Abstract
This paper examines the relationship between cross‐border mergers and acquisitions (M&A) and financial development in emerging Asian economies. Bilateral cross‐border M&A data for nine emerging Asian economies covering 2000–2009 are analyzed with a sample selection model and a panel data model. The estimation results show that although the banking sector still plays a crucial role in facilitating cross‐border M&A, the role of equity markets has increased in importance because, in addition to cash, the issuance of common stock and the exchange of stocks have become popular forms of payment for M&A deals. Because of the relatively thin market, the primary corporate bond market plays a limited role in supporting cross‐border M&A, which is in contrast to the primary public bond market. However, for the secondary market, the corporate bond market is more effective in facilitating cross‐border M&A. The results also show that financial development in terms of stock and bond markets in their home countries tends to become more important when the target firms reside in more developed countries. In addition to financial development, the paper shows that most cross‐border M&A are invested in technology‐related and resource‐based industries while cheap labor industries are relatively less attractive.
Highlights
A substantial portion of foreign direct investment (FDI) takes place in the form of crossborder mergers and acquisitions (M&A) (Brakman et al 2008) as opposed to greenfield investments
The objective of this paper is to examine the determinants of cross-border M&A from nine emerging Asian economies consisting of the People’s Republic of China (PRC); Hong Kong, China; India; Indonesia; the Republic of Korea; Malaysia; the Philippines; Singapore; and Thailand during 2000–2010, with attention paid to the role of financial development
The combination of reasons for outward FDI (OFDI) and M&A by developing economy firms is much the same as that of those from more developed areas, e.g., expanding growth opportunities or developing new markets, being near clients, accessing technology and knowledge to move up the value chain, securing natural resources, etc
Summary
A substantial portion of foreign direct investment (FDI) takes place in the form of crossborder mergers and acquisitions (M&A) (Brakman et al 2008) as opposed to greenfield investments. M&As share the primary virtues of FDI from the point of view of both host and home (source) countries, such as being an important means of transferring capital, improving technology and efficiency, and stimulating growth. In 2008, M&A activity reached $707 billion, almost a tenfold increase from $77 billion in 1991–1996. Most M&A purchases have originated from developed countries, but the growth of M&A purchases from developing countries has increased noticeably over the past decade. Most M&A from developing countries originated from Asian countries
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