Cross-border Mergers and Acquisitions and Financial Development: Evidence from Emerging Asia

This paper examines the relationship between cross-border mergers and acquisitions (M&A) and financial development in emerging Asian economies. Bilateral cross-border M&A data for nine emerging Asian economies covering 2000-2009 are analyzed with a sample selection model and a panel data model. The estimation results show that although the banking sector still plays a crucial role in facilitating cross-border M&A, the role of equity markets has increased in importance because, in addition to cash, the issuance of common stock and the exchange of stocks have become popular forms of payment for M&A deals. Because of the relatively thin market, the primary corporate bond market plays a limited role in supporting cross-border M&A, which is in contrast to the primary public bond market. However, for the secondary market, the corporate bond market is more effective in facilitating cross-border M&A. The results also show that financial development in terms of stock and bond markets in their home countries tends to become more important when the target firms reside in more developed countries. In addition to financial development, the paper shows that most cross-border M&A are invested in technology-related and resource-based industries while cheap labor industries are relatively less attractive.