Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

50 Finally,theyfindthatthestrengthofcorporategovernance
matters more in countries with weak legal systems.

In an interesting twist on this concept, Bris and Cabolis
(2002) look at target firms in 9,277 cross-border mergers,
where the corporate governance system of thetarget is in
effect replaced bythe corporate governance system of the
acquirer. Since corporate governance systems vary across
countries, this gives them an opportunity to examine the
effectonstockpricesofchangingthecorporategovernance
system.TheyfindthattheTobin’sQincreasesforfirmsinan
industrywhenafirmorfirmsinthatindustryareacquiredby
foreign firms from countries with better corporate
governance.
51

ILLUSTRATION 13.4: Market Prices and the Expected
Value of Control

ConsiderthevaluationofBlockbusterinIllustration13.2.We
estimatedboth thestatusquo andtheoptimalvalue ofthe
equity in the company and arrived at the following results:

Value of EquityValue per Share

Status quo $ 955 million $ 5.13 per share

Optimally managed$2,323 million $12.47 per share

Themarketpricepershareatthetimeofthevaluation(May
2005) was roughly $9.50. While there are a number of
differentexplanationsforthedifferencebetweenthevalues
thatwearrivedatandthemarketprice,thereisonepossible
interpretationthat hasintuitive appeal. Assumingthatboth