Location Choices of Multinational Firms: The Case of Mergers and Acquisitions (original) (raw)
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SSRN Electronic Journal, 2013
The paper explores the concurrent effects of cultural, political, and spatial distances on M&A flows occurring between any two countries belonging to the whole European Union (27 States) or to the European Neighbors group (16 States) over the period 2000-2011. By employing zero-inflated negative binomial specifications, entailing both a binary and count process, we adequately model the two different mechanisms which may generate zero observations in the cross-border bilateral deals. Zeros may be due to either the lack of any transactions or unsuccessful negotiations. We find robust evidence that the multi-dimensional distance between two countries negatively affects the probability that they will engage in M&A deals, while the recurrence rate of these deals is positively related to population, gross domestic product, and technological capital and negatively related to geographical distance.
Determinants of Cross-Border Mergers and Acquisitions
The Journal of Finance, 2012
The vast majority of cross-border mergers involve private firms outside of the United States. We analyze a sample of 56,978 cross-border mergers between 1990 and 2007. We find that geography, the quality of accounting disclosure, and bilateral trade increase the likelihood of mergers between two countries. Valuation appears to play a role in motivating mergers: firms in countries whose stock market has increased in value, whose currency has recently appreciated, and that have a relatively high market-to-book value tend to be purchasers, while firms from weaker-performing economies tend to be targets.
Journal of International Economics, 2007
We develop a general equilibrium model with heterogeneous firms to address two sets of questions: what are the characteristics of firms that choose the various modes of foreign market access (exporting, greenfield FDI, and cross-border M&A), and (2) how does the international organization of production vary across industries and country-pairs? We show that the answers to these questions depend on the nature of firm heterogeneity. Depending on whether firms differ in their mobile or immobile capabilities, crossborder mergers involve the most or the least efficient active firms. The comparative statics on industry and country characteristics display a similar dichotomy.
Local Externalities and Ownership Choices in Foreign Acquisitions by Multinational Enterprises
Economic Geography, 2014
This article assesses the influence of spatial hetero-geneity on the entry mode by multinational enterprises (MNEs) in foreign markets. Focusing on acquisitions, we claim that the location of the target firm influences the MNE's ownership choice. MNEs normally execute partial acquisitions to reduce their liability of foreignness and to preserve their target's inherent competencies, particularly in highly innovative and internationally competitive sectors. However, this phenomenon occurs less frequently if target firms are located in areas that are characterized by relevant externalities, such as core cities and industrial districts. In particular, core cities allow foreign MNEs to access a variety of information and knowledge as well as other externalities that are associated with international interconnectedness; industrial districts provide MNEs with easier access to industry-specific agglomeration economies (a local pool of skilled labor, local input-output linkages, and local knowledge spillovers). These locations provide substitutes for different aspects of the target firm's competences, thus reducing an MNE's need to maintain a local partner. Empirical evidence from foreign acquisitions of local manufacturing firms that occurred in Italy during the 2001-10 period confirms these expectations.
Cross-border mergers and acquisitions
European Integration and Global Corporate Strategies, 2000
By combining two large data sets (on international trade flows and cross-border mergers and acquisitions -M&As), we test two implications of general oligopolistic equilibrium (GOLE) model (incorporating strategic interaction between firms in a general equilibrium setting). In terms of economic importance, the dominant merger wave variable is a positive global-all effect, indicating that M&A waves are an economy-wide, global phenomenon. Country-specific merger wave variables are of secundary importance. In accordance with the bilateral GOLE model as specified by Neary, we find strong evidence that acquiring firms operate in strong sectors. However, we also find (less pronounced) evidence that target firms are active in strong, not weak sectors, which we label the 'target paradox'. We show how a multi-country extension of the GOLE model that allows for firm heterogeneity can explain this target paradox.
