Institutional Conditions of Economic Globalization: Effects of Antitrust and Merger Laws on the Global Integration of the Acquisition Market1

Abstract

A central insight from institutional theory about markets is that they cannot operate without governing rules to guide interactions among actors. Because most of these rules are made and enforced within national borders, international economic transactions are said to suffer from an “institutional abyss,” the lack of institutional arrangements for economic exchanges. Scholars have found that the abyss can be filled by two factors: network connectedness, such as inter‐governmental organizations, and intercountry economic agreements, such as the World Trade Organization or free trade. This article proposes a third factor: the global diffusion of governmental regulations. When countries adopt highly standardized regulations on a particular transaction, it provides legal familiarity for foreigners and reduces procedural uncertainty surrounding how the transaction should be executed. Using fixed‐effects models on longitudinal data, I show that the adoption of antitrust and merger laws increases the volume of cross‐border mergers—the transaction the laws are meant to regulate. This result stands in direct opposition to financial scholars’ predictions that antitrust and merger laws will reduce cross‐border mergers because the laws are meant to restrain, not liberate, the transaction. This article theorizes how the diffusion of regulations, not the elimination of regulations, can facilitate global market integration.