bidder country’s stock market capitalization to GDP ratio at the fiscal year-end

U
prior to the bid obtained from World Bank.

N
T_SMC = the target’s country’s stock market capitalization to GDP ratio at the fiscal year-end
prior to the bid obtained from World Bank.
A
A_Common = 1 if acquirer is from common law country, and 0 otherwise.
M

T_Common = 1 if target is from common law country, and 0 otherwise.

D

Target GDP/Capita = natural log of target’s country GDP/capita at the fiscal year-end prior to
the bid and controls for country level of development, obtained from World Bank.
TE

Acquirer GDP/Capita = natural log of acquirer’s country GDP/capita at the fiscal year-end prior
to the bid and controls for country level of development, obtained from World Bank.
EP

Target GDP Growth = GDP growth of the target’s country at the fiscal year-end prior to the bid,
obtained from World Bank and controls for the business cycle.
CC

Acquirer GDP Growth = GDP growth of the acquirer’s country at the fiscal year-end prior to the
bid, obtained from World Bank and controls for the business cycle
A

29
Table I: Acquirer’s and Target’s Location
Country # of Targets % of Targets # of Acquirers % of Acquirers
Antigua 1 0.02% 0 0.00%
Argentina 52 1.03% 9 0.18%
Australia 278 5.48% 148 2.92%
Austria 26 0.51% 41 0.81%
Bahamas 3 0.06% 6 0.12%
Barbados 2 0.04% 0 0.00%

PT
Bahrain 0 0.00% 5 0.10%
Belgium 68 1.34% 95 1.87%
Belize 0 0.00% 3 0.06%
Bermuda 30 0.59% 68 1.34%
Bolivia 2 0.04% 1 0.02%

RI
Bosnia 4 0.08% 0 0.00%
Botswana 3 0.06% 1 0.02%
Brazil 93 1.83% 53 1.05%
British Virgin 5 0.10% 4 0.08%

SC
Bulgaria 5 0.10% 3 0.06%
Cameroon 1 0.02% 0 0.00%
Canada 567 11.19% 442 8.72%
Cayman Islands 3 0.06% 4 0.08%
Chile 42 0.83% 24 0.47%

U
China 22 0.43% 48 0.95%
Colombia 25 0.49% 13 0.26%
Cook Islands 0 0.00% 2 0.04%
Costa Rica
Croatia
Cyprus
2
8
8
0.04%
0.16%
0.16%
0
6
3
N
0.00%
0.12%
0.06%
A
Czech Republic 30 0.59% 3 0.06%
Denmark 25 0.49% 53 1.05%
Ecuador 8 0.16% 1 0.02%
M

Egypt 24 0.47% 6 0.12%

El Salvador 1 0.02% 0 0.00%
Estonia 19 0.37% 4 0.08%
Falkland Is 1 0.02% 0 0.00%
Finland 46 0.91% 60 1.18%
D

France 267 5.27% 329 6.49%

Georgia 1 0.02% 0 0.00%
Germany 204 4.02% 245 4.83%
TE

Ghana 3 0.06% 5 0.10%

Gibraltar 2 0.04% 1 0.02%
Greece 22 0.43% 23 0.45%
Guernsey 8 0.16% 9 0.18%
Hong Kong 64 1.26% 74 1.46%
EP

Hungary 13 0.26% 4 0.08%

Iceland 1 0.02% 13 0.26%
India 121 2.39% 50 0.99%
Indonesia 50 0.99% 13 0.26%
Iraq 4 0.08% 0 0.00%
CC

Ireland-Rep 22 0.43% 52 1.03%

Isle of Man 2 0.04% 5 0.10%
Israel 52 1.03% 48 0.95%
Italy 49 0.97% 109 2.15%
Jamaica 2 0.04% 0 0.00%
A

Japan 37 0.73% 183 3.61%

Jersey 8 0.16% 4 0.08%
Jordan 9 0.18% 1 0.02%
Kazakhstan 8 0.16% 5 0.10%
Kenya 1 0.02% 0 0.00%
Kuwait 5 0.10% 9 0.18%
Latvia 5 0.10% 4 0.08%
Lebanon 1 0.02% 3 0.06%
Liechtenstein 0 0.00% 1 0.02%
Lithuania 20 0.39% 2 0.04%
Luxembourg 28 0.55% 28 0.55%
Macedonia 3 0.06% 0 0.00%

30
 Malawi 0 0.00% 1 0.02%
Malaysia 32 0.63% 42 0.83%
Malta 3 0.06% 3 0.06%
Mauritius 1 0.02% 0 0.00%
Mexico 32 0.63% 32 0.63%
Monaco 1 0.02% 0 0.00%
Morocco 9 0.18% 0 0.00%
Namibia 2 0.04% 0 0.00%
Neth Antilles 2 0.04% 1 0.02%
Netherlands 82 1.62% 179 3.53%
New Zealand 59 1.16% 27 0.53%
Nigeria 7 0.14% 2 0.04%

