A digitalized global economy: Studying the effect of digital readiness of countries on international merger and acquisition flows

ABSTRACT

In the dynamic economic paradigm of the 21^st century, the increasing importance of digitalization of economies motivates research on the role it plays for international capital flows. While the literature suggests that digitalization is revolutionizing different industries and sectors, few studies explore how the level of digital readiness of countries is impacting their abilities in attracting international investments. Drawing on insights from the resource-based view perspective this paper examines whether a country’s digital readiness helps it attract capital flows through increased international mergers and acquisitions (IMA). We argue that a higher level of digital readiness of a host country is associated with more IMAs targeting that country, especially for IMA deals in technology-intensive industries. We find evidence consistent with our model using a sample of 5347 IMAs by publicly traded US firms during the period 2010–2016. Overall, this study contributes to a better understanding of the mechanisms through which digitalization of economies impacts the global strategies of firms. The findings of this study provide evidence to policy makers about the impact of digital readiness on economy and this study is the first to examine the role of digital readiness in attracting IMAs.

KEYWORDS:

• Digitalization
• international merger and acquisition
• digital readiness
• M&A decision making
• technology

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. Increases in these capital flows partly reflected a shift in the composition of foreign direct investment (FDI) away from ‘‘greenfield’’ investment (i.e., firms started from scratch).

2. Kummer, C. B., & Dubey, A. Foreign Direct Investment in the Form of Mergers & Acquisitions in the Indian Retail Sector. https://imaa-institute.org/docs/kummer-dubey_FDI%20in%20the%20Form%20of%20Mergers%20&%20Acquisitions%20(M&A)%20in%20the%20Indian%20Retail%20Sector.pdf