Influences of Firm- and Macro-Level Determinants on the Probability of Cross-Border Mergers and Acquisitions

1. Introduction

2. Literature Review

2.1. Macro-Level Determinants of Cross-border M&A and General FDI

2.1.1. Exchange Rates

2.1.2. Institutions

2.1.3. Taxation

2.2. Firm-Level Determinants

2.2.1. General FDI determinants

2.2.1.1. Asset Intangibility

2.2.1.2. Firm Size

2.2.2. Domestic M&A Determinants

2.2.2.1. Relatedness

2.2.2.2. Economic Growth

2.2.2.3. Stock Market Growth

2.2.2.4. Excess Cash

2.3. Summary of Determinants

3. Conceptual Framework

4. Methodology

4.1. The Model

4.2. Data Retrieval and Methodology

4.3. Firm-Level Variables

4.4. Macro-Level Variables

4.5. Data Overview and Descriptive Statistics

4.5.1. Descriptive Statistics

5. Results and Discussion

5.1. Fit of the Models

5.2. Robustness Checks

6. Conclusion

6.1. Limitations

7. Bibliography

8. Appendix

Research Objectives and Key Topics

This master thesis aims to analyze the influence of both firm-level and macro-level determinants on the probability of a firm deciding to conduct a cross-border merger or acquisition (CBA). By integrating firm-specific characteristics—such as excess cash, R&D intensity, and firm size—with macroeconomic factors like exchange rates, GDP growth, and stock market growth, the research seeks to fill a gap in existing literature, particularly by differentiating between transaction strategies based on the relatedness between the acquirer and the target.

• Impact of firm-level determinants on CBA probability
• Role of macroeconomic environments (GDP, stock markets, exchange rates)
• Distinction between horizontal, vertical, and conglomerate cross-border transactions
• Application of the resource-based view in strategic management to international M&A
• Empirical testing using a probit regression model on a global sample

Excerpt from the Book

Summary of Chapters

1. Introduction: This chapter introduces the motivation for the study, highlighting the shift toward international M&A and identifying the research gap regarding firm-level determinants in cross-border transactions.

2. Literature Review: The chapter categorizes existing research on FDI and M&A into firm-level and macro-level factors, while exploring theoretical frameworks such as the industrial organization theory and the resource-based view.

3. Conceptual Framework: Here, the study establishes the dependent and independent variables, leading to the formulation of propositions regarding the expected directional influences of determinants on CBA probability.

4. Methodology: This section details the logit/probit model used for empirical testing, describes the data retrieval process from various databases, and explains the construction of firm-level and macro-level variables.

5. Results and Discussion: This chapter presents the regression outputs for the full sample and the various subsamples, interpreting the statistical significance of determinants across different types of transaction relatedness.

6. Conclusion: The study synthesizes its findings, noting that firm-level determinants are generally more influential than macro-level ones, and addresses the limitations of the current research, such as the absence of taxation data.

7. Bibliography: Lists all academic references used throughout the study.

8. Appendix: Provides supplementary data, including histograms and detailed statistical matrices supporting the empirical analysis.

Keywords

Cross-Border Mergers and Acquisitions, CBA, Foreign Direct Investment, FDI, Firm-Level Determinants, Excess Cash, R&D Intensity, Macro-Level Determinants, Stock Market Growth, Economic Growth, Relatedness, Probit Model, Financial Economies, Strategic Management, International Diversification

Frequently Asked Questions

What is the primary focus of this research?

The research examines how firm-level and macro-level determinants affect the probability of companies announcing a cross-border merger or acquisition (CBA).

Which determinants are considered in this study?

The study analyzes firm-level factors like R&D intensity, firm size, and excess cash, alongside macro-level factors such as exchange rates, institutional quality, GDP growth, and stock market growth.

What is the main research question?

The research investigates: "How do firm-level and macro-level determinants affect the probability of conducting a horizontal, vertical or conglomerate cross-border M&A transaction?"

What methodology is employed to test the hypotheses?

The author uses a logit/probit regression model to analyze a large, international panel dataset of firm-year observations from 2000 to 2013.

What does the empirical analysis cover in the main body?

The main body focuses on identifying the influence of these determinants on the likelihood of CBA announcements, differentiated by the degree of relatedness between the acquiring and target firms.

Which fields of research are integrated in this thesis?

The thesis combines literature on general Foreign Direct Investment (FDI) with domestic M&A research to provide a comprehensive analysis of cross-border transactions.

How does the "excess cash" variable impact the transaction probability?

The results show that excess cash is a significant determinant for related transactions, suggesting that cash-rich firms are more likely to pursue these strategic deals, contrary to findings in the conglomerate subsample.

Why is the differentiation between CBA and greenfield FDI important?

The author argues that distinguishing between these two is essential because their strategic objectives differ fundamentally, which traditional studies often ignore.

How is "relatedness" between firms measured?

Relatedness is measured using the similarity of SIC codes (Standard Industry Codes) from the two-digit level onwards, establishing a continuum from conglomerate (unrelated) to horizontal (highly related) transactions.

What is the conclusion regarding the role of firm-level vs. macro-level determinants?

The study concludes that firm-level determinants generally have a higher magnitude of influence on the transaction probability than macro-level factors, supporting the resource-based view of strategic management.