PT
Norway 95 1.87% 49 0.97%
Oman 1 0.02% 3 0.06%
Pakistan 11 0.22% 5 0.10%
Panama 3 0.06% 0 0.00%
Papua N Guinea 4 0.08% 3 0.06%

RI
Peru 39 0.77% 16 0.32%
Philippines 16 0.32% 10 0.20%
Poland 97 1.91% 20 0.39%
Portugal 20 0.39% 12 0.24%

SC
Puerto Rico 3 0.06% 3 0.06%
Qatar 0 0.00% 14 0.28%
Romania 23 0.45% 3 0.06%
Russian Fed 38 0.75% 38 0.75%
Saudi Arabia 1 0.02% 2 0.04%

U
Serbia 10 0.20% 1 0.02%
Singapore 65 1.28% 69 1.36%
Slovak Rep 4 0.08% 1 0.02%
Slovenia
South Africa
South Korea
9
63
48
0.18%
1.24%
0.95%
3
68
28
N
0.06%
1.34%
0.55%
A
Spain 46 0.91% 116 2.29%
Sri Lanka 12 0.24% 5 0.10%
Sweden 108 2.13% 159 3.14%
M
Switzerland 61 1.20% 168 3.31%
Syria 1 0.02% 0 0.00%
Taiwan 25 0.49% 23 0.45%
Thailand 40 0.79% 16 0.32%
Togo 0 0.00% 1 0.02%
D

Trinidad&Tob 3 0.06% 0 0.00%

Turkey 32 0.63% 9 0.18%
Ukraine 10 0.20% 1 0.02%
TE

United Kingdom 437 8.62% 559 11.03%

United States 1080 21.31% 1032 20.36%
Uruguay 2 0.04% 3 0.06%
Utd Arab Em 2 0.04% 10 0.20%
Venezuela 9 0.18% 3 0.06%
EP

Vietnam 1 0.02% 3 0.06%

Zimbabwe 4 0.08% 0 0.00%

This table contains the number of targets and acquirers in cross-border transactions between 1990 and 2017 where
CC

both the public and target are public firms.

A

31
Table II: Summary Statistics

Dividend Paying Status Characteristics

# of Obs. Mean Median St. Dev. Minimum Maximum
BPTN 3679 0.32 0.00 0.47 0.00 1.00
BPTP 3679 0.43 0.00 0.49 0.00 1.00
BNTP 3679 0.07 0.00 0.25 0.00 1.00
BNTN 3679 0.19 0.00 0.39 0.00 1.00
Bidder Payer 4280 0.74 1.00 0.44 0.00 1.00

PT
Target Payer 4213 0.49 0.00 0.50 0.00 1.00
PayoutBid[+1,+5] 1575 40.12% 35.16% 37.5% 0% 442.87%
PayoutTarg[-5,0] 1593 30.76% 15.28% 36.29% 0% 313.91%
PayoutBid[-5,0] 1792 37.82% 33.98% 33.78% 0% 264.56%

RI
YieldBid[+1,+5] (in %) 3823 2.05 1.46 6.18 0.00 356.50
YieldTarg[-5,0] (in %) 3093 1.83 0.01 2.92 0.00 16.77
YieldBid[-5,0] (in %) 3782 1.94 1.50 2.04 0.00 10.03

SC
Deal Characteristics
Bid Premium 3313 55.37% 37.16% 74.83% 0.00% 555.96%
Relative Size 3874 17.97% 6.88% 22.23% 0.37% 66.63%
Tender 4953 0.38 0.00 0.49 0.00 1.00

U
Contested 4953 0.04 0.00 0.19 0.00 1.00
Mixed/Stock 4953 0.53 1.00 0.50 0.00 1.00
Same Industry
Country-Level Characteristics
4953 0.62 N
1.00 0.49 0.00 1.00
A
Bidder Anti-Self Dealing 4,889 0.58 0.64 0.23 0.08 1.00
Target Anti-Self Dealing 4799 0.58 0.64 0.22 0.08 1.00
Anti-Self Dealing Diff 4640 -0.01 0.00 0.26 -0.79 0.87
M

A_SMC 4506 108.1 100.7 89.3 1.19 1254.5

T_SMC 4452 102.1 99.6 96.5 0.87 1254.5
A_Common 4953 0.54 1.00 0.50 0.00 1.00
D

T_Common 4953 0.60 1.00 0.49 0.00 1.00

Bidder GDP/Capita 4809 31070.8 30068.2 13403.4 1168.8 129349.9
TE

Target GDP/Capita 4804 28566.9 28163.3 14136.8 1227.2 101640.1

Bidder GDP Growth in % 4895 2.9 2.8 2.6 -14.8 26.2
Target GDP Growth in % 4889 3.0 3.1 2.6 -14.8 15.4
Firm-Level Characteristics
EP

