determinants of crossborder mergers and acquisitions.pdf

THE JOURNAL OF FINANCE • VOL. LXVII, NO. 3 • JUNE 2012 Determinants of Cross-Border Mergers and Acquisitions ISIL EREL, ROSE C. LIAO and MICHAEL S. WEISBACH* ABSTRACT The vast majority of cross-border mergers involve private firms outside of the United States. We analyze a sample of 56,978 cross-border mergers between 1990 and 2007. We find that geography, the quality of accounting disclosure, and bilateral trade increase the likelihood of mergers between two countries. Valuation appears to play a role in motivating mergers: firms in countries whose stock market has increased in value, whose currency has recently appreciated, and that have a relatively high market-to-book value tend to be purchasers, while firms from weaker-performing economies tend to be targets. THE VOLUME OF CROSS-BORDER acquisitions has been growing worldwide, from 23% of total merger volume in 1998 to 45% in 2007. Conceptually, cross-border mergers occur for the same reasons as domestic ones: two firms will merge when their combination increases value (or utility) from the perception of the acquiring firm’s managers. However, national borders add an extra ele- ment to the calculus of domestic mergers because they are associated with an additional set of frictions that can impede or facilitate mergers. For exam- ple, cultural or geographic differences can increase the costs of combining two firms. Governance-related differences across countries can motivate a merger if the combined firm has better protection for target-firm shareholders because of higher governance standards in the country of the acquiring firm. Perhaps more importantly, imperfect integration of capital markets across countries can lead to a merger in which a higher-valued acquirer purchase