Cross-Border Mergers and Acquisitions and the Role of Trade Costs
Posted: 28 Oct 2008
Date Written: July 26, 2008
Cross-border mergers and acquisitions (M&As) have increased dramatically over the last two decades. This paper analyzes the role of trade costs in explaining the increase in the number of cross-border M&As. In particular, we distinguish horizontal and non-horizontal M&As and investigate whether trade costs affect these two types of mergers differently. We analyze this question using industry data for 23 OECD countries for the period 1990-2001. Our findings suggest that while in the aggregate trade costs affect cross-border merger activity negatively its impact differs importantly across horizontal and non-horizontal mergers. The impact of trade costs is less negative for horizontal mergers, which is consistent with the tariff-jumping argument.
Keywords: Mergers and acquisitions, International trade, Trade costs, Gravity, FDI
JEL Classification: F02, F15, F21, F23
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