Bidder M/B 3548 3.5 2.2 3.6 0.3 14.9

Target M/B 2955 2.87 1.69 3.42 0.12 14.19
Bidder Size (in mil of $) 4336 10574.8 2677.3 17206.9 46.3 64078.8
Target Size (in Mil of $) 3551 852.1 202.1 1455.1 7.2 5574.3
CC

Bidder Liquidity 3807 11.0% 5.7% 15.3% 0.0% 86.5%

Target Liquidity 3863 16.7% 7.4% 22.5% 0.0% 95.3%
Bidder Profitability 3808 2.1% 4.3% 16.6% -98.8% 36.0%
Target Profitability 3866 -11.4% 1.5% 44.7% -246.5% 53.5%
A

Bidder Leverage 3808 56.7% 56.9% 23.5% 5.0% 112.6%

Target Leverage 3857 55.3% 50.6% 48.0% 2.7% 415.3%
Bidder Collateral 3750 24.8% 20.2% 21.7% 0.0% 84.9%
Target Collateral 3797 23.8% 12.9% 24.9% 0.0% 90.1%
Bidder CAGR 3294 10.5% 8.0% 35.9% -91.9% 183.6%
Target CAGR 3176 0.0% 2.4% 48.8% -100.0% 276.5%

This table presents summary statistics for dependent and independent variables, which are described in Appendix.

32
 A
CC
EP
TE
D
M

33
A
N
U
SC
RI
PT
Table III: Country- and Firm- Level Determinants of the Dividend Policy Differences in
Cross-Border International M&A’s
Mixed/ Mixed/ Mixed/
Full Cash Stock Full Cash Stock Full Cash Stock
(1) (2) (3) (4) (5) (6) (7) (8) (9)
Dependent
Variable BPTN BPTN BPTN BPTP BPTP BPTP BNTP BNTP BNTP
Anti-Self
Dealing Diff 2.093*** 2.209*** 2.414*** -1.011 -0.914 -1.230 -2.909*** -2.240*** -5.874***

PT
(3.028) (2.842) (2.749) (-1.499) (-1.186) (-1.603) (-3.846) (-2.868) (-3.363)
T_SMC -0.003*** -0.003*** -0.001 0.004*** 0.005*** 0.002** -0.002* -0.004** -0.004**
(-2.840) (-2.690) (-1.385) (6.660) (6.681) (2.470) (-1.804) (-2.077) (-2.502)
A_SMC 0.000 0.000 0.000 0.001 0.001 0.002 -0.000 -0.001 -0.001

RI
(0.273) (0.076) (0.160) (1.074) (0.858) (1.630) (-0.318) (-0.613) (-0.266)
Target
GDP/Capita 0.706*** 0.688*** 0.918*** -0.408* -0.526** -0.248 -0.224 -0.420* 0.184
(3.890) (2.779) (4.208) (-1.781) (-1.965) (-0.974) (-0.830) (-1.761) (0.349)

SC
Bidder
GDP/Capita -0.451** -0.056 -0.959*** -0.385** -0.398* -0.628** 0.369 0.004 0.951*
(-2.407) (-0.228) (-2.783) (-2.575) (-1.656) (-2.262) (1.111) (0.009) (1.689)
Bidder GDP

U
Growth 0.028 0.028 0.022 -0.123** -0.075 -0.216*** 0.122* 0.049 0.398***
(0.619) (0.467) (0.240) (-2.404) (-1.302) (-3.309) (1.748) (0.730) (2.650)
Target GDP
Growth

A_Common
-0.006
(-0.140)
-1.490***
-0.031
(-0.563)
-1.631***
0.021
(0.446)
-1.425***
0.102**
(2.310)
0.717**
N 0.099**
(2.184)
0.639*
0.113*
(1.868)
0.839**
-0.103
(-1.134)
1.481***
-0.131
(-1.343)
1.606***
-0.091
(-0.528)
0.976
A
(-5.338) (-5.187) (-3.315) (2.290) (1.873) (2.039) (3.377) (3.338) (1.207)
T_Common 1.414*** 1.635*** 1.282*** -0.750*** -0.764*** -0.810** -1.222*** -1.247*** -1.193*
M
(6.549) (6.611) (3.515) (-3.150) (-2.943) (-2.094) (-3.447) (-2.957) (-1.671)
Relative
Size -0.032 -0.110 0.007 0.437 -0.048 1.143 -0.267 -0.161 -0.877
(-0.064) (-0.200) (0.008) (0.761) (-0.092) (1.361) (-0.424) (-0.133) (-0.697)
Tender -0.069 0.120 -0.216 0.151 0.155 -0.052 0.108 -0.053 0.356
D

(-0.444) (0.567) (-0.774) (1.305) (0.709) (-0.214) (0.440) (-0.203) (0.645)

