Cross-country Variation in the Effectiveness of the Media's Corporate Governance Role

Jinhee Kim1

Abstract

I examine cross-country variation in the effectiveness of the media's corporate

governance role. I find that this role is more effective in countries with greater

societal trust or concern for shareholder wealth maximization. In those countries,

news coverage of value-destroying acquisition attempts leads to a higher

likelihood of acquisition abandonment. By contrast, the effectiveness of the

media’s governance role does not vary directly with the degree of media freedom.

The results imply that a society’s shared values, such as trust or concern for

shareholder wealth maximization, play an important role in the media’s watchdog

function.

1 Krannert School of Management, Purdue University, 403 W. State Street, West Lafayette, IN 47907, U.S.A. Tel: 765-430-

3121. E-mail: jinheekim@purdue.edu.

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1. Introduction

Do all the newspapers around the world act as watchdogs? Recent finance literature has

highlighted the media’s corporate governance role in aligning managers’ and shareholders’

interests.1 By virtue of its role in conveying information to the public, the media could contribute

to increasing shareholders’ accessibility to and awareness of information on corporate behavior. 2

Thus, the media could exert a governance role. However, as stated in Dyck, Volchkova, and

Zingales (2008), the effectiveness of the media’s governance role could depend on either the

credibility of news sources or the values shared by the society that the media reaches. If a society

has little concern about corporate misbehavior or is less willing to believe in the given

information, the media’s governance role could be less effective. Additionally, if the news

outlets themselves have little credibility, the effectiveness of the media’s governance role could

also diminish. In this paper, I attempt to examine the extent to which cross-country variation in

the effectiveness of the media’s corporate governance role can be attributable to societal trust,

concern for shareholder wealth maximization, or the credibility of news outlets.

The finance literature has documented empirical evidence of the media’s governance role

in shaping corporate policies.3 This burgeoning evidence is usually based on U.S. firms or the

coverage by international media such as The Wall Street Journal and Financial Times, rather

than on local media. However, not all media around the world exhibit an effective governance

function as is seen with international media. Dyck et al. (2008) contrast the effectiveness of the

1 For the purpose of this paper, "the media" refers to a single entity comprising a country's printed news.

2 The media’s role in diffusing information and its contribution to the efficiency of the stock market is documented

in Peress (2014). Tetlock (2010) presents a model and the empirical evidence that public news reduces

asymmetrically held information in stock trading.

3 For example, Dyck, Volchkova, and Zingales (2008); Joe, Louis, and Robinson (2009); Dyck, Morse, and Zingales

(2010); and Liu and McConnell (2013).

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governance role of the Anglo-American press versus that of Russian media. They find that only

the Anglo-American press has an effective governance impact on correcting corporate violations.

The authors attribute this contrasted result to the difference in the audience’s concern for

corporate governance violations: Russians have relatively little concern for corporate governance

violations compared to people reading the Anglo-American press.

Motivated by the evidence on the different effectiveness of the local media’s governance

function, this paper explores those circumstances in which the media functions as an effective

governance mechanism. First, I investigate whether the effectiveness of the local media’s

governance role varies with respect to societal trust or concern for shareholder wealth

maximization. Both can affect the audience’s perception of given media information on

corporate behavior. Next, I investigate whether the effectiveness of the media’s governance role

varies as a function of the degree of local media freedom. People could be more likely to

consider news from free media as their information source because the credibility of news

information is likely to increase with greater media freedom.

To examine the effectiveness of the media’s governance role, I focus particularly on the

decision of whether to complete or abandon proposed acquisition attempts with negative stock

returns at the announcement date. I select acquisition attempts from among many other

investment decisions because investing in another firm would bring a material change to the

current firm structure, and in turn would influence shareholders’ wealth. Additionally, I focus on

acquisition attempts made by the largest 20 firms in each acquirer country because the larger

firms are more likely to be involved in sizable value-destroying acquisition attempts, as shown in

Moeller, Schlingemann, and Stulz (2004). Also, the media is more likely to cover the larger

firms known to most of its audience. Furthermore, I focus on acquisition attempts accompanied

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by a negative market reaction at the announcement date because completing such a deal can

represent a manager’s decision to destroy shareholder wealth.4

Altogether, I analyze whether, conditional on a society’s shared values or the credibility

of news outlets, the bidder country’s local press coverage of an acquisition attempt around the

announcement date affects the abandonment probability of the acquisition attempt. As a proxy

for a society’s shared values, I use a greater societal trust indicator and a pro-shareholder

indicator. As a proxy for the credibility of news outlets, I use the degree of local media freedom.

Furthermore, all the analyses include year fixed effects and acquirer- and target-country fixed

effects. Thus, my findings are robust to worldwide macroeconomic shocks and cross-country

institutional differences. As for the baseline regressions, I also present the results excluding year

fixed effects to address the concern about little variation across years in a greater societal trust

indicator, a pro-shareholder indicator, or the degree of local media freedom. The results without

year fixed effects are similar to the results with year fixed effects as well as acquirer- and target-

country fixed effects.

Using deals announced over the period 2000-2014 with negative announcement returns, I

observe cross-country variation in the effectiveness of the media’s monitoring role, especially

with respect to a greater societal trust indicator and a pro-shareholder indicator.5 The local

media’s governance role is more effective in countries having an above average level of societal

4 Based on the sample used for the analysis of societal trust, the average abnormal returns of withdrawn acquisition

attempts at the announcement date are -2.05%. However, the average abnormal returns of withdrawn acquisition

attempts at the withdrawn date are 0.40%. That is, investors react positively to the announcement of abandonment of

value-reducing acquisition attempts.

5 The sample used for the analysis of societal trust involves 1163 deals across 25 countries. The sample used for the

analysis of the society’s concern for shareholder wealth maximization entails 906 deals announced by acquirers

from 22 countries. The sample used for the analysis of the degree of local media freedom contains 1207 deals

proposed by acquirers from 28 countries.

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trust. That is, in cases where a society is more likely to trust the given information, media

coverage of the more value-reducing acquisition attempts leads to a higher abandonment

probability of those attempts. Likewise, a society’s concern for shareholder wealth maximization

also enhances the effectiveness of the media’s governance role. In countries where most people

are oriented toward shareholder wealth maximization, the positive relationship between the level

of local media coverage of the more value-reducing acquisition attempts and the abandonment

probability of those attempts strengthens. In contrast to the results seen with societal trust and

concern for shareholder wealth maximization, the degree of local media freedom cannot explain

cross-country variation in the effectiveness of the media’s governance role. This result (or lack

thereof) could be attributable to the presumption that for the media’s governance role to be

effective, its information on corporate behavior should inspire the public to react to that behavior.

Even with credible information, therefore, the media's influence on corporate governance could

not be effective if the society tends not to believe that information or has little concern for

shareholder wealth maximization. To sum up, a society’s shared values exercise a significant

influence over the media’s effective governance function, but the credibility of news sources

does little.

My argument concerning the positive association between a society’s shared values and

the effectiveness of the media’s governance role is the following: Societal trust or concern for

shareholder wealth maximization increases the value to the public of media information on

corporate misbehavior, thereby making the media’s governance role more effective. However, a

possible alternative explanation is that a higher level of societal trust or concern for shareholder

wealth maximization is just a consequence of a country’s strong institutional environment, such

as the degree of investor protection. In that country, therefore, the higher level of news coverage

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on value-reducing acquisition attempts leads to the higher abandonment probability of those

attempts due to the effective investor protection system, not because of the society’s perception

of media information. Since my analyses contain acquirer- and target-country fixed effects, the

cross-country variation in the degree of investor protection is less likely to dampen the validity

of my argument. Because of the inclusion of country fixed effects, my results are robust to any

time-invariant country-level characteristics, such as legal origin. Cross-country variation in

societal shared values, not institutional differences, accounts for the positive relationship

between those shared values and the effectiveness of the media’s governance role.

Nonetheless, I further test whether the positive relationship between a greater societal

trust (or a pro-shareholder) indicator and the effectiveness of the media’s governance role is just

an outcome of a country’s effective institutional environment. I add a “strong investor protection”

indicator to the baseline regressions and investigate whether the media’s governance function

improves only through a “strong investor protection” indicator, but not through a greater societal

trust (or a pro-shareholder) indicator. Adding a “strong investor protection” indicator makes little

change in the positive relationship between a greater societal trust (or a pro-shareholder)

indicator and the effectiveness of the media’s governance role. Overall, the results support my

argument that societal trust or concern for shareholder wealth maximization improve the media’s

governance role, and these effects are unaffected by a “strong investor protection” environment.

For additional robustness tests, I examine the mechanism by which societal trust and

concern for shareholder wealth maximization increase the effectiveness of the media’s

governance role. First, I analyze whether the role of societal trust in improving the media’s

governance function is stronger in acquirer countries where the media has more freedom. As to

the role of societal trust in the media’s governance role, I argue that with a greater societal trust

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people are more likely to trust the given information and thereby help the media’s monitoring

role. Thus, with a greater societal trust, the given level of local press coverage of value-

destroying deals leads to a higher abandonment probability of such deals. To the extent that the

degree of belief in the given information is the mechanism, the positive relationship between

societal trust and the effectiveness of the media’s governance role should be stronger in countries

enjoying more media freedom. This is because the positive relationship between societal trust

and the probability of trusting media information can be magnified by common knowledge that

the local media can freely produce that information. By contrast, if the local media confront

interruptions in providing information, people could be less willing to trust that information

regardless of their tendency to trust others. My analysis provides evidence consistent with this

view. The positive relationship between societal trust and the effectiveness of the media’s

governance function is significant only within countries with free media.

Second, I explore whether the role of a society’s concern for shareholder wealth

maximization in increasing the effectiveness of the media’s governance function is stronger in

acquirer countries with a larger market capitalization. Greater market capitalization indicates that

a society’s wealth is heavily invested in stocks. Based on the model suggested in Perotti and von

Thadden (2006), the greater the amount of financial assets voters own, the greater their support

for pro-market policies by which they secure their returns from financial assets. In other words,

in a society with greater investments in stocks, people are more likely to care about shareholder

wealth maximization. Consistent with this view, the society’s concern for shareholder wealth

maximization enhances the media’s governance function only within a subgroup having market

capitalization above the sample average.

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As for societal trust, I mitigate endogeneity concerns by conducting two-stage least

squares (2SLS) regressions using an acquirer country’s major religion as an instrumental variable

for trust. Guiso, Sapienza, and Zingales (2006, 2008a) assert that religion is likely to be handed

down from generation to generation and little likely to be voluntarily accumulated. Accordingly,

religion is less likely to change in response to corporate governance conditions and consequently

can be treated as being exogenous. Additionally, Guiso et al. (2003) claim the effect of religion

on trust. I therefore presume that religion satisfies the exogeneity condition as an instrumental

variable for trust, thereby influencing the abandonment probability of value-destroying

acquisition attempts only through a greater societal trust indicator. The result with societal trust

is robust even after correcting for endogeneity.

