The aim of this thesis is to identify country-specific factors that represent determinants for merger and acquisitions. On the one hand, findings on country-specific determinants might be helpful to explain why some countries (e.g. China) receive more cross-border M&As than others (e.g. India). On the other hand, the results reveal which interests transnational companies pursue and how they change. Drawing on this evidence, policy makers and companies may be able to influence the determining factors in order to stimulate or impede inbound investments in form of M&As.
During the last three decades, the importance of cross-border mergers and acquisitions (M&As) as a favourite top-level managerial strategy of multinational enterprises (MNEs) and national champions has increased significantly. The global value of cross-border M&As has grown from around USD 100 billion in 1990 to USD 815 billion in 2018, peaking in 2007 with over USD 1 trillion just before the outbreak of the global financial crisis.
This development is not surprising, since the ongoing globalization and the changing global market landscape lead to more complex challenges for companies. In order to face the increasing intensity of competition that accompanies the global integration of markets, cross-border M&As constitute an appropriate way of maintaining competitiveness and creating added value. The acquisition of pre-existing foreign assets enables MNEs not only to exploit synergies and growth opportunities but also to overcome latecomer disadvantages. In addition, M&As offer a time advantage over organic growth strategies such as greenfield investments, which is particularly important considering the dynamic market conditions and the shortening product life cycles.
This thesis examines the research question of which country-specific factors determine the volume of inbound cross-border M&As in developing economies. In general, the choice of a cross-border acquisition as an entry mode into a foreign market is influenced by three types of factors: (1) firm-specific factors such as prior acquisition experience, product diversity and core competences; (2) industry-specific factors such as technological, sales and marketing intensity; and (3) country-specific factors such as market size and institutional quality. While firm- and industry-specific factors also play a role in domestic M&As, country-specific factors are a peculiarity in cross-border M&As.
Table of Contents
1 Introduction
2 Importance of inbound cross-border M&As
2.1 Definitions and classifications
2.2 Theory-based explanation of cross-border M&As
2.3 Global trend and consequences of cross-border M&As
3 Analysis of country-specific determinants of inbound cross-border M&As
3.1 Macroeconomic environment
3.1.1 Economic development
3.1.2 Tax incentives
3.1.3 Labour compensation
3.2 Political and institutional environment
3.2.1 Governance quality and corruption
3.2.2 Accounting standards
3.3 Financial market environment
3.4 Level of human capital
3.5 Target country’s openness
4 Econometric analysis
4.1 Data description and preparation
4.1.1 Dependent variable
4.1.2 Independent variables
4.2 Research model
4.3 Descriptive statistics
4.4 Results
4.4.1 Baseline results
4.4.2 Robustness test and additional analysis
5 Conclusion
Objectives and Topics
This master's thesis investigates the country-specific determinants of inbound cross-border mergers and acquisitions (M&As) within developing economies, specifically focusing on the BRICS countries (Brazil, Russian Federation, India, China, and South Africa) during the period 1990-2018. The research aims to identify which factors—such as macroeconomic stability, institutional quality, and financial market development—influence the volume of inbound M&A activity, thereby providing insights for policy makers and corporations to better understand and manage foreign investments.
- The impact of macroeconomic variables, including GDP and tax incentives, on M&A volumes.
- The role of political and institutional quality, specifically corruption and accounting standards, in attracting foreign capital.
- Financial market development and its correlation with investment inflows.
- The influence of human capital levels and financial openness on the strategic decisions of multinational enterprises.
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2.1 Definitions and classifications
Companies can choose between two main ways of carrying out FDI: greenfield investment and the acquisition of pre-existing foreign assets. While companies begin from scratch during the greenfield investment, the acquisition of already existing assets offers the opportunity of immediate ownership over resources and capabilities. Greenfield investments are therefore classified as an organic growth strategy, whereas the acquisition of an existing firm represents a strategy for inorganic growth. Cross-border M&A transactions, which are the subject of the following analysis, are assigned to the latter category. According to the definition by the United Nations Conference on Trade and Development (UNCTAD), a cross-border acquisition involves the transfer of control over assets and operations from a local company to a foreign company, while the former becomes a subsidiary of the latter. In the case of a cross-border merger, two companies of different countries combine their assets and operations. Thereby a new legal entity is established. In the following, the most important terms, structures and classifications in connection with cross-border M&A are presented.
Following the UNCTAD, investments abroad are only considered as cross-border acquisitions if the acquiring company acquirers a controlling stake of at least 10 percent of the target firm’s equity. If the acquiring company ends up with a foreign interest of less than 10 percent, the transaction constitutes a cross-border portfolio investment. Portfolio investments do not count as FDI, which means that they must also be distinguished from cross-border acquisitions. However, despite the minimum percentage requirement for FDI, it is not always possible to distinguish clearly between the two categories of investment. That is due to the decisive difference between the types of investment, which is the future nature of the relationship between the target and the acquiring company.
Summary of Chapters
1 Introduction: Provides an overview of the rising importance of cross-border M&As as a strategic tool for multinational enterprises and the resulting interest for policy makers in host countries.
2 Importance of inbound cross-border M&As: Defines relevant terminology and explores theoretical explanations and motives for cross-border M&A activity.
3 Analysis of country-specific determinants of inbound cross-border M&As: Examines specific macroeconomic, political, and institutional factors that potentially impact foreign investment decisions, supported by formulated hypotheses.
4 Econometric analysis: Describes the data, research model, and empirical results derived from the analysis of BRICS and other developing economies.
5 Conclusion: Summarizes the findings regarding country-specific determinants and offers policy implications based on the study's empirical results.
Keywords
Cross-border M&As, BRICS, Foreign Direct Investment, Market-seeking motives, Efficiency-seeking motives, Governance quality, Accounting standards, Human capital, Financial openness, Economic growth, Transaction costs, Institutional economics, Econometric analysis, Multinational enterprises, Market potential.
Frequently Asked Questions
What is the primary focus of this thesis?
The thesis examines the country-specific factors that determine the volume of inbound cross-border mergers and acquisitions (M&As) specifically in developing economies.
Which countries serve as the primary focus for the empirical analysis?
The empirical investigation is centered on the BRICS countries (Brazil, Russian Federation, India, China, and South Africa) for the period 1990-2018.
What is the primary research question?
The study seeks to identify which country-specific determinants influence the volume of inbound cross-border M&As and whether these factors differ in their impact on developing economies.
Which scientific methodology is employed?
The author uses an econometric approach involving a random-effects Generalized Least Squares (GLS) regression model to analyze panel data from the BRICS nations.
What are the central themes discussed in the main part?
The work covers macroeconomic environment factors, political and institutional quality (such as corruption and accounting standards), financial market development, human capital, and host country openness.
How are the key results categorized?
Results are categorized into baseline regression findings for the BRICS countries and robust testing using an additional sample of MINT countries and Vietnam.
What role does the "Hubris-assumption" play in the theoretical framework?
It attributes M&A activity to the overconfidence of management, leading to the misinterpretation of synergy potentials and potentially higher failure rates in transactions.
Does the level of corruption significantly impact M&A volumes?
Yes, the results indicate a significant positive correlation between improved governance quality (a reduction in corruption) and the volume of inbound transactions.
Why are accounting standards considered a potential determinant?
They are analyzed because the convergence with IFRS is assumed to reduce information costs and improve transparency, thereby making a market more attractive to foreign investors.
- Citation du texte
- Maximilian D. Thomas (Auteur), 2020, Determinants of Cross-Border M&As in Developing Countries. Investments in the BRICS Countries, Munich, GRIN Verlag, https://www.grin.com/document/914772
