International mergers and acquisitions and institutional differences: An integrated approach

In this paper we study the role of institutional differences in bilateral mergers and acquisitions (M&As) in an integrated framework. We contribute to the literature on the drivers of international M&As by integrating the gravity, knowledge-capital (KK) and political economy theory (PET) approaches and explain cross-border M&As using an international and comprehensive dataset. We estimate the model using Poisson Pseudo Maximum Likelihood (PPML) method with high dimension fixed effects. The main findings are that the variables that affect cross-border M&As can be derived from three different approaches explaining activity of multinational enterprises (MNEs): the gravity equation, the KK model, and the PET frameworks. In particular, variables related to geographical proximity, size and similarity of markets and differences in regulatory quality are important in explaining M&A activity.