Diplomatic relations and cross-border investments in the European Union |
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Institution: | 1. Joint Research Centre, European Commission, Via Enrico Fermi 2749, 21027, Ispra, Italy;2. University of Bremen, Faculty of Business Studies and Economics, Germany;3. CAPP – Research Centre for the Analysis of Public Policies, Università di Modena e Reggio Emilia, Italy;1. Joint Research Centre, European Commission, Via Enrico Fermi 2749, 21027, Ispra, Italy;2. University of Bremen, Faculty of Business Studies and Economics, Germany;3. CAPP – Research Centre for the Analysis of Public Policies, Università di Modena e Reggio Emilia, Italy |
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Abstract: | 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. |
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Keywords: | Diplomatic relations Cross-border M&As EU Foreign location choices Gravity model F21 F52 G34 P16 |
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