Given the media’s critical role in disseminating information to investors, the study of

cross-country variation in the media’s governance role broadens understanding of its function as

an effective external governance mechanism. This paper contributes to the literature on the

media’s corporate governance role by showing those circumstances in which the media can

function as an effective external governance mechanism. I identify societal trust and concern for

shareholder wealth maximization as factors enhancing the effectiveness of the media’s

governance role. However, the credibility of news outlets has little direct relationship with the

effectiveness of the media’s governance role. My findings indicate that the society receiving the

information holds the key to the media’s governance role, but the credibility of news outlets

providing the information plays a relatively small part. To the best of my knowledge, this is the

first paper to show directly the positive association between a society’s shared values and the

media’s effective governance function in a cross-country setting. Hence, this paper also adds to

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the existing literature discussing the impact of social capital/culture on economic and financial

outcomes.6

Furthermore, my results deliver an important implication for the media’s role as an

alternative governance mechanism in countries with weak investor protection. The additional test

for societal trust suggests that even in countries with weak investor protection, the higher level of

societal trust makes the media’s governance role more effective.7 That is, in countries with weak

formal institutions for investor protection, the media can function as an effective alternative

governance mechanism if the society is more willing to trust the given information. This

evidence provides another avenue of how social capital works as good culture in a weak

intuitional environment (Guiso et al. (2004, 2008a)).

The remainder of this paper proceeds as follows. Section 2 provides a brief review of the

literature and develops hypotheses. Section 3 describes the data sources and variables used in the

analyses. Section 4 reports the summary statistics and the main empirical results and Section 5

presents robustness checks. Section 6 concludes.

2. Literature Review and Hypothesis Development

2.1. The Corporate Governance Role of the Media

Farrell and Whidbee (2002) examine whether the Wall Street Journal's coverage of firm

performance impacts a board’s decision to discharge its CEO. They compare the number of news

articles about firms that forced CEO turnover with a sample of matching firms that did not force

turnover. Their results uphold the notion that financial press improves corporate governance. 6 Examples of such studies are Knack and Keefer (1997), Zak and Knack (2001), Guiso et al. (2004), Guiso et al.

(2008b), and Guiso et al. (2009).

7 Table Appendix 3 describes this test.

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They find that the firms that force CEO turnover are more frequently the subjects of news

announcements, especially news about declining earnings, relative to their matched sample

counterparts. The authors' analysis is based on news announcements occurring over the two

years prior to the turnover. They conclude that the financial press helps to alleviate the free rider

problem associated with diffusely owned corporations.

Joe et al. (2009) validate the impact of the media’s monitoring role on ineffective board

structures. They peruse Business Week (BW) publications of institutional investors’ evaluations

of board effectiveness and analyze the effect of those reports on firms’ corrective actions. They

focus on corrective actions taken during the two years following BW publications. The results

indicate that firms ranked by BW on its worst board list are more likely to exert themselves to

improve board quality. Relative to their matches, firms included in the worst board list

significantly increase the number of independent directors and the use of non-staggered boards.

Outside the U.S., Dyck et al. (2008) show the corporate governance role of the media

with respect to Russian corporations. As delineated in Dyck et al. (2008), in addition to the

higher credibility of the Anglo-American press, the U.S. setting is distinct from other

international settings in terms of the corporate governance environment. In the U.S., legal and

institutional mechanisms protect shareholders’ rights relatively well. Accordingly, the authors

exploit Russian circumstances in which corporate governance violations are common and the

standard mechanisms to inflict punishment on these violations are ineffective. They provide

evidence of the media’s corporate governance role. Increased media reporting on corporate

governance violations is associated with the higher probability of those violations being reversed.

However, this significant correlation is restricted to news published by the Anglo-American

press, such as the Wall Street Journal and Financial Times. The authors cannot find any

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significant association between coverage by the Russian press in Russian and the probability of a

firm taking corrective actions. The authors suggest that the lower credibility of Russian media

and Russian readers’ decreased concern about corporate governance violations are two possible

reasons for the Russian media’s ineffective governance role. To support their hypothesis, they

compare Russian newspapers having different degrees of credibility. They consider Vedemosti as

a credible Russian-language publication because it is a joint venture between the Wall Street

Journal and Financial Times. Their result shows that credible and less credible Russian media

alike have no significant effect, but only the Anglo-American press works as an effective

governance mechanism. The authors conclude that keeping the audience constant, the credibility

of news sources is not a critical aspect determining the effectiveness of the media’s governance

role.

Liu and McConnell (2013) also study the relationship between media coverage and

reversals of managerial decisions that could negatively impact shareholder wealth. However,

they advance the research on the media’s governance role by including the tone of the coverage

in their analysis. Using their sample of value-reducing acquisition attempts proposed by U.S.

public firms, they corroborate the idea that the media can affect a manager’s decision making

process not only by circulating information about his/her actions, but also by characterizing the

public perceptions of those actions. They present that a higher level and a more negative tone of

media coverage correlate with a higher probability of managers’ abandonment of value-reducing

acquisition attempts.

Following Liu and McConnell (2013), Borochin and Cu (2015) analyze the Chinese

media’s corporate governance role with respect to the final outcome of proposed mergers during

the 2000-2012 period. The authors state that China offers a well-suited setting for analyzing

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whether the developing country’s media could serve as an effective external governance system.

Their analysis concludes that the Chinese media does not exhibit a strong governance function

for state-owned firms. The authors argue that state-owned firms have less need for capital market

access, thus insulating managers from market pressure. In turn, state-employed managers exhibit

less concern about exposures of misbehavior in the media and the public’s subsequent

unfavorable impression of the firm. For non-state-owned firms, however, a more negative tone

coupled with a higher level of coverage can cause mangers to abandon acquisition attempts.

2.2 Hypotheses Development

As argued in the literature, the media could function as an external governance

mechanism by providing the public with information and thereby helping the public to react to

corporate behavior. However, the provision of information by the media is a necessary but not a

sufficient condition to have a governance effect. Media information must evoke an appropriate

collective response from the public for its governance influence to be effective. I posit that the

effectiveness of the media’s governance role could rely not just on the credibility of news

information, but also on a society’s shared values, which shape the public’s reactions to media

information.

To explore the effect of a society’s shared values on the effectiveness of the media’s

governance role, I first take a level of societal trust. As shown in Pevzner, Xie, and Xin (2015),

societal trust encourages a society’s perception of the credibility of the given information.8 In

8 Pevzner, Xie, and Xin (2015) show how trust affects investor reactions to corporate earnings announcements.

They find a positive relationship between societal trust and investor reactions to earnings news. They claim that

societal trust enhances investors’ perceptions of the credibility of corporate earnings announcements, thereby

strengthening investor reactions to earnings news.

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other words, if the level of societal trust is high, then the society is more likely to trust media

information. People are more willing to utilize media information for their decision making and,

consequently, the media’s governance role is more effective. This argument represents my first

hypothesis:

H1: The corporate governance role of the media is more effective in a country that exhibits a

higher level of societal trust.

The corresponding null hypothesis is that the effectiveness of the media’s monitoring role

does not depend on societal trust. Notwithstanding, in consideration of abundant empirical

evidence sustaining the effect of trust on financial and economic outcomes (Knack and Keefer

(1997), Zak and Knack (2001), and Guiso et al. (2004, 2008b, 2009), I claim that the

effectiveness of the media’s watchdog role varies with the level of societal trust.9

Alongside societal trust, whether or not a society shares concerns about shareholder

wealth maximization could also affect the effectiveness of the media’s governance role. That role

is based primarily on the notion that the media propagates information to its audience, thereby

reducing information asymmetry between that audience and managers. In other words, the

argument concerning the media’s governance role rests upon the presumption that the society

cares about corporate behavior so as to secure shareholder interests. Conversely, if the society

does not equate shareholder wealth maximization with greater social welfare, then news

9 Knack and Keefer (1997) and Zak and Knack (2001) demonstrate the positive relationship between the level of

trust and economic growth. In the international context, Guiso et al. (2009) prove the positive effect of bilateral trust

on international trade and investment. As to the effect of trust on financial outcomes, Guiso et al. (2004) show that a

high level of trust facilitates financial development. In a society enjoying a higher level of trust, people are more

likely to use checks and invest in stock, but are less likely to invest in cash. Guiso et al. (2008b) confirm the positive

impact of trust on stock market participation with a measure of trust at an individual level.

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coverage of corporate misbehavior would not alert shareholders. Accordingly, managers would

not respond to media exposure of their misbehavior. Therefore, the media cannot function as an

effective external governance mechanism if the society does not value shareholder wealth

maximization. The above-mentioned observations lead to my second hypothesis:

H2: The corporate governance role of the media is more effective in a country in which most

people are oriented toward shareholder wealth maximization.

The corresponding null hypothesis is that the effectiveness of the media’s monitoring role

does not vary as a function of a society’s concern for shareholder wealth maximization. However,

cross-country variation in a society’s shared values does exist with respect to shareholder wealth

maximization. Allen, Carletti, and Marquez (2015) point out that shareholder wealth

maximization is not a one-size-fits-all paradigm that applies to all countries. As outlined in

Denis and McConnell (2003), shareholder interests are not given primacy in countries such as

Austria, France, Germany, Japan, and many others. Building on cross-country variation in

societal perceptions of shareholder wealth maximization, I therefore argue that the effectiveness

of the media’s governance role varies across countries with societal concern for shareholder

wealth maximization.

In addition to a society’s shared values, the credibility of news outlets could also impact

the effectiveness of the media’s governance role. People would avoid as their information source

any media that could not or would not relay unbiased and accurate information, thus lessening

the effectiveness of the media’s governance role. Securing media freedom would enable the

uninterrupted production of credible information. Media freedom therefore affects the credibility

of news information, which in turn influences the effectiveness of the media’s governance role.

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The degree of media freedom varies across countries. In some countries, like China, the media is

controlled by the central or local government, thus impeding the free flow of information.10

Information from controlled media would be less trustworthy than that from media enjoying

freedom. The above-stated arguments can be formalized in my third hypothesis:

H3: The corporate governance role of the media is more effective in a country in which the

degree of media freedom is higher.

The corresponding null hypothesis is that the effectiveness of the media’s monitoring role

does not vary as a function of media freedom.

