The Macroeconomic Determinants of Cross-Border Mergers and Acquisitions and Greenfield Investments

Abstract

When a company decides to invest abroad, it can do so either through the establishment of a new firm (greenfield investment) or by acquiring an already existing firm. Although there is a vast empirical literature on the macroeconomic determinants of aggregate FDI, there are only a few studies which examined the location-specific determinants of each entry mode. The aim of this study is to extend the previous work of Globerman and Shapiro (2005) through the analysis of panel data of 53 countries over the period 1996-2006 in order to identify the potential location-specific determinants of both Mergers and Acquisitions (M&A) and greenfields. The study found evidence that there is a group of mode-encompassing variables which are common to all entry modes (such as economy’s size, openness, governance and Human Development Index (HDI)) and mode-specific variables. Investors’ protection and cultural variables seem to play an important role in explaining M&A activity and greenfield investments.