Cross-country determinants of mergers and acquisitions
Journal of Financial Economics, 2004
We study the determinants of mergers and acquisitions around the world by focusing on differences in laws and regulation across countries. We find that the volume of M&A activity is significantly larger in countries with better accounting standards and stronger shareholder protection. The probability of an all-cash bid decreases with the level of shareholder protection in the acquirer country. In cross-border deals, targets are typically from countries with poorer investor protection than their acquirers' countries, suggesting that cross-border transactions play a governance role by improving the degree of investor protection within target firms. r 2004 Elsevier B.V. All rights reserved. JEL classification: G28; G32; G34
National Tax Journal, 2011
In this study, we estimate the impacts of differences in international tax rates on the probability of choosing a location for an affiliate of a multinational firm. In particular, we distinguish between the tax sensitivity of Greenfield and M&A investments. Based on a novel firm-level dataset on German outbound FDI, we find evidence that location decisions of M&A investments are less sensitive to differences in tax rates than location decisions of Greenfield investments. According to our logit estimates, and after controlling for firm and country-specific characteristics, the tax elasticity for Greenfield investments is negative and in absolute value significantly larger than that associated with M&A investments. This finding is consistent with a (partial) capitalisation of taxes in the acquisition price when the FDI project takes the form of M&A. JEL-Code: H25, H73, F23. the research centre of Deutsche Bundesbank for the kind support. We thank Michael P. Devereux, Carsten Eckel, Clemens Fuest, seminar participants at the Oxford Centre for Business Taxation, Max Planck Institute for Intellectual Property, Competition and Tax Law, and two anonymous referees for helpful suggestions and comments. We are indebted to the ZEW Mannheim especially Christoph Spengel and Christina Elschner for providing us data on the effective tax rates. The usual disclaimer applies.
Entrepreneurship and Sustainability Issues
This paper provides a comprehensive overview of European M&A activity from 1998-2021. It examines trends and drivers of cross-border mergers and acquisitions, examining how European integration has affected M&A activity and the critical characteristics of M&As in the European Area. The ambition is to contribute to the existing literature on M&A activity in Europe. The paper aims to analyze the impact of advancing integration processes in Europe through our selected predictors on capital reallocation through cross-border M&As as a whole and also separately in the manufacturing sector and the service sector in the examined period in the countries of the European area through a generalized regression model and identify peculiarities in both industries. To achieve this goal, we investigated a new dataset of all completed M&A between 1998 and 2021 in 19 sources and 28 target countries of the European Area.
Factors Affecting International Mergers and Acquisitions
The International Food and Agribusiness Management Review, 2003
The purpose of this paper is to investigate the factors that explain outward and inward merger and acquisition (M/A) activity for a country. The variables used to explain M/A activity include the exchange rate, interest rate, and stock market prices. Regression analysis is used to isolate and clarify the effects of these three factors for aggregate M/A activity and M/A activity within the food, beverage, and tobacco industry. The analysis shows that three variables, the exchange rate, interest rate, and stock prices, are quite important in explaining variations in M/A activity by country. Exchange rate changes in particular have a very elastic impact on outward M/A activity, indicating that price effects are important in determining outward investment flows. The stock market index positively influenced inward and outward M/A activity. The interest rate had a negative impact on M/A in the inward and outward M/A models with M/A outflows decreasing by about the same percentage that interest rates increase.
Multinational Business Review, 2020
Purpose Drawing upon the eclectic paradigm and the regulative dimension of institutional distance theory, it is posited that to understand a firms’ cross-border merger and acquisition (CBMA) location choices, it is critical to examine the acquirers’ ownership advantages. Design/methodology/approach Using a sample of CBMAs undertaken by US firms from 1999 to 2015, the paper explores the extent to which acquiring firm ownership advantages – financial and innovation capabilities – influence target firm country selection in relation to regulative distance. Findings It is shown that acquiring firms with greater innovative capabilities are likely to choose target firms in nations with less regulative distance from their home market; whereas firms with greater financial capabilities target firms in more distant nations. Originality/value This paper builds on the important research on CBMA activity, focusing on the largely neglected pre-acquisition resources in relation to the regulative di...