3. Data and Variables

I collect data on acquisition announcements from the Thomson OneBanker database and

data on local media reports from the Factiva database. The sample selection criteria for proposed

acquisitions are analogous to the one used in Liu and McConnell (2013). I begin with all merger

and acquisition transactions announced by public firms from January 1, 2000 through December

31, 2014. I then require that a potential acquirer own less than 50% of the target firm’s shares

prior to the announcement of the acquisition attempt and seek to own 100% of the target firm’s

shares as a result of the acquisition. Furthermore, the target firm should not be in the financial or

public utility services industry. Proposed transactions should have a value of at least $10

10

Protests in Hong Kong illustrate media control in China. See, for example, “Beijing Squeezes Hong Kong's Media;

China reneges on the democracy and freedom it promised,” The Wall Street Journal, February 24, 2014. Media

suppression in Turkey is examined in “The news media crackdown in Turkey threatens democracy,” The

Washington Post, December 22, 2014.

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million.11

I then select the deals proposed by the largest 20 firms in each country for every year

during the sample period. If a potential acquirer announces multiple deals, I focus on the largest

transaction. The reason for focusing on the largest firms is based on Moeller, Schlingemann, and

Stulz (2004), who show that value-destroying acquisition attempts are more often perpetrated by

larger firms. Additionally, transactions proposed by the larger local firms are more likely to draw

local media attention. Value-destroying acquisition attempts made by larger firms thus create the

potential for monitoring by the media.

For the empirical analyses, I further focus on deals with negative cumulative abnormal

returns (CARs) around the announcement date as had been done in Liu and McConnell (2013).

Since negative stock market reactions indicate value-reducing acquisition attempts, studying the

effectiveness of the media’s monitoring role in a manger’s decision to abandon those deals

would be more intriguing from the viewpoint of shareholder wealth. Altogether, focusing on

deals announced by larger firms that are accompanied by negative CARs would therefore

provide a suitable setting for testing the corporate governance role of local media around the

world. After removing observations with no local press coverage information available from

Factiva, the final samples for different empirical analyses over the 2000-2014 period are as

follows. The sample used in the analysis of societal trust consists of 1163 acquisition attempts

announced by bidders from 25 countries. The sample used in the analysis of societal concern for

shareholder wealth maximization includes 906 announced deals across 22 countries. Last, the

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Applying a deal value of at least $100 million, as had been done in Liu and McConnell (2013), significantly

reduces the number of transactions proposed by non-U.S. firms. For example, the acquisition attempts proposed by

Indian firms decrease from 317 to 56. All three samples lose more than a half their observations and the results are

thus not significant.

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sample used in the analysis of local media freedom contains 1207 deals proposed by acquirers

from 28 countries.

3.1 Dependent and Independent Variables

The main analyses are based on the following three probit regressions:

(1) Prob (Abandonment)

= β1 * Below average CAR* Log number of local press articles

+ β2 * Below average CAR * Log number of local press articles * Trust

+ β3 * Log number of local press articles

+ β4 * Log number of local press articles * Trust

+ β5 * Below average CAR + β6 * Trust

+ β7 * Below average CAR * Trust

+ γ * Control variables

+ δ * Bidder country indicators

+ θ * Target country indicators

+ η * Year indicators + Constant + ε

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(2) Prob (Abandonment)

= β1 * Below average CAR* Log number of local press articles

+ β2 * Below average CAR * Log number of local press articles * Pro Shareholder

+ β3 * Log number of local press articles

+ β4 * Log number of local press articles * Pro Shareholder

+ β5 * Below average CAR + β6 * Pro Shareholder

+ β7 * Below average CAR * Pro Shareholder

+ γ * Control variables

+ δ * Bidder country indicators

+ θ * Target country indicators

+ η * Year indicators + Constant + ε

(3) Prob (Abandonment)

= β1 * Below average CAR* Log number of local press articles

+ β2 * Below average CAR * Log number of local press articles * Media Freedom

+ β3 * Log number of local press articles

+ β4 * Log number of local press articles * Media Freedom

+ β5 * Below average CAR + β6 * Media Freedom

+ β7 * Below average CAR * Media Freedom

+ γ * Control variables

+ δ * Bidder country indicators

+ θ * Target country indicators

+ η * Year indicators + Constant + ε

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The dependent variable is an indicator taking the value of one for withdrawn acquisition

attempts and zero for completed attempts (Abandon indicator). The main independent variables

are as follows: (1) the number of local press articles about an acquisition attempt within ten

calendar days beginning with the announcement day of the proposed transaction (Log number of

local press articles), (2) an indicator equivalent to one if an acquisition attempt has the value of

three-day window CARs below the sample average of CARs and zero otherwise (Below average

CAR), (3) a greater societal trust indicator (Trust), (4) a pro-shareholder indicator (Pro

Shareholder), and (5) a degree of local media freedom status of a bidder’s country (Media

Freedom). The definition of each variable is as follows.

Log number of local press articles is the natural log of the number of firm-specific news

stories about the acquisition attempt reported in a potential acquirer’s country. To construct the

measure of local press coverage, I search news stories about acquisition attempts using criteria

similar to those described in Liu and McConnell (2013). First, the stories should have the

acquiring firm's popular name (excluding the firm’s legal type) at least once within the first 25

words, including the headline.12

Second, the stories should contain the acquiring firm’s popular

name at least twice and the target firm’s popular name at least once within the full news story.

Finally, the total number of words in each news story should be at least 50. The time window for

counting the number of transaction-specific news stories is ten calendar days beginning with the

announcement day of the proposed transaction. Local media are defined as all the daily local

media printed in the local language covered by Factiva.13

Searching news from local media

12 For example, eBay Inc. will be searched as eBay excluding the legal type, “Inc.”

13 Referring to the World Factbook published by the Central Intelligence Agency, I define each country’s official

language(s) as its local language.

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reported in the local language presents the following two caveats, however. The first caveat

concerns the data availability of local media in Factiva, which provides different data coverage

for different media sources. The second caveat concerns alphabetic limitations in the search for

potential bidders and targets in news stories. Since I search their names as described in English,

some proposed transactions, especially those proposed by bidders from countries using non-

Roman characters, are excluded from the sample.

Below average CAR is used to analyze the media’s role in monitoring managers’

decisions that would diminish shareholder wealth. This indicator for “the more value-destroying

acquisition attempts” takes the value of one if the proposed deal’s CARs around the

announcement date are below the sample average of CARs and zero otherwise. The potential

acquirer's CARs are calculated over the three-day interval around the announcement of the

acquisition attempt. I calculate each day’s abnormal return as the difference between the bidder’s

daily stock return and the bidder country’s stock market index return. As stated previously, the

sample includes only those proposed deals with negative announcement returns. Hence, deals

with three-day window CARs below the sample average represent the more value-destroying

acquisition attempts and result in a Below average CAR of one. I obtain information on the stock

price of firms and the market index of the bidder’s countries from the Datastream database.

The final main independent variables are the level of societal trust, the magnitude of

concern for shareholder maximization, and the degree of local media freedom. Since the

objective of this paper is to study what contributes to cross-country variation in the effectiveness

of the media’s governance role, I propose that the abovementioned three variables explain that

cross-country variation. I measure each in the following way.

20

The higher level of societal trust is measured with Trust, which equals one if an acquirer

nation’s societal trust is above the sample average and zero otherwise. Following prior studies of

trust (Guiso et al. (2003, 2008a, 2008b) and Pevzner et al. (2015)), I measure the level of each

country’s societal trust based on responses to the following question from the World Values

Survey (WVS):

“Generally speaking, would you say that most people can be trusted or that you need to

be very careful in dealing with people?”

I recode the responses to this question as one if a participant reports that most people can be

trusted and zero if a participant’s answer is that a person needs to be very careful.14

Then, by

averaging responses in each country year, I measure the level of an acquirer country’s societal

trust.

The magnitude of concern for shareholder wealth maximization is incorporated in the

variable Pro Shareholder. Pro Shareholder equals one if an acquirer country’s concern for

shareholder wealth maximization is above the sample average and zero otherwise. I measure the

society’s concern for shareholder wealth maximization with a polity’s preferences for pro-market

policies, following Roe and Coan (2015). As posited in that study, the society’s shared values

can be conjectured from parties’ political preferences because parties should set their policies to

earn major votes. Thus, a polity’s preferences for pro-market policies can proxy for the society’s

concern for shareholder wealth maximization to the extent that people support pro-market

policies to secure shareholder interests. Based on the Comparative Manifesto Project’s database,

I measure an acquirer country’s concern for shareholder wealth maximization in the following

14

In a certain survey year, the survey also contains “Don’t know” as an answer. However, I drop those answers from

the sample so as to have the absolute definition of societal trust.

21

way.15

First, I take the average of each country’s national parties’ positions toward pro-market

policies. I then consider the country-level average value of national parties’ political preferences

for pro-market policies as the magnitude of an acquirer country’s concern for shareholder wealth

maximization. For the empirical analysis, I use the country-level average value in the year of the

deal announcement date. Following Roe and Coan (2015), I proxy an acquirer country’s concern

for shareholder wealth maximization in non-election years by carrying forward the policy

position of national parties from the closest election year.

Media Freedom represents the degree of local media freedom status of a bidder’s country.

I construct Media Freedom based on Freedom House's annual Freedom of the Press survey from

2001 through 2015.16

The Freedom of the Press survey assesses the condition of the media

freedom environment around the world by examining any interruptions to the free flow of

information across three categories: the legal (0-30 points), political (0-40 points), and economic

(0-30 points) environment. The legal environment captures both the laws and the regulations that

could affect media content, as well as the government’s inclination to use this legal structure to

confine the media’s ability to operate. The political environment encompasses the degree of

political control over the content of news media. Within this category, the main issues examined

include access to information and sources, editorial independence, official censorship and self-

15

The Comparative Manifesto Project (CMP) covers over 1000 parties from 1945 until today in over 50 countries

on five continents. The CMP data code parties’ policy positions derived from a content analysis of parties’ electoral

manifestos. Following Roe and Coan (2015), I measure each party’s preferences for pro-market policies by using the

CMP’s measure of the party’s position within a given pro- or anti-market policy. Pro-market policies are as follows:

Free Enterprise (per401), Anti-protectionism (per407), Productivity (per410), Economic Orthodoxy (per414), and

Welfare State Limitation (per505). Anti-market policies are as follows: Economic Planning (per404), Protectionism

(per406), Controlled Economy (per412), Nationalization (per413), and Welfare State Expansion (per504). I take the

logged difference between pro- and anti-market variables as each party’s position toward pro-market policies.

16 Freedom House is an independent organization founded in 1941. Since 1980, Freedom House has conducted

Freedom of the Press, an annual survey of media freedom. Based on the survey results, Freedom House staff

members score each country as to the degree of external pressures on the media.

22

censorship, and the intimidation of journalists. The economic environment primarily inspects the

ownership and news production structure of the media, which could influence accessibility to

and distribution of information.

Using the scores provided by the Freedom of the Press survey, I generate each acquirer

country’s media freedom score representing the year in which a proposed deal is announced.

