Economic integration and the profitability of cross-border mergers and acquisitions

The 1990s was a decade of increased economic integration. The decade also witnessed a sharp increase in cross-border mergers and acquisitions. From a theoretical perspective, the increase in international mergers in more integrated economies is rather puzzling. It is a well-established result that d...

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Bibliographic Details
Published in:European economic review 2004-12, Vol.48 (6), p.1211-1226
Main Author: Bjorvatn, Kjetil
Format: Article
Language:English
Subjects:
Acquisitions & mergers
Cross border transactions
Economic integration
Economic theory
Economics
Foreign direct investment
Foreign investment
Integration
Mergers
Mergers and acquisitions
Profitability
Studies
Trade
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Summary:The 1990s was a decade of increased economic integration. The decade also witnessed a sharp increase in cross-border mergers and acquisitions. From a theoretical perspective, the increase in international mergers in more integrated economies is rather puzzling. It is a well-established result that due to the “business stealing effect”, mergers in integrated markets are not likely to be profitable. A reasonable conjecture would therefore be that closer integration of markets would reduce the attractiveness of cross-border mergers and acquisitions. The present paper demonstrates that this is not necessarily the case: Economic integration may trigger cross-border acquisitions by reducing the business stealing effect and by reducing the reservation price of the target firm. The paper thus provides explanations to the observed increase in cross-border mergers in a world of more integrated economies.
ISSN:0014-2921
1873-572X
DOI:10.1016/j.euroecorev.2004.03.007