Cross‐border mergers and acquisitions in services: The role of policy and industrial structure

This paper explores the role of policy and economic structure in determining international mergers and acquisitions (M&A) in services sectors. The analysis is based on bilateral sectoral M&A flow data and detailed information on policy barriers from a new database. Restrictive investment policies are found to reduce the probability of M&A inflows, controlling for bilateral frictions such as geography. This negative effect, however, is mitigated in countries with relatively large shares of manufacturing and (to a lesser extent) services in GDP. The same result holds for the number of M&A deals concluded. Findings are robust to accounting for the potential endogeneity of policy restrictiveness. The evidence suggests that the impact of policy is state‐dependent and related to the composition of GDP in the target economy.