Since Freedom House allots a higher number of points for a less free environment, up to a score

of 100, Media Freedom equals 100 minus the score from Freedom House.17

Additionally, the

score published by Freedom House in a given year represents the information environment of the

previous year. Thus, I use the score reported for the 2001-2015 period to match the sample

period of acquisition attempts announced from 2000-2014. For the empirical analyses, I take the

acquirer country’s Media Freedom score because the acquirer’s decision to abandon acquisition

attempts would be more likely to be affected by the local media printed in the acquirer’s country

rather than in the target’s country, as long as the local media plays a corporate governance role.

3.2 Control Variables

In the model, I include six control variables: Relative transaction value, Acquirer pre-

ownership, Stock indicator, Target public indicator, Log acquirer size, and Same industry

indicator, along with bidder country, target country, and year fixed effects. I include both bidder-

and target-county fixed effects because these indicators capture any country-level time-invariant

effects, such as legal institutions, acquisition-related regulations, and the corporate governance

environment. Year fixed effects account for macroeconomic shocks affecting all countries. The

17

For example, the United States earns 22 points in the year 2014 based on Freedom House’s report. I assign 78

(100-22) points of the Media Freedom score to all the deals announced in 2014 by acquirers from the United States.

23

inclusion of these fixed effects mitigates the potential for omitted variable biases. I construct

each variable in the following way.

Relative transaction value is the fraction of transaction value to acquirer size. I measure

transaction value as the total value (in millions of USD) of considered payments that the acquirer

had proposed to pay for the target firm, as reported by the Thomson OneBanker database.

Acquirer size is calculated as the potential acquirer's market capitalization of the equity (in

millions of USD) for the month prior to the announcement day of the acquisition attempt. From

the Datastream database, I obtain the stock prices and number of shares.

Based on the reports by the Thomson OneBanker database, I generate Acquirer pre-

ownership, Stock indicator, Target public indicator, and Same industry indicator as follows.

Acquirer pre-ownership is the acquirer's ownership of the shares in the target firm prior to an

acquisition attempt. Stock indicator is equivalent to one for acquisition attempts financed or

partially financed by the acquirer's common stock and zero otherwise. Target public indicator

equals one if the target firm is public and zero otherwise. Same industry indicator has the value

of one if the target and acquirer share the same two-digit SIC code. Last, Log acquirer size is the

natural log of acquirer size.

4. Empirical Tests

4.1 Data Descriptors

Table 1 provides summary statistics for each of the 25 acquirer countries constituting the

sample used for the analysis of societal trust.18

This table describes each acquirer country’s

18

In Table 1, I provide the sample used for the analysis of societal trust as representative of the whole because

among two samples with significant results, it is larger than the sample used for the analysis of a society’s concern

for shareholder wealth maximization.

24

number of observations and means of CAR, Below average CAR, and Log number of local press

articles for the full sample as well as for the subsample of completed and abandoned acquisitions.

The sample includes 1163 deals and the observations are well distributed across countries. Table

1 shows positive correlations between the level of local press coverage and the abandonment

probability across countries. That is, local press coverage is likely to be higher in cases of

abandoned acquisition attempts relative to completed ones. This positive correlation is verified in

the correlation matrix (Table Appendix 2); the correlation coefficient between Log number of

local press articles and Abandon indicator is 0.0762 and significant at the 1% level.

Table 2 presents summary statistics of key independent variables used in the empirical

tests. Panel A describes the statistics from the sample used in the analysis of societal trust

containing 1163 acquisition attempts announced by 25 different countries. Panel B represents the

sample used in the analysis of the society’s concern for shareholder wealth maximization,

including 906 deals proposed by acquirers from 22 countries. Panel C summarizes the statistics

from the sample used in the analysis of local media freedom, representing 1207 proposed deals

across 28 countries. All samples share similar features within the statistics of Abandon indicator,

Below average CAR, and Log number of local press articles. In all three samples, the mean of

abandonment probability is about 10%, and on average approximately 30% of deals have the

value of CAR below the sample average of CAR. The mean of Log number of local press

articles ranges from 1.70 to 1.82.

4.2 Univariate Analyses and Baseline Regression Results

To explore what contributes to cross-country variations in the effectiveness of the

media’s governance role, I begin with univariate comparisons of the key explanatory variables.

25

Table 3 reports statistical test results for mean differences of Below average CAR, Negative CAR

and Log number of local press articles for completed and abandoned acquisitions. In all three

samples, the mean value of Log number of local press articles is significantly greater for

abandoned acquisition attempts compared to that for completed acquisition attempts. The media

therefore seem to function as an external governance mechanism for making managers withdraw

acquisition attempts with negative CARs.

To corroborate the above-stated conjecture from the univariate analyses, I now turn to

probit regression analyses on those circumstances in which the media exhibits an effective

monitoring function. Along with control variables, all the regressions contain year fixed effects

and bidder- and target-country fixed effects (not reported for conciseness). In other words, my

findings below are robust to any country-level time-invariant characteristics, such as legal origin.

As for the baseline regressions, I also present the results without year fixed effects to address the

concern about little variation in Trust, Pro shareholder, or Media Freedom across years.

Using the probit regression model specified above, I test whether cross-country variation

in the media’s effective governance role can be attributable to societal trust, the society’s

concern for shareholder wealth maximization, or the degree of local media freedom. Columns (1),

(2), and (3) of Table 4 present the regression results from those three variables. The results in

Table 4 illuminate evidence of the positive association between societal trust (or concern for

shareholder wealth maximization) and the media’s effective monitoring role.

With respect to societal trust, the three-way interaction term of Below average CAR, Log

number of local press articles, and Trust is positively significant regardless of the exclusion

(Panel A, Table 4) or inclusion (Panel B, Table 4) of year fixed effects. When controlling for

year fixed effects as well as bidder- and target-country fixed effects, the three-way interaction

26

term of Below average CAR, Log number of local press articles, and Trust is positively

significant at the 5% level with a marginal coefficient of 0.0825 (Panel B, Table 4). That is, in

countries having a higher level of societal trust, the given amount of local press coverage of the

more value-destroying acquisition attempts leads to the higher abandonment probability of those

attempts. The marginal coefficient of 0.0825 is not only statistically significant but is also

economically large. The sample average probability of withdrawing the more value-destroying

acquisition attempts is 15.65%. An increase of 8.25 percentage points therefore amounts to a 53%

change in the probability of withdrawing those deals relative to the sample average. A greater

societal trust indicator, Trust, is also positively correlated with the abandonment probability

through Log number of local press articles. The two-way interaction term of Trust and Log

number of local press articles is positively significant at the 5% level. Altogether, a greater

societal trust improves the media’s governance function by increasing not only the abandonment

probability of deals with negative CARs, but also the abandonment probability of the more

value-destroying acquisition attempts for which Below average CAR proxies.

The observed results in column (1) of Table 4 are consistent with the idea that a greater

societal trust makes the media’s governance role more effective by increasing the probability of

trusting the media information. Nonetheless, one might argue that a greater societal trust could

also be related to investors’ greater belief in managers. In turn, managers are less likely to

abandon value-reducing deals in countries having a greater societal trust. If that is the case and

subsume the results on the relationship between societal trust and the media’s governance role,

the coefficient of Trust (or the two-way interaction term of Trust and Below average CAR)

should be negatively significant. However, none of them are significant. Therefore, my results

imply that a greater societal trust help the media’s governance role through a channel of the

27

increased probability of trusting the given information, which is also checked in the robustness

test (Table 9).

In column (2), we can also observe the evidence that a society’s concern for shareholder

wealth maximization enhances the media’s governance role in monitoring managers’ investment

decisions. Regardless of the inclusion of year fixed effects, the three-way interaction term of

Below average CAR, Log number of local press articles, and Pro Shareholder is positively

significant at the 10% level. When controlling for year fixed effects and bidder- and target-

country fixed effects, the three-way interaction term of Below average CAR, Log number of local

press articles, and Pro Shareholder is significant at the 10% level with a marginal coefficient of

0.0423 (Panel B, Table 4). This magnitude indicates that in countries where most people value

shareholder wealth maximization, the given level of local press coverage on deals with a greater

magnitude of negative CARs results in the higher abandonment probability of those deals.

Namely, the media’s governance role in a manager’s decision to withdraw the more value-

destroying acquisition attempts becomes more effective. The economic significance of a 4.23

percentage points increase in abandonment probability is not trivial. The sample average

probability of withdrawing the more value-destroying acquisition attempts is 12.99%. An

increase of 4.23 percentage points therefore amounts to a 33% change from the sample average

in the probability of withdrawing those deals in countries with a greater concern for shareholder

wealth maximization.

As shown in column (3), however, the media’s corporate governance role does not vary

with the degree of media freedom. The three-way interaction term of Below average CAR, Log

number of local press articles, and Media Freedom is insignificant. That is, greater media

freedom does not add to the effectiveness of the media’s governance role. Hence, I cannot reject

28

the null hypothesis that the effectiveness of the media’s governance role does not vary with the

degree of media freedom.

Additionally, I address the concern about an indicator for the more value-destroying deals,

Below average CAR. Although I provide the results with Below average CAR as the baseline

results for an intuitive interpretation, I also present the results with the magnitude of negative

CARs, Negative CAR in Table 5. Regardless of the exclusion (Panel A) or inclusion (Panel B) of

year fixed effects, the three-way interaction term of Negative CAR, Log number of local press

articles, and Trust (or Pro Shareholder) continues to be statistically significant, but the three-

way interaction term of Negative CAR, Log number of local press articles, and Media Freedom

is insignificant.

The magnitude of marginal coefficients of the three-way interaction term of Negative

CAR, Log number of local press articles, and Trust (or Pro Shareholder) suggests economic

significance as well. First, the three-way interaction term of Negative CAR, Log number of local

press articles, and Trust is positively significant at the 5% level with a marginal coefficient of

0.8355 (Panel B, Table 5). The coefficient of 0.8355 implies that in countries having a greater

societal trust, the sample average of local press coverage on value-reducing deals leads to a 4.25

percentage points higher probability of withdrawing such deals. This increase corresponds to a

42% change from the sample average in the abandonment probability of value-reducing deals.

Next, the three-way interaction term of Negative CAR, Log number of local press articles, and

Pro Shareholder is positively significant at the 10% level with a marginal coefficient of 0.7145

(Panel B, Table 5). The magnitude of this coefficient indicates that in countries having a greater

societal concern for shareholder wealth maximization, the sample average of local press

coverage on value-reducing deals leads to a 3.50 percentage points higher probability of

29

withdrawing such deals. This increase amounts to a 36% change from the sample average in the

abandonment probability of value-reducing deals.

Collectively, for the media to be an effective governance mechanism, the society

receiving media information on corporate behavior should value it. However, the credibility of

the news outlets providing that information has little direct association with the effectiveness of

the media’s governance role.

