Abstract
This chapter discusses cross-border mergers and acquisitions that are channels through which companies can opt out of a poor governance regime. The main prediction is that in cross-border mergers and acquisitions, companies from countries with good corporate governance should be acquirers and companies from countries with poor corporate governance should be targets. This hypothesis is confirmed using a sample of cross-border mergers and acquisitions in 49 countries in the 1990s. Targets tend to come from countries with lower judicial efficiency and less-developed banking sectors than their acquirers. The average corporate governance of companies acquiring in one country is higher than the governance standards of that country. A second prediction is that cross-border merger and acquisition activity should be concentrated in industries that need more external capital and face greater agency problems. Hence, companies from countries with worse governance should be more likely to be acquired in cross-border deals in industries that need more external financing and in industries that face greater agency costs. This prediction is confirmed using a measure of external dependence at the industry level.