Network Determinants of Cross-Border Merger and Acquisition Decisions

IMF Working Papers, December 4, 2019

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Canonical URL: Network Determinants of Cross-Border Merger and Acquisition Decisions

Title: Network Determinants of Cross-Border Merger and Acquisition Decisions
Authors: Tatiana Didier, Sebastian Herrador, Magali Pinat
Date: December 4, 2019
Abstract summary: Assesses whether cross-border M&A decisions exhibit network effects by estimating exponential random graph models (ERGM) and temporal exponential random graph models (TERGM) at the sectoral level.

Estimation approaches:
- Exponential random graph models (ERGM)
- Temporal exponential random graph models (TERGM)
Unit of analysis: cross-country M&A investments at the sectoral level

Transitivity matters:
- A country is more likely to invest in a new destination if one of its existing partners has already made some investments there.
Third-country (informational/platform) effects:
- There is a sizable impact of third country effects on the creation of new investments.
- This third-country effect is sizable and larger than some traditional M&A determinants, such as trade openness.
Alignment with existing literature:
- Findings are in line with literature on export platforms and informational barriers.

Consider network effects when designing policies to attract or regulate cross-border M&A:
- Policies that facilitate information sharing or lower informational barriers across partner countries may encourage new investment links.
- Leveraging existing investor relationships (third-country connections) could be more effective than focusing solely on traditional determinants like trade openness.
Sectoral targeting:
- Sector-level network dynamics suggest tailored approaches by sector may be warranted when aiming to influence cross-border M&A flows.