Shareholder Rights and Bidder Returns: The Impact of Market Learning and M&A Activity

I examine whether market learning and M&A activity affect the association between shareholderrights and acquisition performance. Using a sample of acquisitions completed in the period of1990-2006, I find that the negative association between governance indices and bidder returnsdisappears in recent years as market participants learn about the value of shareholder rights. Inaddition, the negative association is particularly pronounced when there are more M&A deals in themarket. The influence of M&A activity on the association between governance indices and bidderreturns suggests that the market fails to fully capitalize the impact of shareholder rights into stockprice since the influence of shareholder rights on acquisitions cannot be fully anticipated.