The Determinants of Cross-border M&As: The Role of Institutions and Financial Development in the Gravity Model

<heading format="display" id="h1" implicit="yes" level="1">Abstract</heading> This paper examines the macroeconomic determinants of cross-border mergers and acquisitions (M&As). Using a panel dataset of bilateral M&A deal values for 101 countries for 17 years ranging from 1989 to 2005, we investigate both home and host-country factors that may play an important role in determining the size and direction of M&A flows. Overall, the empirical results suggest that legal and institutional quality and financial market development increase M&A volume across borders. The significant effect of institutions, however, may disappear for transactions between countries in similar stages of the development. Copyright 2009 Blackwell Publishing Ltd. Journal compilation 2009 Blackwell Publishing Ltd.