IDEAS home Printed from https://ideas.repec.org/p/eab/financ/21934.html
   My bibliography  Save this paper

The Determinants of Cross-border M&As : the Role of Institutions and Financial Development in Gravity Model

Author

Listed:
  • Hea-Jung Hyun

    (Korea Institute for International Economic Polcy)

  • Hyuk Hwang Kim

Abstract

This paper examines the macroeconomic determinants of cross border M&As. Using a panel data set of bilateral M&A deal values for 101 countries and 17 years ranging from 1989 to 2005, we investigate both home and host country factors that may play an important role in determining the size and direction of M&A flows. Overall, the empirical results suggest that legal and institutional quality and financial market development increase M&A volume across countries. The significant effect of institutions however, may disappear for transactions between countries of the similar stage of the development.

Suggested Citation

  • Hea-Jung Hyun & Hyuk Hwang Kim, 2007. "The Determinants of Cross-border M&As : the Role of Institutions and Financial Development in Gravity Model," Finance Working Papers 21934, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:21934
    as

    Download full text from publisher

    File URL: http://www.eaber.org/node/21934
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daude, Christian & Fratzscher, Marcel, 2008. "The pecking order of cross-border investment," Journal of International Economics, Elsevier, vol. 74(1), pages 94-119, January.
    2. Michael W. Klein & Joe Peek & Eric S. Rosengren, 2002. "Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit," American Economic Review, American Economic Association, vol. 92(3), pages 664-682, June.
    3. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    4. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    5. Bruce A. Blonigen, 2019. "Firm-Specific Assets and the Link Between Exchange Rates and Foreign Direct Investment," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 3, pages 89-120, World Scientific Publishing Co. Pte. Ltd..
    6. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2007. "Capital Flows in a Globalized World: The Role of Policies and Institutions," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 19-72, National Bureau of Economic Research, Inc.
    7. Goldberg, Linda S & Kolstad, Charles D, 1995. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 855-873, November.
    8. Kenneth A. Froot & Jeremy C. Stein, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1191-1217.
    9. di Giovanni, Julian, 2005. "What drives capital flows? The case of cross-border M&A activity and financial deepening," Journal of International Economics, Elsevier, vol. 65(1), pages 127-149, January.
    10. repec:bla:scotjp:v:49:y:2002:i:5:p:526-43 is not listed on IDEAS
    11. Hea‐Jung Hyun, 2006. "Quality of institutions and foreign direct investment in developing countries: Causality tests for cross‐country panels," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 7(3), pages 103-110.
    12. Joshua Aizenman & Mark M. Spiegel, 2006. "Institutional Efficiency, Monitoring Costs and the Investment Share of FDI," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 683-697, September.
    13. Cushman, David O, 1985. "Real Exchange Rate Risk, Expectations, and the Level of Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 297-308, May.
    14. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    15. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-544, September.
    16. Kozo Kiyota & Shujiro Urata, 2004. "Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 27(10), pages 1501-1536, November.
    17. Rossi, Stefano & Volpin, Paolo F., 2004. "Cross-country determinants of mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 74(2), pages 277-304, November.
    18. Gaël Raballand, 2003. "Determinants of the Negative Impact of Being Landlocked on Trade: An Empirical Investigation Through the Central Asian Case," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 45(4), pages 520-536, December.
    19. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    20. Prakash Loungani & Ashoka Mody & Assaf Razin, 2002. "The Global Disconnect: The Role of Transactional Distance and Scale Economies in Gravity Equations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 526-543, November.
    21. Keith Head & John Ries, 2004. "Exporting and FDI as Alternative Strategies," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 20(3), pages 409-423, Autumn.
    22. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Department of Economics, Working Paper Series qt0sx02651, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daude, Christian & Fratzscher, Marcel, 2008. "The pecking order of cross-border investment," Journal of International Economics, Elsevier, vol. 74(1), pages 94-119, January.
    2. Koralai Kirabaeva & Assaf Razin, 2009. "Composition of International Capital Flows: A Survey," NBER Working Papers 15599, National Bureau of Economic Research, Inc.
    3. di Giovanni, Julian, 2002. "What Drives Capital Flows? The Case of Cross-Border M&A Activity and Financial Deepening," Center for International and Development Economics Research, Working Paper Series qt7nq6d7wp, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    4. di Giovanni, Julian, 2005. "What drives capital flows? The case of cross-border M&A activity and financial deepening," Journal of International Economics, Elsevier, vol. 65(1), pages 127-149, January.
    5. Koralai Kirabaeva & Assaf Razin, 2010. "Composition of Capital Flows: A Survey," NBER Working Papers 16492, National Bureau of Economic Research, Inc.
    6. Shi Li & Hironobu Nakagawa, 2022. "Exchange rates and foreign direct investment: Evidence from Chinese firm‐level data," The World Economy, Wiley Blackwell, vol. 45(9), pages 2902-2923, September.
    7. Matthias Busse & Carsten Hefeker & Signe Nelgen, 2013. "Foreign Direct Investment and Exchange Rate Regimes," Economics Bulletin, AccessEcon, vol. 33(1), pages 843-858.
    8. Nadine McCloud & Michael S. Delgado & Man Jin, 2024. "Foreign capital inflows, exchange rates, and government stability," Empirical Economics, Springer, vol. 66(3), pages 945-977, March.
    9. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    10. Raphaël Chiappini, 2014. "Institutional Determinants of Japanese Outward FDI in the Manufacturing Industry," GREDEG Working Papers 2014-11, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    11. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    12. Ramkishen Rajan & Rabin Hattari, 2009. "What Explains Intra-Asian FDI Flows?: Do Distance and Trade Matter?," Economics Bulletin, AccessEcon, vol. 29(1), pages 122-128.
    13. Martin Gassebner & Pierre-Guillaume Méon, 2010. "Where do Creditor Rights Matter? Creditor Rights, Political Constraints, and Cross-Border M&A Activity," Working Papers CEB 10-019.RS, ULB -- Universite Libre de Bruxelles.
    14. Yuko Hashimoto & Konstantin M. Wacker, 2012. "The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 124, Courant Research Centre PEG.
    15. Raphael Chiappini & François Viaud, 2021. "Macroeconomic, institutional, and sectoral determinants of outward foreign direct investment: Evidence from Japan," Pacific Economic Review, Wiley Blackwell, vol. 26(3), pages 404-433, August.
    16. Maroula Khraiche & Jeffrey Gaudette, 2013. "FDI, Exchange Rate Volatility and Financial Development: Regional Differences In Emerging Economies," Economics Bulletin, AccessEcon, vol. 33(4), pages 3143-3156.
    17. Herrmann, Sabine & Winkler, Adalbert, 2009. "Real convergence, financial markets, and the current account - Emerging Europe versus emerging Asia," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 100-123, August.
    18. Haoyuan Ding & Kees G. Koedijk & Chang Li & Tong Qi, 2021. "The internationalisation of Chinese firms: Impact of FDI experience on export performance," The World Economy, Wiley Blackwell, vol. 44(12), pages 3609-3640, December.
    19. Huang, Rocco R., 2007. "Distance and trade: Disentangling unfamiliarity effects and transport cost effects," European Economic Review, Elsevier, vol. 51(1), pages 161-181, January.
    20. Forbes, Kristin J., 2010. "Why do foreigners invest in the United States?," Journal of International Economics, Elsevier, vol. 80(1), pages 3-21, January.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:financ:21934. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shiro Armstrong (email available below). General contact details of provider: https://edirc.repec.org/data/eaberau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.