The effects of discriminatory protections on cross-border mergers and acquisitions

Haoyuan Ding, Haichao Fan, Chang Li and Larry Qiu

Journal of Comparative Economics, 2023, vol. 51, issue 2, 501-523

Abstract: Institutionalized discrimination between foreign and domestic investors exists in many countries. We examine the differential effects of foreign investor protection (FIP) and domestic investor protection (DIP) on cross-border mergers and acquisitions (M&As). To guide our empirical analysis, we first present a model in which, when faced with differentiated FIP and DIP, a firm chooses between investing domestically and investing in a foreign country via M&A. The model predicts that cross-border M&As are more likely to occur when in the target country FIP becomes stronger or DIP becomes weaker. The effects are more pronounced in contract-intensive industries. We then construct a data set of worldwide cross-border M&A deals over the period of 1988–2014 and empirically test the model predictions. Our empirical findings support the theoretical predictions. In addition, we find that the effects are stronger (a) for M&As with larger acquired shares, (b) in target countries farther away from the home countries, and (c) in target countries with better financial development.

Keywords: Cross-border M&As; Foreign investor protection; Domestic investor protection; Contract intensity (search for similar items in EconPapers)
JEL-codes: F21 G34 L14 P48 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:51:y:2023:i:2:p:501-523

DOI: 10.1016/j.jce.2022.11.003

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