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Countries of a Feather flock together

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  • Charles van Marrewijk

    ()
    (Erasmus University Rotterdam, and IHS)

  • Gus Garita

    ()
    (Erasmus University Rotterdam)

Abstract

We analyze the economic forces underlying cross-border Mergers and Acquistions (M&As) using a large bilateral panel data set. The frequent occurrence of "zero" observations provides essential information on the structure of M&A flows, which we model empirically using a two-stage procedure. At the fist stage, an observation is either classified in the Passive Group (always zero) or in the (potentially) Active Group using a logit model. At the second stage, the size of M&A flows in the Active Group is modeled using a gravity-type negative binomial model. We find that: (i) market size (GDP) of both acquirer and target is more important for trade flows than for cross-border M&As, (ii) market development (per capita GDP) is more important for cross-border M&As than for trade flows, (iii) for M&As, the target’s market, both in size and development, is more important than the acquirer’s market, and (iv) the impact of distance is larger on trade flows than for M&As. Financial openness is a prerequisite for becoming active in M&As and positively influences the size of M&A flows. Our estimates on the direction, size, and significance of the main variables are robust for alternative specifications, incorporating lagged stock market value, black market premium, real interest rates, transparency, and exchange rate variability. Finally, we provide additional support and extend the recent results of Blonigen et al. (2007) on outside-market potential and of Bergstrand and Egger (2007) on Rest of World GDP.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-067/2.

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Date of creation: 14 Jul 2008
Date of revision: 19 Sep 2008
Handle: RePEc:dgr:uvatin:20080067

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Keywords: capital flows; cross-border mergers & acquisitions; foreign direct investment; financial openness;

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Cited by:
  1. Steven Brakman & Gus Garita & Harry Garretsen & Charles van Marrewijk, 2008. "Unlocking the Value of Cross-Border Mergers and Acquisitions," CESifo Working Paper Series 2294, CESifo Group Munich.
  2. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2007. "Cross-border Mergers and Acquisitions: On Revealed Comparative Advantage And Merger Waves," Tinbergen Institute Discussion Papers 08-013/2, Tinbergen Institute.
  3. Callaghan, Helen, 2012. "Economic nationalism, network-based coordination, and the market for corporate control: Motives for political resistance to foreign takeovers," MPIfG Discussion Paper 12/10, Max Planck Institute for the Study of Societies.
  4. Callaghan, Helen & Hees, Alexandra, 2013. "Wirtschaftsnationalismus im Wandel der Zeit: Der politische Diskurs um ausländische Unternehmensübernahmen in Großbritannien seit den 1950er-Jahren," MPIfG Discussion Paper 13/14, Max Planck Institute for the Study of Societies.

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