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Abstract
A large part of the upsurge in global Foreign Direct Investment (FDI) until the global financial crisis of 2008–2009 has been due to mergers and acquisitions (M&As) as opposed to Greenfield FDI. Also, noteworthy is the growing significance of developing Asia in these cross-border M&As, both as sources of finance as well as destinations of investments. These cross-border M&A flows have deepened the economic integration of developing Asia with the global economy. This paper examines the extent and determinants of M&As to and from developing Asia over the period 2000–2010 with particular emphasis on the financial drivers of intraregional M&As. Global liquidity and risk conditions, as proxied by London Inter Bank Offered Rate (LIBOR), consistently show up as being an important driver of intraregional flows.
JEL Classifications:
Acknowledgements
A much earlier draft of the paper (Hattari and Rajan Citation2010) was completed while the second author visited the Hong Kong Institute for Monetary Research (HKIMR). The author gratefully acknowledges the hospitality and support offered by the HKIMR as well as comments by seminar participants. Suggestions by an anonymous referee are also appreciated. The first author gratefully acknowledges financial support from China National Science Fund (Project #: 61272193) and CUFE Youth Innovation Fund. Valuable research assistance by Sasidaran Gopalan, Ningxu Li and Yunchang Wang is also appreciated. The usual disclaimer applies.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. The share of developing economies would be much greater if we considered the stock of FDI inflows.
2. Most of this has been concentrated in East and South East Asia and India.
3. Of course FDI could also take the form of joint venture and strategic alliances, which could either be of the Greenfield or M&A type.
4. Data are compiled from UNCTAD (Citation2011).
5. For some recent academic studies on the determinants of cross-border M&A activity, see di Giovanni (Citation2005) who focuses on financial and macroeconomic determinants and Rossi and Volpin (Citation2005) who emphasize the importance of accounting standards and stronger shareholder protection. Neto, Brandão and Cerqueira (Citation2008) compare the determinants of Greenfield and M&A (though the data are not always directly comparable, see Hattari and Rajan Citation2011). In contrast to the conventional international economic literature, there has been a much more active literature in finance as well as management on valuation and performance of both cross-border as well as domestic M&As. This literature is beyond the scope of this paper.
6. See Filobok (Citation2006) for a discussion of cross-border M&As involving Japan.
7. Note that M&A data like FDI data are on a net basis. Thus, the data could be negative for some countries/time periods.
8. See Rajan and Siregar (Citation2002) for a discussion of the impact of and policy responses of the Asian financial crisis in Singapore and Hong Kong.
9. UNCTAD (Citation2008) offers a discussion of the role of SWFs as a source of finance for FDI activity.
10. Zephyr database, accessible at https://zephyr.bvdep.com/Zephyr/.
11. According to Zephyr, ‘(w)hen the bidder is an investment trust or pension fund, then the threshold is raised to 5 per cent.’ Unfortunately, the various private sector companies that collect M&A data do not appear to use standardised methodologies or definitions making it tricky to compare across databases.
12. At times, and in order to get a complete picture of on-goings, we combine the UNCTAD data with the Zephyr data.
13. We are limited by data availability from Zephyr. The developing Asian economies in our sample are Azerbaijan, China, Hong Kong, India, Indonesia, Iran, Israel, Kazakhstan, Malaysia, Pakistan, Philippines, Saudi Arabia, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, Turkey and Vietnam. As mentioned, East, Southeast Asia and India effectively dominate the transactions.
14. The number of observations is 3762 in which 88% take zero values.
15. For more information, see CEPII's website at http://www.cepii.fr/.
16. See Hiro Ito's website: http://web.pdx.edu/∼ito/Readme_kaopen2010.pdf
17. The persistence of the distance puzzle is fairly robust across different types of cross-border activities.
18. As expected, the distance coefficient is larger (in absolute terms) and more statistically significant without the common language dummy which could be proxying for transactions costs, etc. Results are available on request.
19. In particular, Japan is the fourth largest source of intraregional M&As.
20. Includes Japan.
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Notes on contributors
Jie Li
Jie Li is the associate professor, Central University of Finance and Economics, Beijing, China and can be reached at [email protected].
Ramkishen S. Rajan
Ramkishen S. Rajan is visiting professor, Lee Kuan Yew School of Public Policy, National University of Singapore and professor at School of Policy, Government and International Affairs, George Mason University, VA. He can be reached at: [email protected].
Rabin Hattari
Rabin Hattari is public management economist at the Asian Development Bank and can be reached at: [email protected].