Network Determinants of Cross-Border Merger and Acquisition Decisions

Abstract

This paper assesses whether cross-border M&A decisions exhibit network effects. We estimate exponential random graph models (ERGM) and temporal exponential random graph models (TERGM) to evaluate the determinants of cross-country M&A investments at the sectoral level. The results show that transitivity matters: a country is more likely to invest in a new destination if one of its existing partners has already made some investments there. In line with the literature on export platforms and informational barriers, we find a sizable impact of third country effects on the creation of new investments. This effect is sizable and larger than some of the more traditional M&A determinants, such as trade openness.

Keywords: Comparative advantage, Patterns of trade, Bilateral trade, Trade finance, Economic growth, Cross-Border Merger and Acquisition, Networks, Informational Effect, WP, ERGM, logit, Handcock, acquirer, determinant

JEL Classification: G34, D85, D83, F1, E01, F16, L31, F2