While the influences of macro-level determinants on cross-border transactions have been investigated in several studies before, firm-level determinants have mostly been excluded in those studies. This study finds that firm-level determinants have a substantial influence on the probability a firm’s decision to acquire a company in a foreign country. The result is even more pronounced in transactions where the acquirer’s and the target’s business operations are related to each other. In unrelated transactions, it was found that acquirers are more influenced by domestic and foreign stock market valuations as well as the relative value of their currency. This seems to proof the fire-sale theory as well as the risk reduction through diversification theory. It is concluded that unrelated transactions are more opportunistic, while related transactions are based on firm-specific business strategic reasons. A firm’s amount of excess cash has been included as a firm-level determinant into the probit model of this study. This variable is fairly new to this kind of studies and its results offer deeper insights into the relationship between transaction probability, determinants and relatedness. This study extents the existing body of academic literature on cross-border mergers and acquisitions by investigating firm- as well as macro-level determinants, while simultaneously taking the relatedness between the transaction parties into account. In order to verify the results, further research into this area is strongly encouraged.
1. Introduction
2. Literature Review
2.1. Macro-Level Determinants of Cross-border M&A and General FDI
2.1.1. Exchange Rates
2.1.2. Institutions
2.1.3. Taxation
2.2. Firm-Level Determinants
2.2.1. General FDI determinants
2.2.1.1. Asset Intangibility
2.2.1.2. Firm Size
2.2.2. Domestic M&A Determinants
2.2.2.1. Relatedness
2.2.2.2. Economic Growth
2.2.2.3. Stock Market Growth
2.2.2.4. Excess Cash
2.3. Summary of Determinants
3. Conceptual Framework
4. Methodology
4.1. The Model
4.2. Data Retrieval and Methodology
4.3. Firm-Level Variables
4.4. Macro-Level Variables
4.5. Data Overview and Descriptive Statistics
4.5.1. Descriptive Statistics
5. Results and Discussion
5.1. Fit of the Models
5.2. Robustness Checks
6. Conclusion
6.1. Limitations
7. Bibliography
8. Appendix
Research Objectives and Key Topics
This master thesis aims to analyze the influence of both firm-level and macro-level determinants on the probability of a firm deciding to conduct a cross-border merger or acquisition (CBA). By integrating firm-specific characteristics—such as excess cash, R&D intensity, and firm size—with macroeconomic factors like exchange rates, GDP growth, and stock market growth, the research seeks to fill a gap in existing literature, particularly by differentiating between transaction strategies based on the relatedness between the acquirer and the target.
- Impact of firm-level determinants on CBA probability
- Role of macroeconomic environments (GDP, stock markets, exchange rates)
- Distinction between horizontal, vertical, and conglomerate cross-border transactions
- Application of the resource-based view in strategic management to international M&A
- Empirical testing using a probit regression model on a global sample
Excerpt from the Book
1. Introduction
As companies are generally striving for profit maximisation, they constantly have to search for growth opportunities that increase revenue and earnings (Shleifer & Vishny, 1988). A way for firms to increase revenue is by expanding their businesses and there exist several different means for a firm to do just that (Penrose, 1959). The first option is to grow organically by investing internally into the existing operations. Another one is to use the firm’s funds in order to acquire or merge (M&A) with another company. Managers using the latter strategy hope to generate valuable synergies by combining the resources and capabilities of the two firms (Chatterjee, 1986; Damodaran, 2005) or by attaining more favourable financial economies (Hill & Hoskisson, 1987). Nowadays, as the world becomes ever more globalised and integrated, company transactions are becoming more international. From the mid-1990s onwards, the fraction of M&A transactions involving a US firm acquiring a foreign entity was over 15% (Faktorovich, 2008). Brakman et al. (2006) show that the number as well as the value of deals has also increased substantially on a global scale during the period of 1985 to 2005. These so called cross-border mergers and acquisitions (CBA) represent a subcategory of foreign direct investments (FDI).
Summary of Chapters
1. Introduction: This chapter introduces the motivation for the study, highlighting the shift toward international M&A and identifying the research gap regarding firm-level determinants in cross-border transactions.
2. Literature Review: The chapter categorizes existing research on FDI and M&A into firm-level and macro-level factors, while exploring theoretical frameworks such as the industrial organization theory and the resource-based view.
3. Conceptual Framework: Here, the study establishes the dependent and independent variables, leading to the formulation of propositions regarding the expected directional influences of determinants on CBA probability.
4. Methodology: This section details the logit/probit model used for empirical testing, describes the data retrieval process from various databases, and explains the construction of firm-level and macro-level variables.
5. Results and Discussion: This chapter presents the regression outputs for the full sample and the various subsamples, interpreting the statistical significance of determinants across different types of transaction relatedness.
6. Conclusion: The study synthesizes its findings, noting that firm-level determinants are generally more influential than macro-level ones, and addresses the limitations of the current research, such as the absence of taxation data.
7. Bibliography: Lists all academic references used throughout the study.
8. Appendix: Provides supplementary data, including histograms and detailed statistical matrices supporting the empirical analysis.
Keywords
Cross-Border Mergers and Acquisitions, CBA, Foreign Direct Investment, FDI, Firm-Level Determinants, Excess Cash, R&D Intensity, Macro-Level Determinants, Stock Market Growth, Economic Growth, Relatedness, Probit Model, Financial Economies, Strategic Management, International Diversification
Frequently Asked Questions
What is the primary focus of this research?
The research examines how firm-level and macro-level determinants affect the probability of companies announcing a cross-border merger or acquisition (CBA).
Which determinants are considered in this study?
The study analyzes firm-level factors like R&D intensity, firm size, and excess cash, alongside macro-level factors such as exchange rates, institutional quality, GDP growth, and stock market growth.
What is the main research question?
The research investigates: "How do firm-level and macro-level determinants affect the probability of conducting a horizontal, vertical or conglomerate cross-border M&A transaction?"
What methodology is employed to test the hypotheses?
The author uses a logit/probit regression model to analyze a large, international panel dataset of firm-year observations from 2000 to 2013.
What does the empirical analysis cover in the main body?
The main body focuses on identifying the influence of these determinants on the likelihood of CBA announcements, differentiated by the degree of relatedness between the acquiring and target firms.
Which fields of research are integrated in this thesis?
The thesis combines literature on general Foreign Direct Investment (FDI) with domestic M&A research to provide a comprehensive analysis of cross-border transactions.
How does the "excess cash" variable impact the transaction probability?
The results show that excess cash is a significant determinant for related transactions, suggesting that cash-rich firms are more likely to pursue these strategic deals, contrary to findings in the conglomerate subsample.
Why is the differentiation between CBA and greenfield FDI important?
The author argues that distinguishing between these two is essential because their strategic objectives differ fundamentally, which traditional studies often ignore.
How is "relatedness" between firms measured?
Relatedness is measured using the similarity of SIC codes (Standard Industry Codes) from the two-digit level onwards, establishing a continuum from conglomerate (unrelated) to horizontal (highly related) transactions.
What is the conclusion regarding the role of firm-level vs. macro-level determinants?
The study concludes that firm-level determinants generally have a higher magnitude of influence on the transaction probability than macro-level factors, supporting the resource-based view of strategic management.
- Quote paper
- Ricardo Falter (Author), 2015, Influences of Firm- and Macro-Level Determinants on the Probability of Cross-Border Mergers and Acquisitions, Munich, GRIN Verlag, https://www.grin.com/document/303536
