Economic growth is the main criterion for judging the ability of a country whether it is
developed or emerging markets. Economic growth brings lot of changes in a country by
the circulation of wealth. But economic growth relies on financial development. According to Rajan and Zingles (1998), financial development has a positive impact on economic growth while Levine (1997) has enunciated that economic growth and financial development are positively related. When it comes to economic growth and welfare, increased mergers and acquisition (M&A) activity has been noticed over the past few years. The huge transactions that were happening, especially cross-border transactions that been made, arise the interests among plenty of scholars. A voluminous number of studies in the market for corporate control have described that “mergers and acquisitions” (M&A) is an aggressive strategic growth choice to gain ownership and control over the target entity. As Trautwein (1990) stated that M&A is usually used as a vehicle for growth, cross-border mergers and acquisitions are characterizing strong dedication and to create value from acquiring foreign targets on long-term is on high risk. It is recognized that cross-border mergers and acquisitions expand the knowledge base of the acquirer including new technology and mixture of different ways of managing the resources. More exact, cross-border mergers and acquisitions nowadays are used as a progressively common strategy by firms to create value in the fiercely competitive global market. However, based on the concept, cross-border mergers and acquisitions are not much different from the domestic ones. In order to grow, companies are choosing mergers and acquisitions as a way to enter the market, vertical integration and diversification. As for cross-border mergers and acquisitions the main motives of increasingly acquiring foreign target companies are market power, overcoming of market entry barriers, reducing competition, changing the competitive landscape, increasing efficiency and accessing to new and diversified technologies and knowledge, thus creating new products and services (Brakman et al.2008, Hitt et al.2001b).
Because of the substantial differences between developed and developing countries with consideration to economic development, institutional environments, corporate governance, domestic and capital market (Hoskisson, Wright, Filatotchev & Peng, 2013; Xu & Meyer, 2013) it is important to investigate the factors that attracts investments by emerging market firms, in this case Chinese firms, thus having further understanding of the M&A activity.
With my thesis, my aim is to determine the country-specific factors that might influence Chinese investors to acquire in Europe. Obtaining four groups of variables that might affect the likelihood of cross-border mergers and acquisitions to happen I developed four hypotheses:
H1: There will be positive relationship between the macroeconomic Indicators in the host country and outwards mergers and acquisitions;
H2: Political and legal effectiveness/inefficiency will have positive/negative impact towards cross-border mergers and acquisitions;
H3: Strong labour rights in a host country will have a negative influence in the direction of decision of making cross-border acquisitions;
H4: Cultural differences will affect negatively to decision makers for engaging in cross-border acquisitions;
This research to some extent follows the work from an earlier paper “Determinants of cross-border mergers and acquisitions” by Erel, Liao and Weisbach (2012). Erel, Liao and Weisbach (2012) found that geography, the quality of accounting disclosure, and bilateral trade increase the likelihood of mergers between two countries. They also found that country-level factors, such as currency appreciation and macroeconomic performance, appear to be making these mergers significantly more attractive for the acquiring firms. However, my empirical results are different from Erel, Liao and Weisbach (2012) because of some modifications.
I have selected only three macroeconomic indicators GDP per capita, GDP growth and bilateral trade between China and the target countries. Further, there is no lag variable in my panel regression. I have established eight panel regressions in which the first case contains four regressions in which only macro-economic indicators(GDP per capita, GDP growth, max(import, export) ), political and legal indicators(Government intervention, Control of Corruption, Rule of Law, Political stability and absence of violence, Economic Policy Uncertainty, Disclose), labor protection indicators (Right to strike, Union density Rate, Labor Union Power) and cultural dimensions (Trust, Uncertainty Avoidance, Future Orientation, Performance Orientation, Assertiveness) has been chosen as an independent variables respectively in order to observe the relationship with the discrete dependent variable number of cross-border deals independently, while the second case of the remaining four panel regression contains also the four groups of independent variables in order to find out the relationship with the second dependent variable which is value of transaction (U.S. dollars).
This is significant because investors lacking knowledge about home country’s fundamentals may fail to take advantage of these factors which are important for creating firm competitive advantage, Second, from the perspective of policymakers, the results of this study provide insights on how the formulation and implementation of appropriate monetary and fiscal policies could help promote firm growth and expansion to foreign markets. ( Boateng, Hua, Uddin & Du, 2014)
The thesis, however, is related to a number of distinct literature and give focus on the cross-border intensive activity more generally by looking at the country analysis, hence, filling the gap in it by observing the activity from this perspective. However, more work is needed to identify the strategic reasons of Chinese firms when acquiring in Europe.