Foreign ownership restrictions and cross-border markets for corporate control

Abstract

The paper investigates the link between host country laws restricting the ability of foreign bidders to conduct cross-border mergers and acquisitions (M&As) and the dynamics of domestic and foreign markets for corporate control. The results indicate that, as governments, especially governments of less wealthy, faster growing economies, relax their cross-border M&A laws, foreign bidders increase the number of cross-border M&As. The likelihood that foreign bidders establish cross-border M&As in which they obtain a controlling stake in the target is greater in host countries with less restrictive cross-border M&A laws. In such countries, foreign bidders are also more likely to use cross-border M&As than cross-border joint ventures as the means for entering the market. As host country cross-border M&A laws improve, foreign bidders are increasingly more likely to seek the types of entry modes that provide them with greater control over their investments.