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Author Info
Charles van Marrewijk () (Erasmus University Rotterdam, and IHS)
Gus Garita () (Erasmus University Rotterdam)

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

Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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