A Survey of Recent Literature on the Determinants of Cross-Border Mergers and Acquisitions Activity

Abstract

A preference for cross-border mergers and acquisitions (M&As) over greenfield investments as the dominant mode of foreign direct investment (FDI) has been observed over the past two decades. Table 10.1 (see page TK) indicates that the sum of cross-border M&As had been well over 50 percent of total FDI in developed economies. On the other hand, the sum of cross-border M&As had been up to 50 percent of the total FDI in developing economies. Although from 2008 onwards the annual value of greenfield FDI surpassed the respective of cross-border M&As, world FDI stock is still dominated by the later (UNCTAD, 2011: 11). This preference for M&As is in part from asymmetric information regarding the value of cross-border M&As and greenfield projects. Financial markets are able to provide efficient mechanisms to set the value of cross-border M&A targets, but there is no such mechanism to assess the value of greenfield investments.