Contested 0.141 0.265 -0.187 -0.147 0.026 -0.640 0.093 -0.887 2.416***
TE

(0.371) (0.759) (-0.156) (-0.406) (0.073) (-0.781) (0.245) (-0.703) (3.150)

Same
Industry -0.011 -0.074 0.154 -0.029 0.048 -0.264 0.376 -0.096 1.347**
(-0.086) (-0.548) (0.447) (-0.245) (0.301) (-1.184) (1.362) (-0.262) (2.010)
Bidder M/B -0.041 -0.034 -0.048 -0.038** -0.067** 0.000 -0.035 0.023 -0.199**
EP

(-1.638) (-1.170) (-1.144) (-2.183) (-2.273) (0.013) (-0.666) (0.503) (-2.070)

Target M/B 0.019 0.017 0.004 -0.073** -0.059** -0.108 0.086* 0.028 0.278***
(0.624) (0.580) (0.087) (-2.156) (-2.296) (-1.255) (1.682) (0.390) (4.303)
Bidder Size 0.251*** 0.276*** 0.238** 0.070 -0.046 0.244** -0.347*** -0.426** -0.556**
CC

(3.279) (3.032) (1.976) (0.813) (-0.483) (2.210) (-2.637) (-2.165) (-2.201)

Target Size -0.347*** -0.345*** -0.392*** 0.265*** 0.353*** 0.187 0.093 0.186 0.100
(-3.660) (-3.286) (-2.619) (2.598) (3.135) (1.309) (0.631) (0.771) (0.447)
Bidder
Liquidity -0.798 -1.055 -1.021 -4.905*** -5.576*** -4.354** 2.578** 4.250*** 0.831
A

(-0.973) (-0.918) (-1.286) (-4.353) (-3.624) (-2.268) (2.137) (3.196) (0.437)

Target
Liquidity 0.213 0.267 -0.551 -0.559 -0.800 0.100 -0.248 -1.540 1.499
(0.391) (0.441) (-0.452) (-0.905) (-0.909) (0.106) (-0.203) (-1.288) (0.949)
Bidder Prof. 3.870*** 4.610*** 2.863** 3.316*** 4.362*** 2.197 -1.691 -2.693 -3.574
(3.068) (2.698) (2.137) (2.957) (3.433) (1.134) (-1.002) (-1.194) (-1.369)
Target Prof. -0.754 -0.834 -0.702 2.953* 2.784 3.033* 2.957*** 2.648** 5.311**
(-1.022) (-1.029) (-1.116) (1.898) (1.572) (1.670) (3.191) (2.549) (2.379)
Target
Leverage 0.594 0.187 1.355* 0.372 0.667 -0.245 -0.417 -0.377 -1.311

34
 (0.940) (0.277) (1.758) (0.754) (1.168) (-0.413) (-0.603) (-0.531) (-0.876)
Bidder
Leverage -0.209 -0.259 -0.395 0.743 1.045** 0.328 0.648 -0.003 3.452**
(-0.421) (-0.466) (-0.646) (1.604) (2.235) (0.510) (0.838) (-0.003) (2.411)
Bidder
CAGR -0.176 -0.463* 0.200 -0.766*** -0.710*** -1.002** 0.982*** 0.994** 1.029
(-0.889) (-1.702) (0.555) (-3.479) (-2.593) (-2.077) (3.306) (2.271) (1.414)
Target
CAGR 0.914*** 0.979*** 0.762** -1.533*** -1.738*** -1.174** -0.226 0.322 -1.010*
(4.556) (3.703) (2.344) (-3.688) (-3.476) (-2.398) (-0.442) (0.682) (-1.701)
Intercept -2.536 -6.871** 1.374 1.039 2.966 0.380 0.670 7.512 -7.834

PT
(-1.049) (-2.359) (0.374) (0.486) (1.100) (0.123) (0.153) (1.323) (-1.223)
Pseudo R2 0.150 0.170 0.159 0.224 0.244 0.234 0.165 0.214 0.289
N 1300 843 457 1300 843 457 1300 843 457
This table presents the results of nine Logit regressions, with 3 dependent variables. In Models 1-3, the dependent

RI
indicator variable is BPTN = 1 if bidder pays a dividend and target does not, and 0 for all other combinations of
bidder/target dividend policies. In Models 4-6, the dependent indicator variable is BPTP = 1 if bidder and target pay
a dividend, and 0 for all other combinations of bidder/target dividend policies. In Models 7-9, the dependent
indicator variable is BNTP = 1 if bidder doesn’t pay and target pays a dividend, and 0 for all other combinations of

SC
bidder/target dividend policies. The logit models are also estimated separately for sub-samples based on the method
of payment in the transaction. Models 1, 4, and 7 include full sample; Models 2, 5, and 8 include cash only
transactions, and Models 3, 6, and 9 include transactions where at least some proportion of the method of payment is

