Cross-border mergers and acquisitions and the role of trade costs

Cross-border mergers and acquisitions (M&As) have increased dramatically over the last two decades. This paper analyses the role of trade costs in explaining the increase in the number of cross-border M&As. In particular, we distinguish horizontal and non-horizontal M&As and investigate whether trade costs affect these two types of mergers differently. We analyse this question using industry data for 23 OECD countries for the period 1990-2001. Our findings suggest that while in the aggregate trade costs affect cross-border merger activity negatively its impact differs importantly across horizontal and non-horizontal mergers. The impact of trade costs is less negative for horizontal mergers, which is consistent with the tariff-jumping argument.     

Unbundling institutional determinants of multinational investments

Previous studies often examined how a broad-based institution affects foreign direct investment (FDI) flows across countries. However, analysis of differential impacts of two or more constituent institutions within a broad-based institution appears to be more useful for policy decision-making. There is a paucity of studies on how constituent institutions within a broad measure of institution affect FDI across countries. Our article constitutes the first attempt in bridging this gap. In this article, we examine the relative effects of property rights institution (PI) and contracting institution (CI) on investment flows. Our results show that PI is much more important than CI in determining the cross-border flows of FDI and affiliate sales. Moreover, PI is found to be more important for FDI than for affiliate sales, indicating that final goods are less of a concern for being expropriated by governments and powerful elites than capital goods. Through unbundling a broad-based institution and examining how the constituent institutions affect investments flows, our article provides practical location decisions for investments in FDI, mergers and acquisitions (M&A) and affiliate sales.     

Diplomatic relations and cross-border investments in the European Union

This study investigates the extent to which diplomatic relations are related to cross-border merger and acquisition (M&A) activities in the European Union during the years 2001–2019. Implementing a gravity model, we find a positive relationship between diplomatic distance and M&A activities, meaning that weaker diplomatic relations are linked to increases in inward M&As. This finding holds when foreign investors target high-tech firms, are private rather than state-owned enterprises, or buy larger shares of the target companies. This evidence suggests that cross-border acquisitions could be a way for the investing firm to mitigate issues related to weak diplomatic relations, such as access to host markets’ information and technological knowledge.     

On the Causality between Trade Credits and Imports: Evidence and Possible Implication for Trade Penalties on Debt Defaults

Abstract

This study investigates the association between trade credits and imports of developing countries. Made available by its creditors, the main function of trade credits is to facilitate cross-border transactions of goods and services. This study finds that the reliance of imports on trade credits varies across regions and income: towards the end of the 1990s, the trade credits to imports ratio ranged from 0.20 for East Asia & the Pacific to 0.87 for Africa, and from 0.24 for high-income countries to 0.79 for low-income countries. Applying panel and cross-country estimation, we find that past trade credits help predict current imports, but past imports do not alter the future path of trade credits. Further, the positive association between trade credits and imports is larger for countries more dependent upon trade credits. The findings support the notion that countries make debt repayments to avoid any potential disruption on the line of trade credits. We also find that the trade credits penalty could materialize within less than two quarters.     

Integration and autonomy in Chinese technology-sourcing cross-border M&As: from the perspective of resource similarity and resource complementarity

In this paper, we examine the match between resource relatedness and post-merger integration on technology innovation of acquiring firms to find the rationale behind technology-sourcing cross-border mergers and acquisitions (M&As) of Chinese multinational enterprises. Using a sample of 88 Chinese technology-sourcing cross-border M&As, we find that the acquirer will improve technology innovation when greater resource similarity between the acquirer and target firms is matched with a high integration degree and a low target autonomy level. Meanwhile, the acquirer can improve technology innovation when greater resource complementarity is matched with a low level of integration degree in technology-sourcing cross-border M&As. This paper provides the acquiring firms with fresh ideas of how to make the integration decisions of technology-sourcing overseas M&As. We hope to help multinational enterprises to achieve more outstanding technology innovation performance through technology-sourcing overseas M&As in an intense global competitive environment.     

多维距离对我国矿产资源企业跨国并购成败的影响 ——地理、经济、制度与文化

以跨国并购的方式获取对海外矿产资源的控制权,有助于保障我国矿产资源安全,推动国内经济高质量发展。基于我国矿产资源企业的跨国并购数据,利用二元Logit模型实证研究多维距离对我国矿产资源企业跨国并购成败的影响。结果表明:地理、制度和文化距离均对我国矿产资源企业跨国并购产生促进效应,且距离差异越大并购越容易成功;经济距离对并购成败的影响不显著。因此,我国矿产资源企业的跨国并购决策应充分考虑多维距离的影响,降低并购风险,又好又快地“走出去”。     

Technology-acquiring cross-border M&As by emerging market firms: role of bilateral trade openness

This paper investigates the role of bilateral trade openness in technology-acquiring cross-border mergers and acquisitions (M&As) by emerging market firms (EMFs). The cross-border M&A, patents, and financial data from January 2000 to December 2013 have been utilised for empirical analyses. By analysing cumulative abnormal returns of the acquirer EMFs from Brazil, Russia, China, India, and Mexico, the value-creating nature of technology-acquiring cross-border M&As has been confirmed. In addition, the number of the patents owned by the target firms showed a positive and significant effect on the stock performance of cross-border acquirers. Finally, the bilateral trade openness significantly and positively moderated the relation between the innovation capability of the target firms and EMFs’ stock performance.     

