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Does Growth & Quality of Capital Markets drive Foreign Capital? The case of Cross-border Mergers & Acquisitions from leading Emerging Economies

Author

Listed:
  • Juan Piñeiro Chousa

    (University of Santiago de Compostela; Spain)

  • Artur Tamazian

    (University of Santiago de Compostela; Spain)

  • Krishna Chaitanya Vadlamannati

    (University of Santiago de Compostela; Spain)

Abstract

Is there any interrelationship between firm level FDI in the form of cross border Mergers & Acquisitions and capital markets growth and quality? We addressed this question using panel data of cross border M&A for nine emerging economies. Our study period goes from 1987 to 2006. We find that the stock market variables, viz., capitalization and value addition encourage the number of deals and value of cross border Mergers & Acquisitions. However, the association with regulatory and financial reforms is much stronger and robust. We then interact both the stock market variables with financial and regulatory reforms variables only to find much stronger results. The coefficients proved to be higher than other variables, suggesting that higher reforms in capital markets could increase firm level FDI. Moreover, the results are found to be extremely robust when we replace stock market variables with squared values of the same, reiterating the fact that larger is the growth, greater is the inflow of firm level FDI in the form of cross border Mergers & Acquisitions.

Suggested Citation

  • Juan Piñeiro Chousa & Artur Tamazian & Krishna Chaitanya Vadlamannati, 2008. "Does Growth & Quality of Capital Markets drive Foreign Capital? The case of Cross-border Mergers & Acquisitions from leading Emerging Economies," Working Papers 2008/5, Turkish Economic Association, revised Mar 2008.
  • Handle: RePEc:tek:wpaper:2008/5
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    File URL: http://www.tek.org.tr/dosyalar/M&A_v7.pdf
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    More about this item

    Keywords

    Financial Markets; Cross border M&A & Emerging Economies;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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