U
equity. The country-level determinants are Anti-Self Dealing Diff which is difference in the minority shareholders
protection between the country of the bidder and the target. Country, deal, and firm-level variables are described in
Appendix. *, **, and *** denote 10%, 5%, and 1% level of significance respectively. z-statistics based on two-tailed
test are reported in parenthesis. N
A
M
D
TE
EP
CC
A

35
Table IV: Method of Payment Determinants in Cross-Border International M&A’s
(1) (2) (3) (4) (5) (6) (7) (8)
Anti-Self
Dealing Diff 0.528** 0.174
(2.402) (0.743)
Target Anti-Self
Dealing -0.924** -1.289***
(-1.961) (-3.186)
Bidder Payer -0.617*** -0.384* -0.879*** -0.727*** -0.273* 0.011

PT
(-4.212) (-1.947) (-6.204) (-3.972) (-1.755) (0.053)
Target Payer -0.034 -0.228** -0.030 -0.228** -0.056 -0.246**
(-0.256) (-2.049) (-0.241) (-2.115) (-0.457) (-2.208)

RI
Pos Anti-Self Diff -0.156 -0.345
(-0.780) (-1.298)
Pos Anti-Self
Diff*Bidder Payer 0.576*** 0.747***

SC
(3.633) (2.681)
Neg Anti-Self Diff -0.023 0.361
(-0.113) (1.352)
Neg Anti-Self

U
Diff*Bidder Payer -0.727*** -0.956***
(-3.847) (-3.333)
Target Size

Tender
-0.016
(-0.527)
-1.334***
0.014
(0.418)
-1.277***
(7.680) N
0.254*** 0.242*** 0.014
(6.237) (0.460)
0.244*** 0.020
(6.225) (0.708)
-1.377*** -1.318*** -1.277*** -1.316*** -1.264***
0.240***
(5.930)
-1.299***
A
(-10.148) (-12.502) (-10.700) (-10.557) (-12.335) (-11.015) (-12.023) (-10.953)
Contested -0.247 -0.452** -0.096 -0.163 -0.469** -0.165 -0.464** -0.169
M

(-1.577) (-2.410) (-0.372) (-0.645) (-2.481) (-0.659) (-2.399) (-0.667)

Same Industry -0.076 -0.013 -0.016 -0.023
(-0.625) (-0.127) (-0.149) (-0.213)
Bidder Size -0.255*** -0.225*** -0.221*** -0.202***
D

(-4.710) (-4.606) (-4.642) (-4.083)

Bidder M/B 0.053*** 0.044*** 0.044*** 0.042***
TE

(4.119) (3.266) (3.047) (2.782)

Target Liquidity 0.335 0.157 0.126 0.103
(0.809) (0.392) (0.328) (0.262)
Bidder Liquidity 0.726* 0.185 0.130 0.110
EP

(1.753) (0.460) (0.305) (0.257)

Target Collateral 0.145 -0.105 -0.079 -0.073
(0.505) (-0.350) (-0.261) (-0.238)
CC

Bidder Collateral 0.787** 0.843** 0.769** 0.802**

(2.037) (2.140) (1.978) (2.082)
Target Leverage -0.113 0.061 0.047 0.069
(-0.710) (0.370) (0.278) (0.412)
Bidder Leverage 0.532 0.686** 0.619** 0.626**
A

(1.606) (2.216) (2.058) (1.986)

Target Profitability -0.657*** -0.422* -0.447* -0.453*
(-3.121) (-1.730) (-1.758) (-1.853)
Bidder Profitability -2.184*** -2.011*** -2.134*** -2.226***
(-3.737) (-2.764) (-2.956) (-3.160)
Target GDP/Capita -0.758*** -0.849*** -0.822*** -0.790***
(-2.963) (-3.075) (-2.987) (-2.933)
Bidder GDP/Capita -0.120 -0.160 -0.211 -0.214

36
 (-0.705) (-1.138) (-1.414) (-1.484)
Target GDP Growth -0.024 -0.029 -0.027 -0.020
(-0.654) (-0.823) (-0.763) (-0.561)
Bidder GDP Growth 0.039 0.019 0.015 0.010
(0.995) (0.550) (0.425) (0.298)
Intercept 1.282** 0.599 9.901*** 10.487*** 0.672 10.881*** 0.496 9.953***
(2.171) (1.085) (3.898) (3.721) (1.407) (4.041) (0.946) (3.596)
Pseudo R2 0.089 0.082 0.166 0.155 0.088 0.160 0.099 0.165
N 3348 3036 1929 1944 3036 1944 3036 1944

PT
Marginal Effect:
Pos Anti-Self
Diff*Bidder Payer 0.128*** 0.149**
(3.44) (2.51)

RI
Neg Anti-Self
Diff*Bidder Payer -0.16*** -0.19***
(-3.847) (-3.333)
This table presents the results of seven Logit regressions, where the dependent variable is an indicator variable that