Analysing the employment effects of mergers and acquisitions

This paper examines the employment effects of mergers and acquisitions (M&As) by using matched establishment-level data from Finland. Our data register practically almost all M&As in all sectors. We compare the employment effects of cross-border M&As with the effects arising from two different types of domestic M&As and internal restructurings. The results show that cross-border M&As lead to downsizing in manufacturing employment. The effects of cross-border M&As on employment in non-manufacturing are much weaker. Changes in ownership associated with domestic M&As and internal restructurings also typically cause employment losses, but they exhibit an interesting sectoral variation.     

Cross‐border mergers and acquisitions: does the exchange rate matter? Some evidence for Canada

Abstract.  Theoretical and empirical studies investigating the relationship between the exchange rate and FDI have generated mixed results. Using bilateral Canadian-U.S. industry level count data on cross-border mergers and acquisitions (M&As) and conditioning on industry tariff rates, value added share of industries, industry M&A trend activity, and the number of establishments, we find evidence that a real dollar depreciation of the home currency leads to an increase in the probability of foreign M&As but only in high R&D industries. These empirical results are consistent with Blonigen's asset acquisition hypothesis. Results on European M&As of Canadian firms also lean towards this result.     

Determinants of Chinese direct investments in the European Union

This article analyses the determinants of Chinese foreign direct investment (FDI) activities in the European Union (EU). Evidence is based on panel Poisson models drawing on two investment monitors at the individual project level. Greenfield investments (GI) and mergers and acquisitions (M&A) are distinguished. The findings indicate that market size and bilateral trade are the main factors for Chinese investment in the EU. In contrast, business-friendly institutions do not foster FDI. Probably, Chinese investors are risk averse, and prefer regions with less competitive markets. The striking difference between GIs and M&As is related to unit labour costs. Higher costs make the host country less attractive for the establishment of new firms, but do not affect the involvement in existing firms. The sectoral dispersion of Chinese FDI in the EU did not change much since the global financial crisis. Most relevant shifts have occurred in research and development (R&D), where low-income EU countries have become increasingly attractive.     

Economic development,cultural differences and FDI

The literature has long analysed the effects of national cultural distance on the volume of cross-border FDIs. Considering the increase in significance of FDI originating from developing countries, this study compares the effect of cultural differences on the stock of FDI from and to countries of various levels of economic development to explain how economic development affects the impact of cultural distance on FDI. Results suggest that the cultural differences tend to be bigger barriers for multinationals from developing countries, but they also learn quickly how to deal with such differences.     

人口流动推动了企业异地并购吗

本文以中国企业异地并购事件为研究对象,采用全国人口普查的微观数据,考察人口流动对企业并购的影响。结果表明,地级市之间流动人口的增加可以显著提高人口迁入地企业在迁出地进行并购投资的规模,且这一推动作用在高学历流动人口和从事金融行业的流动人口中更为明显。进一步研究发现,当目标公司所在地（人口迁出地）投资者保护程度越差、市场化程度越低、传统儒家文化越浓厚或当代文化包容度越低时,流动人口对企业异地并购的推动作用越强。本文揭示出流动人口可帮助企业在异地并购中消除投资壁垒,为户籍政策调整和促进企业跨区域投资提供了重要的政策启示。     

The peculiar insertion of Brazil into global value chains

Brazil plays a very peculiar role in global value chains (GVC ): the country imports high technological goods in general while going through early deindustrialization and relying mainly on basic goods for its exports. Even after developing a broad, diversified industrial framework and becoming one of the countries that has received more foreign direct investments since the 1990s, Brazil has been struggling to occupy a more technologically oriented place in GVC s. This paper examines the conditionings of this pattern of insertion by characterizing the country's quantitative and qualitative model of integration into GVC s and by analyzing the elements that can explain this performance.     

