Page 66 - Azerbaijan State University of Economics

N.V. Abdullayeva: Value creation through mergers and acquisitions in energy sector

agency problem would be addressed in the most efficient way. The mergers depriving

the possible incremental value from M&As can be this way optimized. However, in

real-life business managers often tend to engage in value-depriving M&A deals due to

other reasons than value creation which may be referred to as managerial hubris.

Along with globalization, the rate of investment overseas by companies has

increase significantly. As a result, country‘s legal system and structure of regulatory

organizations (bodies) play significant role during feasibility period of M&A

transaction. Specifically in cross border deals, the bidder‘s integration in a new

environment depends on efficiency of legal systems. The pace of integration and

subsequent performance in a given foreign country depends partly on efficiency of

legal framework. As a result, for instance compliance issues are one of the main

aspects, when searching and screening potential target companies.

Various researchers have studies the relationship between legal system and

corporate governance of target companies‘ countries and financial performance. The

legal system of a country has an impact on its economic growth and industrial

sector. In their research Claessens and Laeven (2003) document that companies

invest less, in particular in intangible assets in countries with weak legal structure.

According the research conducted by La Porta e al (1998), the development of a

country's capital markets are to a certain degree linked with the legal and regulatory

framework there. To put it another way, the cost of debt and equity capital in a

specific country significantly depends on the enforcement of laws and regulations in

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