A digitalized global economy: Studying the effect of digital readiness of countries on international merger and acquisition flows

Abstract

ABSTRACT In the dynamic economic paradigm of the 21st century, the increasing importance of digitalization of economies motivates research on the role it plays for international capital flows. While the literature suggests that digitalization is revolutionizing different industries and sectors, few studies explore how the level of digital readiness of countries is impacting their abilities in attracting international investments. Drawing on insights from the resource-based view perspective this paper examines whether a country’s digital readiness helps it attract capital flows through increased international mergers and acquisitions (IMA). We argue that a higher level of digital readiness of a host country is associated with more IMAs targeting that country, especially for IMA deals in technology-intensive industries. We find evidence consistent with our model using a sample of 5347 IMAs by publicly traded US firms during the period 2010–2016. Overall, this study contributes to a better understanding of the mechanisms through which digitalization of economies impacts the global strategies of firms. The findings of this study provide evidence to policy makers about the impact of digital readiness on economy and this study is the first to examine the role of digital readiness in attracting IMAs.