Does democracy shape international merger activity?

• 成果类型: Article
• 署名作者: Ahmad, Muhammad Farooq; Lambert, Thomas; Martin-Flores, Jose M.; Romec, Arthur
• 署名单位: SKEMA Business School; Universite Cote d'Azur; Erasmus University Rotterdam - Excl Erasmus MC; Erasmus University Rotterdam; CUNEF Universidad
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2024.103995
• 发表日期: 2024
• 关键词: Mergers and acquisitions; Cross-border deals; Foreign direct investment; DEMOCRACY; political economy; Investor protection

摘要

Democracy matters for international merger activity. Using a sample of 101,834 cross-border deals announced between 1985 and 2018, we show that merger flows predominantly involve acquirers from more democratic countries than their targets. This result is primarily driven by a pullfactor: firms in countries with weaker democratic institutions attract more cross- border deals. We find evidence of bonding as the key mechanism behind this effect. The democracy effect is stronger when target countries have weaker corporate governance standards. Furthermore, target abnormal returns around deal announcements increase with the difference in democracy between acquirer and target countries. Importantly, differences in investor protection or economic development do not directly explain the democracy effect. Combined, our findings imply that democracy is a fundamental, yet previously overlooked, determinant of cross-border mergers.