Gulf Cooperation Council Cross-Border M&A: Institutional Determinants of Target Nation Selection

Abstract

We provide a first formal study of target nation selection by Gulf Cooperation Council (GCC) firms in the Persian Gulf seeking to internationalize. We initially show the economic drivers behind target nation selection and then demonstrate the additional influence of a target nation’s formal and informal institutions. Effective formal institutions (good governance) and close informal institutions (cultural similarity) in a target nation are preferred. We further examine interactions between formal and informal institutions to demonstrate that these institutional influences act as substitutes to each other in determining the attractiveness of potential target nation when we consider a generalized culture measure, but as complements when we consider a GCC-specific cultural measure. This research therefore provides a starting point for understanding the myriad of drivers involved in the rapidly growing pattern of GCC firms seeking to expand by acquiring overseas.

Keywords: Institutions, Cross Border M&A, Gulf Cooperation Council, Cultural Similarity, Governance

JEL Classification: G34, Z10