Which Targets Stimulate Cross-border Acquisitions? An Empirical Investigation of Industrial Organization and Trade Factors within a Competition Framework of International and Domestic Acquisition Targets

Abstract

This paper provides new evidence on the determinants affecting cross-border acquisitions in a small open economy such as that of Greece. Specifically, our paper tests two sets of hypotheses: Firstly, factors stemming from industrial organization (IO) theory, such as market structure indicators of takeover targets, positively affect the decision of a foreign Transnational Corporation (TNC) to enact a takeover in Greece. Secondly, factors stemming from integration and trade theory, such as openness of targets, increase their significance in the development of international takeovers, due to the active participation of the country in the European integration process. Using a statistical model of “international vs. national targets” and an original data set of 229 targets during the 1989–1998 period, the paper finds, most importantly, that market structure indicators such as market share of targets have a positive effect on the acquisition decision of foreign TNCs. Also, some control variables such as firm size and liquidity of targets are found to be statistically significant. This specific pattern of foreign target characteristics is because cross-border acquisitions, which have been emerging as a new generation of FDI after the integration of Greece into the European Union (EU), are surprisingly still inclined to prefer the market-seeking motive to the efficiency-seeking motive.