Determinants of Cross-Border Mergers and Acquisitions: An Econometric Study of Transactions in the Euro Zone between 2001 and 2010

Abstract

Following to the previous literature, this paper intends to study the main determinants that lead to cross-border mergers and acquisitions in the EURO zone, by analysing a total sample of 980 transactions occurred between 2001 and 2010 in the 13 EURO zone original member countries, 218 of which are cross-border operations.

Nevertheless, and unlike the previous literature, which identified the currency differences and geographical proximity as the most important proxies of this kind of transactions, it is our intention to analyse thoroughly other factors, namely valuation differences and international taxation issues, that may influence the likelihood of crossborder operations.

The Ordinary Least Squares (OLS) regression results suggest that some issues such as international tax arbitrage and a lower complexity of the target country’s fiscal rules, the quality of accounting disclosure, the level of each country’s bureaucracy, the standards of corporate governance, and bilateral trade increase the likelihood of mergers between two countries.

Similarly to previous literature, valuation appears to play a key role in motivating this specific type of transactions: firms in countries whose stock market has increased its value and that present, at some point, a relatively high market-to-book value tend to be acquirers, while firms from economies with a lower performance tend to be targets.

Keywords: International Factor Movements, International Business, Multinational Companies, Valuation differences, Corporate Governance, Accounting Disclosure, International Tax

JEL Classification: F23, F29