SC
equals 1 if the payment is made at least with some equity, and 0 otherwise. All standard errors are adjusted for
heteroskedasticity and clustered by the target’s country. Anti-Self Dealing Diff is difference in the minority
shareholders protection between the country of the bidder and the target. Bidder Payer = 1, if the acquirer pays a
dividend during a fiscal year ending prior to the announcement date; Target Payer = 1, if the target pays a dividend

U
during a fiscal year ending prior to the announcement date. Pos Anti-Self Diff = 1, if the bidder is from higher
protection country than the target. Neg Anti-Self Diff = 1, if the bidder is from lower protection country than the

N
target. Pos Anti-Self Diff*Bidder Payer is the interaction between the dividend policy of the acquirer prior to the
merger and the positive difference in the minority shareholders protection between the country of the bidder and the
target. Neg. Anti-Self Diff*Bidder Payer is the interaction between the dividend policy of the acquirer prior to the
A
merger and the negative difference in the minority shareholders protection between the country of the bidder and the
target. The marginal effect of the interaction terms and their significance is estimated using Ai and Norton (2003)
M

delta method and is presented at the bottom of the table. Control variables are described in the Appendix. *, **, and
*** denote 10%, 5%, and 1% level of significance respectively. z-statistics based on two-tailed test are reported in
parenthesis.
D
TE
EP
CC
A

37
Table V: Multivariate Analysis of Bid Premium Determinants in International Cross-
Border M&A’s
Target High protection Target Low protection
Stock/ Stock/ Stock/
Full Cash Mixed Full Cash Mixed Cash Mixed
(1) (2) (3) (4) (5) (6) (7) (8)
BPTN 0.020 0.033** -0.009 0.029*** 0.031** 0.033 0.023 -0.052*
(1.580) (2.670) (-0.409) (3.055) (2.375) (0.833) (0.834) (-1.734)
Anti-Self

PT
Dealing Diff -0.031 -0.040* -0.014
(-1.533) (-1.866) (-0.325)
Target Anti-
Self

RI
Dealing 0.021 0.027 -0.012
(0.665) (0.685) (-0.249)
Relative Size 0.168*** 0.163*** 0.206*** 0.218*** 0.246*** 0.165* 0.042 0.241***
(4.639) (3.343) (4.727) (5.235) (4.102) (2.074) (0.534) (3.888)

SC
Tender 0.019 0.018 0.014 0.021 0.033** 0.021 0.006 0.019
(1.649) (1.415) (0.711) (1.499) (2.720) (0.777) (0.293) (0.850)
Contested 0.086** 0.070 0.130** 0.098* 0.069 0.227*** 0.045 0.085
(2.190) (1.609) (2.568) (1.932) (1.180) (3.651) (0.870) (1.209)

U
Same Industry 0.015 0.012 0.019 -0.009 -0.014 0.002 0.046* 0.055
(1.317) (1.003) (0.745) (-0.956) (-1.341) (0.066) (1.795) (1.384)
Bidder M/B 0.000 0.002 -0.002 0.001 0.000 0.002 0.003 -0.010***

Target Size
(0.119)
-0.049***
(-7.232)
(1.028)
-0.046***
(-5.029)
(-0.655)
-0.055***
(-5.255)
(1.289)
-0.055***
(-9.065)
N (0.049)
-0.057***
(-7.296)
(0.889)
-0.051***
(-3.317)
(0.964)
-0.037***
(-2.993)
(-2.824)
-0.061***
(-5.516)
A
Bidder Size 0.028*** 0.023** 0.037*** 0.037*** 0.038*** 0.034** 0.005 0.035***
(3.375) (2.106) (4.110) (4.540) (3.969) (2.518) (0.426) (2.849)
M
Target
Liquidity 0.051 0.019 0.120 0.127*** 0.090** 0.318*** -0.105* -0.071
(0.970) (0.347) (1.557) (3.719) (2.578) (3.487) (-1.782) (-1.087)
Bidder
Liquidity 0.038 0.026 0.045 0.016 0.051 -0.054 -0.016 0.132**
D

(0.999) (0.563) (0.646) (0.363) (0.869) (-0.681) (-0.153) (2.178)

Target
TE

Leverage 0.020 0.035 -0.003 0.036** 0.040 0.034 0.065 -0.098

(0.975) (1.207) (-0.072) (2.188) (1.285) (0.947) (0.996) (-1.515)
Bidder
Leverage 0.020 0.014 0.040 0.039 0.054 0.065 -0.059 0.106
(0.651) (0.415) (0.628) (0.879) (1.338) (0.598) (-1.173) (1.381)
EP

Target Prof. -0.097*** -0.056* -0.152*** -0.062** -0.021 -0.069** -0.104** -0.214*
(-3.339) (-1.717) (-3.407) (-2.211) (-0.577) (-2.442) (-2.100) (-1.753)
Bidder Prof. 0.092 0.107 0.071 0.140 0.138 0.176* -0.015 0.090
(1.407) (1.027) (0.764) (1.437) (0.856) (1.955) (-0.144) (0.679)
CC

