Research Proposal on Cross-Border M&A: Exploring Factors & FDI Impact on Success

Research Question Explanation

This research seeks to analyze the factors that determine and affect successful cross-border mergers and acquisitions. The proposal seeks to focus on the vertical as well as horizontal foreign direct investment activities for the cross-border M&A between different firms within the OECD countries. Therefore, the research seeks to evaluate the value that the FDI activities have added to the firms as well as to the host countries. The study also seeks to analyze the pattern for the vertical as well as horizontal investments that are usually conducted in a cross-border merger and acquisition. This will include an analysis of the post-deal analysis while measuring various aspects like the synergy curves and other metrics that are common in measuring industry performance like the company financials. The research will also investigate the number of industries that act as pillars for the OECD countries' economy. Specifically, the study will seek to analyze the following research questions.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

• What are the determinants of cross-border M&As?
• What is the significance of vertical and horizontal FDI activities in cross-border M&As between firms in OECD countries?
• What is the firms' performance post mergers and acquisitions?

Contribution

The study seeks to analyze the impact of vertical as well as horizontal FDI activities across the cross-border M&As. Therefore, the study will reveal important factors that firms should consider when engaging in FDI activities to fully benefit from the merger. Also, the research findings will inform policy making to facilitate better and profitable FDI activities not only in OECD countries but also globally.

Literature Review

Cross-border M&As has been significantly considered to be the subset of the FDI that ranges from approximately 50% to about 90% depending on the consulted source. According to Hijzen, Gorg, and Manchin (2005), the remainder of the FDI is normally realized through the Greenfield investment. Therefore, it has been established that most of the FDI in the world takes place through cross-border mergers and acquisitions. Research has also linked cross border M&As to be a component of the FDI which implies that the relationship is useful in analyzing the concepts. However, Hijzen, Gorg and Manchin (2005) noted that the relationship between FDI and M&As is more complicated as established in the World Investment Report of 2000. It should be pointed out that FDI, as opposed to the M&As, mainly refers to the transactions between the parents and their affiliates. On contrast, cross-border M&As entails the investments that are financed through the domestic as well as international capital markets (Calderon, Loayza & Serven 2004). In such a case, it is impossible to track the country in which the funds originated. However, FDI refers to the net investments as opposed to the M&A which refers to the gross transactions. Therefore, an analysis of the FDI through M&As means that there is a possibility of a cross-border M&A to exceed the documented FDI value.

As noted by Coeurdacier, de Santis and Aviat (2009), it is important for researchers on FDI to focus on the announced as opposed to the actual M&A. Through this, it is possible to analyze the desire to merge which may be different from the actual mergers due to the policy impact. An example is when a large merger is desired, but the competition authority prevents it to happen. However, such an incident is still recorded in data. Therefore, it is important to evaluate the main industry of the target company as well as the acquirer. In a horizontal merger, the activity involving the M&As takes place within the four-digit US SIC industry. In such industries, it is assumed that they represent homogenous groupings for the firms. Brakman, Garretsen and Marrewijk (2006) noted that the main motivation for the M&As through a cross-border is to gain access to a particular market. This still remains the target for vertical mergers which takes place across the four-digit industries while reflecting the firms that are interrelated through the buyer and supplier links. However, Neto, Brandao, and Cerqueira (2008) established that if the input and output relationship reflect the OECD countries as a whole, then the combination of the bilateral trade data indicates that the actual figures of vertical cross-border M&As are tiny.

Christiansen (2007) noted that OECD countries have progressively liberalized their foreign direct investment regimes with the radical rise in the cross-border M&As presenting a new challenge for the policymakers. The study has demonstrated that foreign acquirers can be, at times, perceived to be having ulterior motives while they also may not respect the local corporate culture. In this regard, they can thwart the efforts of the government to create national champions. It has been established that it can be extremely difficult at times to establish what is domestic and what is foreign in the new economic world (Gestrin, 2017). This has implications in the industrial policies as well as in national security. Considering that cross-border M&As represent about 80% of the total FDI inflows in the OECD countries, there is a need to analyze their significance and the values driven by the M&As for the voluminous transatlantic flows. The countries have established the use of M&As as an appropriate method of integration especially in foreign markets that demonstrate a high entry barrier. Doytch and Cakan (2011) also established that the deregulation, as well as the liberalization of the services, is attained through the new markets especially for the ambitious firms. These are only best satisfied with the acquisition of local firms that already has a branch in the distribution network.

Methods

This research will utilize a qualitative research method which is mainly non-numeric to investigate the research questions. A qualitative research method was chosen for this research as it will facilitate the explorations of decisions made by different countries, organizations, and individuals regarding the M&As which will provide the reader with an insight of the underlying issues that affect FDI (Madrigal & McClain 2012). This study will use an analytical framework to analyze and organize the findings based on themes identified in the literature. This will be assisted by the use of international business theories such as the capital arbitrage theory and the product-cycle theory. The capital arbitrage theory suggests that direct investment flows from the high profitability countries to the fewer capital countries. On the other hand, the product-cycle theory suggests that new products are likely to appear in most advanced economies due to demand which is then matured and standardized into other countries. To get a full understanding of the FDI activities in the OECD countries, the use of Porter's five forces tool will be used. Data will be collected in reliable secondary sources including the sampled organizational sales report, financial report, customer details, and company information and reports. Governmental reports in sampled OECD countries will also be collected in the social books, business magazines, business journals, and other forms of governmental reports

Limitation of Research

Although the research is anticipated to give insights and reasons for FDI through M&As among countries, the study will only focus on the OECD countries. These are countries who form the international organization of 34 member states all who have a democratic form of governance. Therefore, the research may not reveal the factors affecting FDI in countries that embrace other forms of government and whether they are different. Also, the OECD countries accept the principle of a free economy. Therefore, the research will not take into account economic markets that are significantly regulated.

References

Brakman, S., Garretsen, H., and Marrewijk, C. 2006. Cross-border mergers & acquisitions: the facts as a guide for international economics. CESIFO Working Paper No. 1823, pp. 1-30.

Calderon, C., Loayza, N. and Serven, L. 2004. Greenfield FDI and M&A: Feedback and macroeconomic effects. World Bank Policy Research 3192, pp. 1-26.

Christiansen, H. 2007. Economic and other impacts of foreign corporate takeovers in OECD countries. International Investment Perspectives, pp. 65-90.

Coeurdacier, N., de Santis, R., and Aviat, A. 2009. Cross-border mergers and acquisitions and European integration. Economic Policy, Oxford University Press (OUP), vol. 24, no.57, pp.56-106.

Doytch, N., and Cakan, E. 2011. Growth effects of mergers and acquisitions: A sector-level study of OECD countries. Journal of Applied Economics and Business Research, vol. 1, no. 3. pp. 121-128.

Gestrin, M. 2017. Cross-border M&A on the rise. OECD, pp. 1-4.

Hijzen, A., Gorg, H., and Manchin, M. 2008. Cross-border mergers and acquisitions and the role of trade costs. European Economic Review, vol. 52, no.5, pp. 849-866.

Madrigal, D., and McClain, B. 2012. Strengths and weaknesses of qualitative and quantitative research. US Matters, pp. 1-3.

Neto, P., Brandao, A., and Cerqueira, A. 2008. The impact of FDI, cross-border mergers and acquisitions and greenfield. ISCA, pp. 1-25.

Zhuang, H., and Griffith, D. 2013. The effects of M&A and greenfield FDI on income inequality. International Journal of Applied Economics, vol. 10. no. 1. pp. 29-38.