THREE ESSAYS ON CROSS-BORDER MERGERS AND ACQUISITIONS

This dissertation consists of three essays on cross-border mergers and acquisitions (M&As). The first essay studies horizontal and vertical investments between Organization for Economic Cooperation and Development (OECD) countries, while the second essay examines how investment patterns vary by country development. The third essay estimates the effect of merger policy reform on cross-border M&A activity in Europe. The first essay tests how well theories of horizontal and vertical foreign direct investment (FDI) explain observed patterns of cross-border M&As in OECD countries. Horizontal investment occurs when multinational firms produce in foreign countries to serve the foreign market, whereas vertical investment occurs when multinational firms source intermediate goods from foreign affiliates for final assembly and sales at home. The former is often used to displace exports when transport costs exceed local production costs, while the latter is often driven by cross-country factor price differentials. Little support is found for the traditional explanations of FDI as results indicate horizontal and vertical investments look much more similar than previously believed. The second essay challenges long-standing beliefs that the majority of FDI within the developed world is horizontal, whereas investments into developing nations are predominantly vertical. Developed-developed FDI is largely cross-border M&As and FDI into developing nations typically consists of greenfield investments. However, cross-border M&As are becoming more popular in developing countries and, contrary to previous beliefs, the proportion of horizontal and vertical investment is independent of country development. Results suggest trade costs have a stronger effect on developing countries, while no clear support is found for the idea that factor endowment drives vertical investments in developing nations. The third essay examines how reforms to European Commission Merger Regulation (ECMR) in 2004 affected cross-border M&A activity in Europe. The ECMR outlines competition rules and empowers the European Commission (EC) to block anti-competitive mergers adversely affecting the European market. Details of the reform suggest the law was expanded to cover more mergers, which is expected to have a non-positive effect on merger activity. Difference-in-differences results suggest the reform had no significant effect on cross-border merger activity in countries within the EC’s jurisdiction