B/GDP Growth 0.001 -0.002 0.008 -0.002 -0.001 -0.003 -0.001 0.022**
(0.211) (-0.369) (1.251) (-0.333) (-0.136) (-0.503) (-0.112) (2.091)
T/GDP Growth -0.005 -0.008* 0.004 -0.008* -0.013** 0.004 -0.003 0.002
(-1.226) (-1.750) (0.844) (-2.071) (-2.896) (0.601) (-0.362) (0.249)
Intercept 0.585*** 0.659*** 0.446*** 0.521*** 0.538*** 0.447** 0.907*** 0.614***
A

(5.775) (5.103) (3.290) (5.588) (5.582) (2.419) (4.284) (2.831)

Adj. R2 0.158 0.141 0.165 0.210 0.178 0.269 0.146 0.120
N 1446 990 456 840 615 225 384 244

The table presents seven mulitivariate (OLS) regressions with natural log of bid premium (bid price scaled by the
target’s market price 4 weeks prior to the merger announcement) as a dependent variable, excluding transactions
where bid premium is less than 0. All standard errors are adjusted for heteroskedasticity and clustered by the
target’s country. BPTN =1 if bidder pays a dividend and target does not prior to the merger, 0 otherwise. BPTP = 1
if bidder pays a dividend and a target pays a dividend, 0 otherwise. Country, Deal, and Firm-level control variables

38
are described in the Appendix. Models 1, 4, & 9 include full sample, Models 2, 5, 7, 10, & 12 include cash only
transactions, Models 3, 6, 8, 11, & 13 include transactions with at least some equity. Models 4 – 6 & 9 – 11 (Models
7, 8, 12, and 13) only include transactions where the target is from a country with above (below) median level of
shareholders’ protection measure by anti-self-dealing index. *, **, and *** denote 10%, 5%, and 1% level of
significance respectively. t-statistics based on two-tailed test are reported in parenthesis.

PT
RI
SC
U
N
A
M
D
TE
EP
CC
A

39
 PT
RI
SC
Table VI: Dividend policy after the merger

U
Panel A: Dividend Payout

Full Bidder High Protection Bidder Low Protection Bidder High Protection Bidder Low Protection

N
(1) (2) (3) (4) (5) (6) (7) (8) (9)
PayoutTarg[-5,0] 0.107** -0.016 -0.003 0.095*** 0.050 -0.028 0.016 0.105 0.006

A
(2.240) (-0.339) (-0.042) (2.902) (0.820) (-0.485) (0.130) (1.180) (0.064)
PayoutAcq[-5,0] 0.312*** 0.466*** 0.466*** 0.195*** 0.194*** 0.354* 0.373* 0.295*** 0.288***
(4.066) (4.274) (4.326) (3.357) (3.346) (2.126) (1.894) (3.654) (3.193)

M
Mixed/Stock -0.129*** -0.077 -0.067 -0.171*** -0.233*** -0.118*** -0.056 -0.161* -0.329***
(-3.260) (-1.551) (-1.517) (-3.148) (-2.847) (-3.307) (-0.452) (-2.097) (-3.665)
PayoutTarg[-5,0]*Mixed/Stock -0.030 0.158 -0.165 0.392**
(-0.266) (1.020) (-0.501) (2.123)
ED
Relative Size 0.369** 0.362** -0.314 -0.311
(2.375) (2.256) (-1.427) (-1.362)
Target M/B 0.019** 0.020*** -0.001 0.001
(2.707) (3.162) (-0.099) (0.149)
Bidder M/B -0.000 -0.000 0.007 0.012*
PT

(-0.050) (-0.005) (1.673) (1.827)

Target Size -0.055*** -0.060*** 0.010 0.012
(-3.213) (-3.686) (0.351) (0.401)
Bidder Size 0.097*** 0.101*** -0.020 -0.032
E

(5.513) (8.345) (-0.764) (-0.914)

Target Liquidity 0.065 0.106 -0.228** -0.274**
(0.912) (1.088) (-2.422) (-2.274)
CC

Bidder Liquidity -0.195 -0.213 0.392 0.417

(-1.518) (-1.699) (1.073) (1.266)
Target CAGR 0.083** 0.072 0.160 0.144
(2.507) (1.470) (0.594) (0.552)
Bidder CAGR -0.129 -0.138 -0.094 -0.115
A

(-1.217) (-1.373) (-0.702) (-0.790)

Target Leverage 0.220*** 0.211*** 0.010 0.006
(3.785) (3.047) (0.092) (0.057)
Bidder Leverage 0.019 0.021 0.331* 0.313
(0.158) (0.189) (1.904) (1.643)
Target Profitability 0.325*** 0.348*** 0.254 0.391
(4.710) (3.916) (0.445) (0.695)
Bidder Profitability -0.353* -0.340* -1.026** -1.169**
(-1.797) (-2.051) (-2.643) (-2.563)
Target GDP/Capita 0.000 0.000 0.000* 0.000*