5. Robustness Tests

In this section, I provide various robustness checks to verify that my findings are not

driven by a way of measuring a society’s shared values, institutional differences or an omitted

variable problem, but instead result from a society’s perception of media information on

corporate behavior.

5.1 A Continuous Variable of a Society’s Shared Values

The baseline results with a greater societal trust indicator (or a pro-shareholder indicator)

provide an intuitive insight about the relationship between a society’s shared values and the

effectiveness of the media’s governance role. Nonetheless, one possible concern is that the

results could be driven by a few observations by measuring a society’s shared values with an

indicator, not as a continuous variable. In order to address this concern, I rerun the baseline

regressions with a country-level average of societal trust (Average Trust) or that of societal

concern for shareholder wealth maximization (Average Pro Shareholder). As shown in Table 6,

the results with a continuous variable of societal trust or concern for shareholder wealth

30

maximization also exhibit the positive relationship between a society’s shared values and the

effectiveness of the media’s governance role.19

Column (1) describes the result with Average Trust. The three way interaction term of

Below average CAR, Log number of local press articles, and Average Trust is positively

significant at the 5% level with a marginal coefficient of 0.1699. This coefficient implies that

with one standard deviation increase in societal trust from its mean, the sample average of local

press coverage on the more value-reducing acquisition attempts leads to a 4.60 percentage points

higher probability of withdrawing those attempts. An increase of 4.60 percentage points amounts

to a 30% change from the sample average in the abandonment probability of the more value-

reducing acquisition attempts.

As observed in column (2), the result with Average Pro Shareholder is also similar to the

one with a pro-shareholder indicator. The three way interaction term of Below average CAR, Log

number of local press articles, and Average Pro Shareholder is positively significant at the 10%

level with a marginal coefficient of 0.2374. This coefficient implies that with one standard

deviation increase from the mean in societal concern for shareholder wealth maximization, the

sample average of local press coverage on the more value-reducing acquisition attempts leads to

a 7.52 percentage points higher probability of withdrawing those attempts. An increase of 7.50

percentage points corresponds to a 54% change from the sample average in the abandonment

probability of the more value-reducing acquisition attempts.

19

I also run the regression using Negative CAR, Log number of local press articles, and Average Trust (or Average

Pro Shareholder) as key independent variables. The three-way interaction term of Negative CAR, Log number of

local press articles, and Average Trust (or Average Pro Shareholder) continues to be positively significant (not

reported).

31

In short, the baseline results with a greater societal trust indicator or a pro-shareholder

indicator are not driven by a method of measuring a society’s shared values. Therefore, this

robustness check substantiates my argument that a greater societal trust or concern for

shareholder wealth maximization help the media’s monitoring role.

5.2 The Role of the Degree of Investor Protection

The baseline regression results exhibit the positive relationship between a society’s

shared values and the effectiveness of the media’s governance role. Based on those findings, I

argue that greater societal trust or greater concern for shareholder wealth maximization makes a

society place greater value on media information concerning corporate behavior.

Notwithstanding, a possible alternative interpretation is that greater societal trust or concern for

shareholder wealth maximization results from a “strong investor protection” environment. Thus,

the higher abandonment probability of the more value-reducing acquisition attempts in countries

with greater societal trust or greater concern for shareholder wealth maximization could instead

be the direct result of a “strong investor protection” environment.

However, as discussed previously, all of the regression analyses include bidder- and

target-country fixed effects, and hence my results are less likely to driven by cross-country

variations in the investor protection environment. Moreover, for the alternative explanation to be

valid, the marginal coefficient of Trust (or Pro Shareholder) itself or the two-way interaction

term of Below average CAR and Trust (or Pro Shareholder) should be positively significant,

which is not the case in Table 4. Nonetheless, I rerun the baseline regressions with additional

variables measuring the role of “strong investor protection” in the effectiveness of the media’s

governance function. Table 7 summarizes the results. As denoted from those results, adding a

32

“strong investor protection” indicator does not make any material change to the positive

relationship between a society’s shared values and the effectiveness of the media's governance

role. The three-way interaction term of Below average CAR, Log number of local press articles,

and Trust (or Pro Shareholder) continues to be positively significant.

Moreover, the additional test described in Table Appendix 3 shows a similar positive

association between societal trust and the effectiveness of the media’s governance role in

countries with either a strong or a weak investor protection environment.20

In countries with

strong investor protection and greater societal trust, the abandonment probability of the more

value-destroying deals increases by 55% from the sample average. In countries with weak

investor protection and greater societal trust, the abandonment probability of those deals

increases by 50% from the sample average. This result implies that in countries with weak

formal institutions for investor protection, the media can still function as an effective alternative

governance mechanism if the society tends to trust the given information.

5.3 Verification of the Positive Effect of a Society’s Shared Values

In this subsection, I present additional robustness checks to claim that my findings are not

just a result of spurious correlations. First, I verify the positive effect of societal trust and

concern for shareholder wealth maximization by examining the mechanism through which the

effectiveness of the media’s governance role improves. With respect to a society’s concern for

shareholder wealth maximization, I expect a stronger effect within countries having a larger

stock market capitalization. The logic is as follows. Larger stock market capitalization implies

that greater investments of a society’s wealth lie in stocks. As suggested by Perotti and von

20

In contrast, a society’s concern for shareholder wealth maximization does not enhance the media’s governance

role in countries with a weak investor protection environment (not reported).

33

Thadden (2006), voters with greater investments in financial assets are more likely to support

pro-market policies in order to protect their returns from those assets. Therefore, the positive

relationship between a society’s concern for shareholder wealth maximization and the

effectiveness of the media’s governance role would be stronger in countries with a larger stock

market capitalization. Congruent with this view, a greater magnitude of societal concern for

shareholder wealth maximization increases the effectiveness of the media’s governance role only

in those countries with stock market capitalization above the sample average (Table 8).

Furthermore, the statistical and economic significance of the marginal coefficient of Below

average CAR * Log number of local press articles * Pro Shareholder is much greater than the

coefficient in the baseline regression result. The marginal coefficient of 0.1209 is significant at

the 1% level and represents a 76 percentage points increase in the probability of withdrawing the

more value-reducing acquisition attempts relative to the sample average.

Regarding societal trust, I posit that the positive effect should be stronger in countries

where the media enjoys freedom. Common knowledge about the presence of free media can

magnify the positive relationship between the tendency to trust others and the probability of

trusting media information. The results in Table 9 square with this view. The positive

relationship between societal trust and the effectiveness of the media’s governance role appears

only in countries with free media.

With respect to societal trust, I mitigate concerns about the omitted variable problem and

the endogeneity issue by employing a 2SLS regression setting. I use a country’s main religion as

the instrument for a greater societal trust indicator. As argued in Stulz and Williamson (2003)

and Guiso et al. (2006, 2008a), religious beliefs are literally time-invariant over an individual’s

life and are more primitive than culture, which makes them exogenous. Additionally, Guiso et al.

34

(2003) claim the effect of religion on trust, suggesting the relevance of religion as an instrument

of trust. I present the 2SLS regression results in Table 10.21

In accordance with Guiso et al.

(2003), the first-stage regression result shows that Roman Catholic and Hindu religions are

negatively associated with a greater societal trust indicator. That is, the significant coefficients of

main religion indicators indicate that the instruments satisfy the relevance requirement. More

important, the second-stage regression result confirms that greater societal trust improves the

effectiveness of the media’s governance role. To sum up, the baseline result with societal trust

does not come from spurious correlation, but societal trust does enhance the media’s governance

function.

6. Conclusion

This study provides empirical evidence corroborating hypotheses about the factors

contributing to cross-country variation in the effectiveness of the media’s monitoring role. The

local media functions as an effective external governance mechanism in countries where people

are more likely to trust the given information or the majority of people value shareholder wealth

maximization. In those countries, the given level of local press coverage of the more value-

destroying acquisition attempts results in the higher probability that the acquiring firm will drop

such attempts. In contrast, the degree of local media freedom does not add to the relationship

between local press coverage and the abandonment probability of the more value-destroying

acquisition attempts. In short, societal trust and concern for shareholder wealth maximization

21

Different from all the other regressions, the 2SLS regression results drop acquirer-country fixed effects because a

country’s main religion itself is a country-level time-invariant characteristic. Therefore, to identify the effect of main

religion on Trust I remove acquirer-country fixed effects from the regression specification.

35

play a major role in improving the media’s watchdog function, but the degree of media freedom

has little direct relationship with the improvement of the media’s governance role.

To the best of my knowledge, this is the first paper exploring those circumstances in

which the media can function as an effective governance mechanism in a cross-country setting.

The results suggest societal trust and concern for shareholder wealth maximization as two factors

facilitating the media’s governance function. My findings have implications for countries with

either a strong or a weak governance environment. Even in countries with an effective

governance system, greater societal trust or concern for shareholder wealth maximization would

amplify the overall governance environment by enhancing the effectiveness of external

governance mechanisms, such as the media. In countries where the formal institutions are weak,

societal trust can help to improve the governance environment through making the media work

as an alternative governance mechanism.

36

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Table 1. Summary Statistics of Acquirer Countries

This table presents descriptive statistics from the sample used for the analysis of a greater societal trust indicator (Trust), containing acquisition attempts by 25 acquirer

countries. For each country, the number of observations, the mean of CAR, Below average CAR, and the Log number of local press articles are reported. Also, the same

statistics for the subsample of completed and abandoned acquisition attempts are provided. Variables are described in Table Appendix1. I provide the sample used for

the analysis of societal trust as representative of the whole because among two samples with significant results, it is larger than the sample used for the analysis of a

society’s concern for shareholder wealth maximization.