The new goods margin in new markets

We analyze the role of the new goods margin in the Baltic countries’ exports and imports growth during the 1995–2008 period. Using the methodology developed in Kehoe and Ruhl (2013), we define the set of least-traded goods as those that account for the lowest 10% of total exports and imports in 1995, and then trace its growth in several markets including the Baltics’ main trade partners, the European Union and Russia. We find that, on average, by 2008 least-traded goods accounted for nearly 50% of total Baltic exports to their main trade partners. Moreover, we find that increases in the share of least-traded exports coincided with the timing of the trade liberalization reforms implemented by the Baltic countries. Least-traded imports also grew at robust rates, but their growth was lower than that of exports, accounting for slightly less than a quarter of total imports, that is, about half of the exports value. Moreover, we find that the shares of least-traded imports from the EU 15 and from Russia started diverging around the time the Baltic countries joined the EU, with the EU 15 share increasing and the Russian one declining. We also find that the Baltics’ share of least-traded exports outpaced that of other economies in Central and Eastern Europe. Finally, exports of new goods from the Baltic countries suffered noticeably during the Global Financial Crisis. After the crisis ended, the restart in new goods exports growth displayed mixed patterns.     

Defying gravity: The determinants of China's outbound mergers and acquisitions

We find that the determinants of China's outbound M&As depart dramatically from the literature. First, China's M&A volume with a target country is not affected by geographic distance, currency appreciation, or stock market return. Second, Chinese acquirers pick an unconventional uphill battle by primarily targeting countries with greater cultural distance, stronger investor protection laws, and higher per capita income. We also document that China's outbound M&As have a higher than normal percentage of deals being partial acquisitions. We argue that emerging markets can differ remarkably from developed countries in the considerations and modes of outbound M&As.     

Can M&A activities act as a predictor of the performance of economic growth or stock prices?

One of the important issues with regard to the relationship between M&As (mergers and acquisitions) and economic growth or stock prices is whether such activities can act as a predictor of these two variables' performance, or whether these variables have resulted in significant impacts on M&A activities. The aim of this paper is to use the method proposed in Kónya (2006) to carry out a causality test among M&A activities, economic growth and stock prices, because the causal relationships that may be uncovered by this would be meaningful for both policymakers and stockholders. This paper uses quarterly data from six OECD countries for the period from April 1980 to March 2010. The bootstrap panel Granger causality test that this work applies also considers cross-sectional dependency and slope heterogeneity simultaneously. The findings of the paper are as follows. There is significant, one-way causality from stock prices to M&A activities, and thus changes in stock prices lead M&A activities. With real GDP as the control variable, for all the countries surveyed, except Australia, stock prices lead M&A activities. As for the impact that economic growth has on M&A activities, we conclude that, when using stock prices as the control variable, there is almost no lead-lag relationship between economic growth and M&A activities, except for in Japan.     

How remote is the offshoring threat?

Advances in communication technology make it possible for workers in India to supply business services to head offices located anywhere. This has the potential to put high-wage workers in direct competition with much lower paid Indian workers. Service trade, however, like goods trade, is subject to strong distance effects, implying that the remote supply of services remains limited. We investigate this proposition by deriving a gravity-like equation for service trade and estimating it for a large sample of countries and different categories of service trade. We find that distance costs are high but are declining over time. Our estimates suggest that delivery costs create a significant advantage for local workers relative to competing workers in distant countries.     

Does China’s trade defy cultural barriers?

Using annual data for China and 88 trading partners that span the period 1995–2011, we estimate whether cross-societal cultural differences influence China’s external trade flows. Our results, obtained from the estimation of a series of multi-level mixed effect random intercepts and coefficients models, indicate that China’s aggregate exports and imports are largely unaffected by the cultural distance between China and its trading partners. Examination of disaggregate trade measures and consideration of the underlying dimensions of our composite cultural distance variable produces a largely similar result. Taken collectively, our results suggest that China’s trade is less affected by cultural distance than has been reported for other countries in similar studies.     

Neckties in the tropics: a model of international trade and cultural diversity

Abstract .  Some cultural goods are consumed socially and are characterized by the same consumption network externalities as languages. Also, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and welfare in the long run. Increasing protection while keeping communication costs low may stimulate production of cultural goods that are 'compatible' with the dominant style, adding little to the stock of usable ideas.     

Globalization and inter‐industry wage differentials in China

This paper explores the relationship between globalization and inter‐industry wage differentials in China by using a two‐stage estimation approach. Taking advantage of a rich household survey dataset, this paper estimates the wage premium for each industry in the first stage conditional on individual worker and firm characteristics. Alternative measures of globalization are considered in the second stage: trade openness and capital openness. A disaggregation of trade into trade in final and intermediate goods shows that increases in import (export) shares of final goods reduce (increase) the wage premia significantly, whereas imports or exports of intermediate goods do not explain differences in industry wage premia. This finding is supported by stronger effects for final goods trade in coastal than noncoastal regions. Our results also show a positive relationship between capital openness and industrial wage premia, though this finding is less robust when potential endogeneity issues are allowed for.