40
 PT
RI
(0.371) (0.310) (2.094) (1.903)

SC
Bidder GDP/Capita -0.000 -0.000 0.000 0.000
(-0.889) (-0.700) (1.127) (1.118)
Intercept 0.266*** 0.212*** 0.208** 0.362*** 0.375*** -0.856*** -0.862*** 0.161 0.464
(3.688) (2.838) (2.495) (6.309) (6.043) (-3.285) (-3.222) (0.262) (0.636)
Adj. R2 0.175 0.273 0.270 0.109 0.108 0.466 0.462 0.007 0.015

U
N 462 222 222 206 206 98 98 130 130

N
A
Panel B: Dividend Yield

M
Full Bidder High Protection Bidder Low Protection Bidder High Protection Bidder Low Protection
(1) (2) (3) (4) (5) (6) (7) (8) (9)
YieldTarg[-5,0] 0.004 0.032 0.006 -0.016 -0.011 -0.019 -0.042*** -0.026 -0.009
(0.222) (0.787) (0.165) (-1.110) (-1.110) (-1.502) (-2.938) (-0.702) (-0.326)
ED
YieldBid[-5,0] 1.026*** 1.019*** 1.019*** 0.987*** 0.988*** 1.009*** 1.010*** 1.062*** 1.063***
(43.944) (25.935) (26.451) (24.731) (24.626) (23.599) (24.079) (7.335) (7.331)
Mixed/Stock 0.020 -0.066 -0.141 0.012 0.037 -0.050 -0.119* 0.014 0.112
(0.498) (-1.090) (-1.325) (0.324) (0.961) (-0.894) (-1.962) (0.235) (1.049)
YieldTarg[-5,0]*Mixed/Stock 0.043 -0.014 0.036** -0.056
PT

(0.568) (-0.641) (2.016) (-1.059)

Relative Size 0.134 0.121 0.205 0.203
(0.420) (0.382) (0.727) (0.717)
Target M/B -0.009 -0.009 -0.023 -0.023
E

(-1.360) (-1.313) (-0.704) (-0.705)

Bidder M/B -0.012* -0.011 0.091 0.091
(-1.715) (-1.642) (0.916) (0.913)
CC

Target Size -0.032 -0.027 -0.029 -0.028

(-0.790) (-0.659) (-0.699) (-0.673)
Bidder Size -0.016 -0.021 0.040 0.042
(-0.417) (-0.540) (0.970) (0.987)
Target Liquidity 0.250 0.248 -0.314 -0.292
A

(1.364) (1.361) (-0.715) (-0.670)

Bidder Liquidity 0.024 -0.041 0.056 0.011
(0.105) (-0.175) (0.227) (0.043)
Target CAGR -0.035 -0.039 -0.100 -0.107
(-0.720) (-0.842) (-0.825) (-0.857)
Bidder CAGR 0.024 0.013 0.258 0.254
(0.281) (0.158) (0.818) (0.807)
Target Leverage -0.089 -0.088 0.030 0.064
(-0.419) (-0.407) (0.248) (0.467)
Bidder Leverage 0.097 0.055 0.142 0.138

41
 PT
RI
(0.547) (0.312) (0.442) (0.429)

SC
Target Profitability -0.008 0.019 0.070 0.071
(-0.066) (0.138) (0.367) (0.364)
Bidder Profitability 0.063 0.033 0.425 0.492
(0.151) (0.079) (0.955) (1.132)
Target GDP/Capita 0.000 0.000 0.000 0.000

U
(1.265) (1.113) (0.688) (0.801)
Bidder GDP/Capita 0.000 0.000 -0.000 -0.000
(0.710) (0.720) (-1.146) (-1.144)

N
Intercept -0.022 -0.028 0.018 0.060 0.048 0.903 0.980* -0.575 -0.716
(-0.329) (-0.209) (0.197) (1.243) (1.101) (1.569) (1.721) (-0.951) (-1.065)

A
Adj. R2 0.785 0.792 0.792 0.756 0.756 0.884 0.884 0.714 0.714
N 2444 1087 1087 1104 1104 505 505 590 590
This table presents results of nine (OLS) regressions of the combined post-merger firm’ average dividends association with the average dividends of the acquirer

M
and target prior to the merger. All standard errors are adjusted for heteroskedasticity and standard errors are clustered by target’s country. In Panel A (Panel B)
the proxy for dividend policy and the dependent variable is the averaged dividend payout (dividend yield) of the combined firm over years 1 through 5. Control
variables are described in the Appendix. *, **, and *** denote 10%, 5%, and 1% level of significance respectively. t-statistics based on two-tailed test are
reported in parenthesis.
ED
E PT
CC
A

42