Acquirer

Country

Observation CAR (Mean) Below average CAR (Mean) Log number of local press articles (Mean)

Full Complete Abandon Full Complete Abandon Full Complete Abandon Full Complete Abandon

Argentina 7 7 0 -0.02 -0.02 0.29 0.29 0.58 0.58

Australia 79 65 14 -0.03 -0.03 -0.04 0.42 0.37 0.64 2.34 2.25 2.78

Brazil 55 50 5 -0.02 -0.02 -0.04 0.35 0.30 0.80 1.63 1.62 1.69

Canada 92 85 7 -0.04 -0.04 -0.05 0.57 0.55 0.71 1.78 1.76 1.95

Finland 22 21 1 -0.02 -0.02 -0.07 0.23 0.19 1.00 1.23 1.20 1.95

France 63 58 5 -0.02 -0.02 -0.02 0.27 0.26 0.40 2.35 2.28 3.07

Germany 75 70 5 -0.02 -0.02 -0.02 0.28 0.27 0.40 2.58 2.53 3.21

Hong Kong 56 46 10 -0.04 -0.03 -0.08 0.34 0.30 0.50 0.72 0.73 0.69

India 60 56 4 -0.03 -0.03 -0.04 0.45 0.43 0.75 2.44 2.45 2.32

Italy 55 53 2 -0.02 -0.02 -0.01 0.25 0.26 0.00 1.97 1.94 2.83

Malaysia 34 30 4 -0.03 -0.02 -0.06 0.24 0.20 0.50 0.31 0.35 0.00

Mexico 11 10 1 -0.02 -0.02 -0.05 0.27 0.20 1.00 1.68 1.62 2.30

Netherlands 53 48 5 -0.03 -0.02 -0.03 0.34 0.31 0.60 1.38 1.21 2.96

New Zealand 14 13 1 -0.02 -0.02 0.00 0.36 0.38 0.00 1.79 1.83 1.39

Norway 43 38 5 -0.03 -0.03 -0.03 0.42 0.42 0.40 1.27 1.14 2.21

Poland 10 9 1 -0.03 -0.04 -0.02 0.60 0.67 0.00 1.40 1.56 0.00

Russian Fed 7 5 2 -0.03 -0.03 -0.01 0.43 0.60 0.00 0.58 0.14 1.67

Singapore 55 43 12 -0.07 -0.03 -0.20 0.42 0.35 0.67 0.89 0.98 0.56

South Africa 46 38 8 -0.04 -0.04 -0.05 0.37 0.34 0.50 1.30 1.20 1.78

Spain 18 16 2 -0.01 -0.01 -0.01 0.11 0.13 0.00 2.63 2.60 2.87

Sweden 60 53 7 -0.02 -0.02 -0.03 0.33 0.28 0.71 1.45 1.35 2.24

Switzerland 58 52 6 -0.02 -0.02 -0.02 0.22 0.23 0.17 2.51 2.43 3.24

Turkey 6 5 1 -0.02 -0.01 -0.03 0.33 0.20 1.00 0.53 0.50 0.69

United

Kingdom 81 75 6 -0.03 -0.03 -0.02 0.32 0.32 0.33 1.58 1.52 2.36

United States 103 99 4 -0.03 -0.02 -0.06 0.35 0.32 1.00 1.60 1.57 2.12

Total 1163 1045 118 -0.03 -0.03 -0.06 0.35 0.33 0.54 1.71 1.68 1.99

39

Table 2. Summary Statistics of Variables

This table reports the mean, median, and standard deviation for the samples of deals announced over the

period January 1, 2000 through December 31, 2014, obtained from the Thomson OneBanker database.

Panels A, B, and C describe the statistics for the sample used for the analysis of societal trust, the society’s

concern for shareholder wealth maximization, and the degree of local media freedom, respectively. All

variables are defined in Table Appendix1.

Mean Median Std Dev

Panel A. Societal Trust Sample (N=1163)

Abandon indicator 0.1015 0.0000 0.3021

Below average CAR 0.3517 0.0000 0.4777

Negative CAR 0.0289 0.0193 0.0560

Log number of local press articles 1.7103 1.6094 1.2135

Trust 0.5314 1.0000 0.4992

Panel B. Concern for Shareholder Wealth Maximization Sample (N=906)

Abandon indicator 0.0971 0.0000 0.2963

Below average CAR 0.3653 0.0000 0.4818

Negative CAR 0.0262 0.0186 0.0300

Log number of local press articles 1.8223 1.7918 1.1764

Pro Shareholder 0.6049 1.0000 0.4895

Panel C. Local Media Freedom Sample (N=1207)

Abandon indicator 0.1011 0.0000 0.3016

Below average CAR 0.3281 0.0000 0.4697

Negative CAR 0.0286 0.0190 0.0552

Log number of local press articles 1.7044 1.6094 1.2101

Media Freedom 74.8981 81.0000 16.0669

40

Table 3. Univariate Analyses

This table provides univariate analyses of key variables for three different samples used for analysis of:

societal trust (Panel A), societal concern for shareholder wealth maximization (Panel B), and the degree of

local media freedom (Panel C). The table describes statistical tests for differences in means for each

variable for completed versus abandoned acquisitions. Indicators ***, **, and * show significance at 1%,

5%, and 10%, respectively.

Variable Mean

Difference Completed Abandoned

Panel A. Societal Trust Sample (Completed: 1045 vs. Abandoned: 118)

Below average CAR 0.3301 0.5424 -0.2122***

Negative CAR 0.0259 0.0558 -0.0299***

Log number of local press articles 1.6793 1.9855 -0.3062***

Trust 0.5292 0.5508 -0.0217

Panel B. Concern for Shareholder Wealth Maximization Sample (Completed: 818 vs. Abandoned: 88)

Below average CAR 0.3521 0.4886 -0.1366**

Negative CAR 0.0255 0.0324 -0.0069**

Log number of local press articles 1.7613 2.3896 -0.6282***

Pro Shareholder 0.6076 0.5795 0.0280

Panel C. Local Media Freedom Sample (Completed: 1085 vs. Abandoned: 122)

Below average CAR 0.3060 0.5246 -0.2186***

Negative CAR 0.0257 0.0546 -0.0289***

Log number of local press articles 1.6741 1.9745 -0.3005***

Media Freedom 75.3106 71.2295 4.0811***

41

Table 4. Probit Analysis of Acquisition Abandonment on Below average CAR, Log number of local press

articles, and Trust, Pro Shareholder, and Media Freedom

This table presents results of the cross-sectional probit analysis of the likelihood of acquisition abandonment on

Below average CAR, Log number of local press articles, Trust (or Pro Shareholer, Media Freedom) and other

control variables for a sample of acquisition attempts announced over the period January 1, 2000 through

December 31, 2014. The tables report the marginal effects of each variable. Column 1 presents the marginal

effects from the analysis with Trust, Column 2 shows the marginal effects from the analysis with Pro

Shareholder, and Column 3 exhibits the marginal effects from the analysis with Media Freedom. The dependent

variable is an indicator taking the value of one for abandoned acquisition attempts and zero for completed

attempts. All other variables are described in Table Appendix1. The regression in Panel A only controls for

bidder- and target-country fixed effects to address the concern about little variations in Trust (or Pro Shareholer,

Media Freedom) across years. The regression in Panel B controls for year and for bidder- and target-country

fixed effects. The marginal effects of the fixed effects are omitted for brevity. The robust standard errors

clustered by acquirer nations are reported in parentheses. Indicators ***, **, and * show significance at 1%, 5%,

and 10%, respectively.

(1)

Trust

(2)

Pro

Shareholder

(3)

Media

Freedom

Panel A

Below average CAR 0.0479**

(0.02)

0.0010

(0.02)

0.0463***

(0.02)

Below average CAR * Log number of local press articles -0.0030

(0.01)

-0.0023

(0.01)

0.0006

(0.01)

Below average CAR * Log number of local press articles *Trust 0.0766**

(0.03)

Below average CAR * Log number of local press articles *Pro Shareholder 0.0436*

(0.02)

Below average CAR * Log number of local press articles *Media Freedom 0.0006

(0.00)

Log number of local press articles 0.0224***

(0.01)

0.0310***

(0.01)

0.0118**

(0.00)

Trust 0.0341

(0.05)

Pro Shareholder 0 .0035

(0.02)

Media Freedom -0.0047

(0.00)

Log number of local press articles *Trust 0.0259**

(0.01)

Log number of local press articles * Pro Shareholder -0.0075

(0.01)

Log number of local press articles * Media Freedom 0.0010

(0.00)

42

Panel A (continued)

Below average CAR * Trust 0.0213

(0.04)

Below average CAR * Pro Shareholder 0.0474

(0.03)

Below average CAR * Media Freedom -0.0024

(0.00)

Relative transaction value 0.0018

(0.00)

-0.0009

(0.00)

0.0224***

(0.01)

Acquirer pre-ownership 0.0001

(0.00)

0.0011

(0.00)

0.0009

(0.00)

Same industry indicator -0.0142

(0.02)

0.0105

(0.02)

-0.0091

(0.02)

Stock indicator 0.0049

(0.02)

0.0081

(0.02)

-0.0048

(0.02)

Target public indicator 0.1383***

(0.01)

0.1492***

(0.01)

0.1354***

(0.01)

Log acquirer size -0.0080

(0.01)

-0.0077*

(0.00)

-0.0039

(0.01)

Bidder- and target-country FEs YES YES YES

Pseudo R-squared 0.253 0.289 0.261

Observations 1163 906 1207

Panel B

Below average CAR 0.0412**

(0.02)

-0.0057

(0.01)

0.0397**

(0.02)

Below average CAR * Log number of local press articles -0.0044

(0.01)

-0.0071

(0.02)

-0.0028

(0.01)

Below average CAR * Log number of local press articles *Trust 0.0825**

(0.03)

Below average CAR * Log number of local press articles *Pro Shareholder 0.0423*

(0.03)

Below average CAR * Log number of local press articles *Media Freedom 0.0009

(0.00)

Log number of local press articles 0.0243***

(0.01)

0.0322***

(0.01)

0.0145**

(0.01)

Trust 0.0223

(0.05)

Pro Shareholder 0 .0013

(0.01)

Media Freedom -0.0056

(0.00)

43

Panel B (continued)

Log number of local press articles *Trust 0.0299**

(0.01)

Log number of local press articles * Pro Shareholder 0.0001

(0.01)

Log number of local press articles * Media Freedom 0.0007

(0.00)

Below average CAR * Trust 0.0153

(0.04)

Below average CAR * Pro Shareholder 0.0427

(0.03)

Below average CAR * Media Freedom -0.0025

(0.00)

Relative transaction value 0.0015

(0.00)

-0.0010

(0.00)

0.0192**

(0.01)

Acquirer pre-ownership 0.0000

(0.00)

0.0010

(0.01)

0.0007

(0.00)

Same industry indicator -0.0142

(0.02)

0.0075

(0.02)

-0.0099

(0.02)

Stock indicator 0.0022

(0.01)

0.0001

(0.02)

-0.0058

(0.02)

Target public indicator 0.1450***

(0.01)

0.1545***

(0.01)

0.1410***

(0.01)

Log acquirer size -0.0073

(0.01)

-0.0060

(0.00)

-0.0030

(0.01)

Year, bidder- and target-country FEs YES YES YES

Pseudo R-squared 0.282 0.319 0.289

Observations 1163 906 1207

44

Table 5. Probit Analysis of Acquisition Abandonment on Negative CAR, Log number of local press

articles, and Trust, Pro Shareholder, and Media Freedom

This table presents results of the cross-sectional probit analysis of the likelihood of acquisition abandonment on

Negative CAR, Log number of local press articles, Trust (or Pro Shareholer, Media Freedom) and other control

variables for a sample of acquisition attempts announced over the period January 1, 2000 through December 31,

2014. The tables report the marginal effects of each variable. Column 1 presents the marginal effects from the

analysis with Trust, Column 2 shows the marginal effects from the analysis with Pro Shareholder, and Column

3 exhibits the marginal effects from the analysis with Media Freedom. The dependent variable is an indicator

taking the value of one for abandoned acquisition attempts and zero for completed attempts. All other variables

are described in Table Appendix1. The regression in Panel A only controls for bidder- and target-country fixed

effects to address the concern about little variations in Trust (or Pro Shareholer, Media Freedom) across years.

