Institutional factors and cross-border merger and acquisition : evidence from selected Asian countries

Abstract

The objective of this study is to examine the impact of institutional factors on cross-border merger and acquisition (M&A) inflows by using a panel data of 18 selected Asian countries from 2002 to 2016. This study contributes to the existing literatures by using various measures of institutional factors as the determinants of cross-border M&A into selected Asian countries and examining at the disaggregated level according to country’s income level. There are two main results from this study. First, two institutional factors, namely control of corruption and voice and accountability, have significant effect on cross-border M&A into selected Asian countries. Higher control of corruption results in lower flows of M&A into these host countries. Host countries with higher level voice and accountability tends to attract lower amount of M&A. This result is different from the expectation. Second, when classifying countries by income level into high-, upper middle-, and lower middle-income levels, the results vary in each group. The result of high-income countries is similar to that in the overall case where control of corruption and voice and accountability are two significant institutional factors of M&A. different result is found in case of upper-middle income countries where better government effectiveness, control of corruption, and rule of law are the attractive factors for cross-border M&A investors. The lower-middle income destinations show the same result as the high-income countries with regulatory quality as an additional significant factor. Countries with better regulatory quality can attract more M&As. For policy recommendation, host countries should focus on improving the institutional factors namely government effectiveness, rule of law, and regulatory quality to attract cross-border M&As. For control of corruption and voice and accountability, even though lower level of these factors attracts more M&A inflows, the host countries still need to improve the quality of these institutional factors in order to attract foreign investors in the long run. And, Home countries should promote a good institutional quality to enhance the development of both the home and host countries.