The regression in Panel B controls for year and for bidder- and target-country fixed effects. The marginal effects

of the fixed effects are omitted for brevity. The robust standard errors clustered by acquirer nations are reported

in parentheses. Indicators ***, **, and * show significance at 1%, 5%, and 10%, respectively.

(1)

Trust

(2)

Pro

Shareholder

(3)

Media

Freedom

Panel A

Negative CAR 0.3355*

(0.18)

-0.1417

(0.24)

0.2627

(0.20)

Negative CAR * Log number of local press articles -0.0030

(0.01)

-0.1420

(0.55)

-0.2125

(0.21)

Negative CAR * Log number of local press articles *Trust 0.7918**

(0.38)

Negative CAR * Log number of local press articles *Pro Shareholder

0.7354*

(0.44)

Negative CAR * Log number of local press articles *Media Freedom

0.0120**

(0.01)

Log number of local press articles 0.0215***

(0.01)

0.0315***

(0.01)

0.0122**

(0.00)

Trust 0.0378

(0.06)

Pro Shareholder

0 .0036

(0.02)

Media Freedom

-0.0045

(0.00)

Log number of local press articles *Trust 0.0293**

(0.01)

Log number of local press articles * Pro Shareholder -0.0026

(0.01)

Log number of local press articles * Media Freedom 0.0010

(0.00)

45

Panel A (continued)

Negative CAR * Trust -0.3595

(0.29)

Negative CAR * Pro Shareholder 0.2968

(0.53)

Negative CAR * Media Freedom -0.0256

(0.01)

Relative transaction value 0.0021

(0.00)

-0.0009

(0.00)

0.0203***

(0.01)

Acquirer pre-ownership 0.0002

(0.00)

0.0011

(0.00)

0.0008

(0.00)

Same industry indicator -0.0124

(0.02)

0.0104

(0.02)

-0.0040

(0.02)

Stock indicator 0.0007

(0.02)

0.0121

(0.02)

-0.0081

(0.02)

Target public indicator 0.1394***

(0.01)

0.1480***

(0.01)

0.1386***

(0.01)

Log acquirer size -0.0088

(0.01)

-0.0081*

(0.00)

-0.0053

(0.01)

Bidder- and target-country FEs YES YES YES

Pseudo R-squared 0.258 0.288 0.2701

Observations 1163 906 1207

Panel B

Negative CAR 0.2416

(0.16)

-0.2352

(0.22)

0.1507

(0.18)

Negative CAR * Log number of local press articles -0.3895

(0.30)

-0.1906

(0.40)

-0.2654

(0.23)

Negative CAR * Log number of local press articles *Trust 0.8355**

(0.40)

Negative CAR * Log number of local press articles *Pro Shareholder 0.7145*

(0.43)

Negative CAR * Log number of local press articles *Media Freedom 0.0120

(0.01)

Log number of local press articles 0.0230***

(0.01)

0.0324***

(0.01)

0.0147***

(0.01)

Trust 0.0228

(0.05)

Pro Shareholder 0 .0005

(0.01)

46

Panel B (continued)

Media Freedom -0.0058

(0.00)

Log number of local press articles *Trust 0.0301**

(0.01)

Log number of local press articles * Pro Shareholder 0.0049

(0.01)

Log number of local press articles * Media Freedom 0.0006

(0.00)

Negative CAR * Trust 0.4370

(0.31)

Negative CAR * Pro Shareholder 0.2747

(0.52)

Negative CAR * Media Freedom -0.0259

(0.01)

Relative transaction value 0.0017

(0.00)

-0.0010

(0.00)

0.0171**

(0.01)

Acquirer pre-ownership 0.0001

(0.00)

0.0010

(0.00)

0.0007

(0.00)

Same industry indicator -0.0130

(0.02)

0.0077

(0.02)

-0.0053

(0.02)

Stock indicator -0.0002

(0.02)

0.0049

(0.02)

-0.0068

(0.02)

Target public indicator 0.1440***

(0.01)

0.1530***

(0.01)

0.1433***

(0.01)

Log acquirer size -0.0077

(0.01)

-0.0066

(0.00)

-0.0044

(0.01)

Year, bidder- and target-country FEs YES YES YES

Pseudo R-squared 0.286 0.318 0.298

Observations 1163 906 1207

47

Table 6. Probit Analysis of Acquisition Abandonment on Below average CAR, Log number of local press

articles, and Average Trust, Average Pro Shareholder

This table presents results of the cross-sectional probit analysis of the likelihood of acquisition abandonment on

Below average CAR, Log number of local press articles, Average Trust (or Average Pro Shareholer) and other

control variables for a sample of acquisition attempts announced over the period January 1, 2000 through

December 31, 2014. The tables report the marginal effects of each independent variable; the marginal impacts

of the control variables and the fixed effects are omitted for brevity. Column 1 presents the marginal effects

from the analysis with Average Trust, and Column 2 shows the marginal effects from the analysis with Average

Pro Shareholder. The dependent variable is an indicator taking the value of one for abandoned acquisition

attempts and zero for completed attempts. Average Trust (or Average Pro Shareholer) is a country-level

average of societal trust (or concern for shareholder wealth maximization) and 95% winsorized. All other

variables are described in Table Appendix1. The regressions control for year and for bidder- and target-country

fixed effects. The robust standard errors clustered by acquirer nations are reported in parentheses. Indicators ***,

**, and * show significance at 1%, 5%, and 10%, respectively.

(1)

Average

Trust

(2)

Average

Pro

Shareholder

Below average CAR 0.0408**

(0.02)

0.0055

(0.02)

Below average CAR * Log number of local press articles -0.0052

(0.01)

-0.0029

(0.02)

Below average CAR * Log number of local press articles *Average Trust 0.1699**

(0.09)

Below average CAR * Log number of local press articles * Average Pro Shareholder 0.2374**

(0.12)

Log number of local press articles 0.0227***

(0.01)

0.0307***

(0.01)

Average Trust 0.0416

(0.19)

Average Pro Shareholder 0 .0523

(0.04)

Log number of local press articles * Average Trust 0.0060

(0.05)

Log number of local press articles * Average Pro Shareholder 0.0165

(0.03)

Below average CAR * Average Trust 0.0500

(0.11)

Below average CAR * Average Pro Shareholder 0.0538

(0.07)

Year, bidder- and target-country FEs YES YES

Pseudo R-squared 0.278 0.330

Observations 1163 906

48

Table 7. Testing the Role of the Degree of Investor Protection

This table summarizes robustness test of my findings when the degree of investor protection is added to the

baseline regressions. The dependent variable is Abandon indicator, the likelihood of acquisition abandonment.

The tables report the marginal effects of each independent variable; the marginal impacts of the control variables

and the fixed effects are omitted for brevity. Column 1 presents the marginal effects from the probit analysis with

Trust, Column 2 shows the marginal effects from the probit analysis with Pro Shareholder. The robust standard

errors clustered by acquirer nations are reported in parentheses. Indicators ***, **, and * show significance at 1%,

5%, and 10%, respectively. All the variables are described in Table Appendix1.

(1)

Trust

(2)

Pro

Shareholder

Below average CAR 0.0414**

(0.02)

-0.0061

(0.02)

Below average CAR * Log number of local press articles -0.0085

(0.01)

-0.0107

(0.02)

Below average CAR * Log number of local press articles * Trust 0. 0865***

(0.03)

Below average CAR * Log number of local press articles * Pro Shareholder

0.0396*

(0.02)

Log number of local press articles 0.0227**

(0.01)

0.0319***

(0.01)

Log number of local press articles * Trust 0.0312**

(0.01)

Log number of local press articles * Pro Shareholder 0.0012

(0.01)

Trust 0.0207

(0.06)

Pro Shareholder 0. 0027

(0.02)

Below average CAR * Trust 0.0126

(0.04)

Below average CAR * Pro Shareholder 0.0403

(0.03)

Strong Investor Protection -0.0190

(0.03)

-0.0082

(0.35)

Log number of local press articles * Strong Investor Protection -0.0100

(0.02)

-0.0200

(0.02)

Below average CAR * Strong Investor Protection 0.0083

(0.04)

0.0375

(0.04)

Below average CAR * Log number of local press articles * Strong Investor

Protection

-0.0260

(0.03)

-0.0070

(0.03)

Year, bidder- and target-country FEs YES YES

Pseudo R-squared 0.287 0.326

Observations 1150 894

49

Table 8. Testing Mechanism for Societal Concern for Shareholder Wealth Maximization

This table reports regression results from the robustness test of my finding with Pro Shareholder. I examine the

mechanism by which societal concern for shareholder wealth maximization increase the effectiveness of the

media’s governance role. The dependent variable is Abandon indicator, the likelihood of acquisition

abandonment. The tables report the marginal effects of each independent variable; the marginal impacts of the

fixed effects are omitted for brevity. Column 1 presents the marginal effects from the probit analysis when

acquirer countries have the value of stock market capitalization above the sample average. Column 2 shows the

marginal effects from the probit analysis when acquirer countries have the value of stock market capitalization

below the sample average. The robust standard errors clustered by acquirer nations are reported in parentheses.

Indicators ***, **, and * show significance at 1%, 5%, and 10%, respectively. All the variables are described in

Table Appendix 1.

(1)

Above Stock

Market Cap.

(2)

Below Stock

Market Cap.

Below average CAR -0.0062

(0.03)

-0.0614**

(0.03)

Below average CAR * Log number of local press articles -0.0351

(0.03)

0.0083

(0.02)

Below average CAR * Log number of local press articles * Pro Shareholder 0.1209***

(0.05)

0.0281

(0.05)

Log number of local press articles 0.0321**

(0.01)

0.0571***

(0.02)

Pro Shareholder 0.0341

(0.03)

-0.0245

(0.06)

Log number of local press articles * Pro Shareholder -0.0348

(0.02)

-0.0299

(0.04)

Below average CAR * Pro Shareholder 0.1159***

(0.04)

0.0132

(0.08)

Relative transaction value -0.0144

(0.01)

0.0010

(0.00)

Acquirer pre-ownership 0.0028**

(0.00)

-0.0010

(0.00)

Same industry indicator -0.0175

(0.05)

0.0791**

(0.04)

Stock indicator 0.0389

(0.05)

-0.0144

(0.06)

Target public indicator 0.1873***

(0.02)

0.1869***

(0.04)

Log acquirer size -0.0129

(0.01)

0.0007

(0.01)

Year, bidder- and target-country FEs YES YES

Pseudo R-squared 0.519 0.357

Observations 341 266

50

Table 9. Testing Mechanism for Societal Trust

This table reports regression results from the robustness test of my finding with Trust. I examine the mechanism

by which societal trust increase the effectiveness of the media’s governance role. The dependent variable is

Abandon indicator, the likelihood of acquisition abandonment. The tables report the marginal effects of each

independent variable; the marginal impacts of the fixed effects are omitted for brevity. Column 1 presents the

marginal effects from the probit analysis when acquirer countries have free media. Column 2 shows the marginal

effects from the probit analysis when acquirer countries have non-free media. The robust standard errors clustered

by acquirer nations are reported in parentheses. Indicators ***, **, and * show significance at 1%, 5%, and 10%,

respectively. All the variables are described in Table Appendix 1.

(1)

Free Media

Group

(2)

Non-free Media

Group

Below average CAR 0.011

(0.02)

0.1183***

(0.04)

Below average CAR * Log local media coverage 0.0158

(0.02)

-0.0286

(0.03)

Below average CAR * Log local media coverage * Trust 0.0873**

(0.04)

-0.0124

(0.17)

Log local media coverage 0.0359***

(0.01)

-0.0015

(0.03)

Trust -0.0412

(0.05)

0.0613

(0.10)

Log local media coverage * Trust 0.0142

(0.02)

-0.0233

(0.09)

Below average CAR * Trust 0.0888**

(0.03)

-0.1279*

(0.07)

Relative transaction value -0.0001

(0.00)

0.0026

(0.01)

Acquirer pre-ownership 0.0004

(0.00)

-0.0016

(0.00)

Same industry indicator -0.0088

(0.02)

-0.0222

(0.06)

Stock indicator 0.003

(0.02)

-0.0424

(0.09)

Target public indicator 0.1623***

(0.01)

0.1169***

(0.04)

Log acquirer size -0.0087**

(0.00)

-0.0089

(0.01)

Year, bidder- and target-country FEs YES YES

Pseudo R-squared 0.364 0.267

Observations 764 316

51

Table 10. Two-stage Least Squares Analysis for Societal Trust

This table summarizes the result from the two-stage least squares analysis for societal trust. The tables

report the marginal effects of each independent variable; the marginal impacts of the fixed effects are

omitted for brevity. The robust standard errors clustered by acquirer nations are reported in parentheses.

Indicators ***, **, and * show significance at 1%, 5%, and 10%, respectively. All the variables are

described in Table Appendix 1.

First Stage- Dependent Variable: Trust

Hindu -0.6698***

(0.14)

Protestant -0.1656

(0.17)

Roman Catholic -0.4536***

(0.14)

Other religion 0.1087

(0.17)

No religion -0.4912***

(0.17)

Second Stage- Dependent Variable: Abandon indicator

Below average CAR 0.0287*

(0.02)

Below average CAR * Log local media coverage 0.0139

(0.01)

Below average CAR * Log local media coverage * Trust 0.0361**

(0.01)

Log local media coverage 0.0243***

(0.01)

Trust 0.0089

(0.01)

Log local media coverage * Trust 0.0034

(0.01)

Below average CAR * Trust 0.0270

(0.02)

Relative transaction value 0.0015

(0.00)

Acquirer pre-ownership -0.0001

(0.00)

Same industry indicator -0.0013

(0.02)

Stock indicator -0.0053

(0.02)

Target public indicator 0.1507***

(0.02)

Log acquirer size -0.0051

(0.00)

Year and target-country FEs YES

Pseudo R-squared 0.301

Observations 1040

Table Appendix 1. Variable Definition

Variable Definition

Descriptive Variables

- CAR Cumulative abnormal return of the potential acquirer's stock in the three-day

announcement period (−1, +1), where day 0 is the announcement day. I calculate

the acquirer's daily abnormal return for each day by subtracting the acquirer

country’s market return from the potential acquirer's stock return on that day.

- Societal Trust Based on responses to the WVS question, "Generally speaking, would you say

that most people can be trusted or that you need to be very careful in dealing

with people?" I recode the response to one if a participant reports that most

people can be trusted and zero otherwise. I take the average of responses in each

country year as the level of a country’s societal trust.

- Political Preference for

Pro-market Policies

National parties’ positions regarding pro-market policies are constructed

following Roe and Coan (2015). I obtain the data on each country’s national

parties’ positions from the Comparative Manifesto Project website

(https://manifestoproject.wzb.eu/datasets). I consider the mean of each country’s

national parties’ positions concerning pro-market policies as a country’s political

preference for pro-market policies.

- Transaction Value The total value (in millions of USD) of considered payments that the acquirer

proposed to pay for the target firm, as reported by Thomson OneBanker.

- Acquirer Size The potential acquirer's market value of equity (in millions of USD) for the

month prior to the announcement day of the acquisition attempt. I obtain stock

prices and number of shares from Datastream.

Dependent Variable

- Abandon indicator One for completed acquisition attempts, zero for cancelled acquisition attempts,

as reported by Thomson OneBanker.

Key Independent Variables

- Below average CAR One for acquisition attempts with the value of CAR below the sample average of

CAR.

- Negative CAR The magnitude of CAR

- Log local media coverage The natural log of the number of firm-specific news stories about the acquisition

attempt reported by the potential acquirer’s local media in its local language over

the ten calendar days following the announcement date of the proposed

transaction.

- Trust One for an acquirer country having the value of societal trust above the sample

average of societal trust.

- Pro Shareholder One for an acquirer country having the value of political preference for pro-

market policies above the sample average of political preference for pro-market

policies.

- Media Freedom

100 minus the country-level score of press freedom published by Freedom

House. Freedom House evaluates each country’s press freedom environment in

three dimensions: the legal, political, and economic environment. The aggregate

score ranges from zero (best) to 100 (worst). Thus, Media Freedom measures the

degree of media freedom with a higher value denoting a more free press

environment.

53

Table Appendix 1 (continued)

Control Variables

- Relative transaction value The fraction of transaction value to acquirer size.

- Acquirer pre-ownership The acquirer's ownership of the shares of the target firm prior to acquisition

attempts, as reported by Thomson OneBanker.

- Stock indicator One for acquisition attempts financed or partially financed by the acquirer's

common stock, zero otherwise, as reported by Thomson OneBanker.

- Target public indicator One if the target firm is public, zero otherwise, as reported by Thomson

OneBanker.

- Log acquirer size The natural log of acquirer size.

- Same industry indicator One if the target and acquirer share the same two-digit SIC code.

Other Variables

- Strong Investor Protection One for an acquirer country having the value of investor protection above the

sample average of investor protection. Investor protection is measured as the sum

of the anti-self-dealing index from Djankov et al. (2008) and the law

enforcement index from Kaufmann, Kraay, and Mastruzzi (2003) after rescaling

both indices to be between zero and one.

- Free Media Group The subsample of acquirer countries having the value of Media Freedom

between 70 and 100.

- Non-free Media Group The subsample of acquirer countries having the value of Media Freedom

between zero and 69.

- Above Stock Market Cap. The subsample of acquirer countries having the value of stock market

capitalization above the sample average of stock market capitalization. The stock

market capitalization is the market capitalization of listed domestic firms as a

percentage of GDP from the World Bank.

- Hindu, Protestant, Roman

Catholic, Other religion,

No religion

One for an acquirer country’s main religion. Main religion is measured based on

the following WVS question, ‘‘Do you belong to a religious denomination? If

yes: Which one?’’ I consider the religion having the highest frequency in each

country to be an acquirer country’s main religion.

54

Table Appendix 2. Correlation Matrix

This table provides correlations of the variables from the sample used for analyzing societal trust. The

sample consists of 1163 acquisitions over the period January 1, 2000 through December 31, 2014. The

definition of each variable is presented in Table A1. Indicators ** and * show significance at 1% and 5%,

respectively.

Relative

transaction

value

Acquirer

pre-ownership

Stock

indicator

Target public

indicator

Log

acquirer

size

Acquirer pre-ownership -0.0337

Stock indicator 0.0721* 0.0571

Target public indicator -0.0169 0.1066*** 0.3510**

Log acquirer size -0.2954** 0.0014 -0.2556** 0.0596*

Same industry indicator -0.0413 0.0280 0.0440 0.0593* 0.0005

Abandon

indicator

Below

average CAR

Log local

media coverage Trust

Below average CAR 0.1342**

Log local media coverage 0.0762** 0.0524

Trust 0.0131 0.0529 -0.0190

Relative transaction value 0.0471 0.0729* -0.0828* 0.0285

Acquirer pre-ownership 0.0428 -0.0456 0.0320 -0.0525

Stock indicator 0.1268** 0.1433** 0.0483 0.0094

Target public indicator 0.2730** 0.1808** 0.2767** 0.0445

Log acquirer size -0.0792** -0.1397** -0.1039** -0.1039**

Same industry indicator -0.0249 0.0182 0.0305 0.0305

55

Table Appendix 3. Trust in Strong and Weak Investor Protection Environments

This table presents results of the cross-sectional probit analysis of the likelihood of acquisition abandonment on

Below average CAR, Log number of local press articles, Trust and other control variables in countries with either

a strong or a weak investor protection environment. The tables report the marginal effects of each independent

variable; the marginal impacts of the fixed effects are omitted for brevity. The robust standard errors clustered by

acquirer nations are reported in parentheses. Indicators ***, **, and * show significance at 1%, 5%, and 10%,

respectively. All the variables are described in Table Appendix 1.

(1)

Strong Investor Protection

(2)

Weak Investor Protection

Below average CAR 0.0735***

(0.02)

0.0241

(0.03)

Below average CAR * Log local media coverage -0.0291

(0.02)

-0.0068

(0.02)

Below average CAR * Log local media coverage * Trust 0.1115**

(0.05)

0.0702*

(0.04)

Log local media coverage 0.0445***

(0.02)

0.0203*

(0.01)

Trust 0.1306***

(0.03)

-0.0879***

(0.03)

Log local media coverage * Trust 0.0665**

(0.03)

0.0119

(0.02)

Below average CAR * Trust 0.0018

(0.04)

0.0165

(0.07)

Relative transaction value -0.0017

(0.00)

0.0197**

(0.01)

Acquirer pre-ownership -0.0001

(0.00)

0.0005

(0.00)

Same industry indicator -0.0228

(0.03)

0.0037

(0.03)

Stock indicator 0.0086

(0.02)

-0.0287

(0.03)

Target public indicator 0.1872***

(0.02)

0.1515***

(0.02)

Log acquirer size -0.0212**

(0.01)

0.0064

(0.01)

Year, bidder- and target-country FEs YES YES

Pseudo R-squared 0.334 0.326

Observations 511 526