How do Cross‐Border Mergers and Acquisitions Answer to Deregulation in Services?

Abstract

Whereas competition in the manufacturing sector was progressively ensured beginning with the end of the Second World War, services have been progressively opened to international competition only since the late 1980s and are still among the most regulated sectors in OECD countries. In this paper, we analyse the impact of deregulation in that sector on cross‐border mergers and acquisitions (M&As) in services. We find that deregulation favours inward M&As in services. This positive effect occurs through two channels: a reduction in entry costs and an increase in investment opportunities. On the other hand, deregulation has an ambiguous impact on outward M&As that depends on the initial level of regulation in the acquiring country. In particular,we provide some evidence of a U‐shaped relationship between deregulation and outward M&As in the service sector. In countries that are initially highly deregulated,deregulation fosters outward M&As. Conversely, in situations in which government control is large, privatisation and deregulation are likely to reduce the incentive for firms to engage in cross‐border M&A deals.

Cross-Border Mergers and Acquisitions in Services: The Role of Policy and Industrial Structure

“…In the next section, we present a stylized model to formalize this idea. 9 We interpret the apparent openness of some poor developing countries with caution, though, as low STRI scores may in part reflect the absence of any sectoral regulation, in which case the resulting openness is qualitatively different from the predictable market access in countries that formally institute open policies.…”

“…However, other African nations, such as Ghana, Mozambique and Senegal appear to be relatively open. 9 Thus, the restrictiveness of applied policies varies widely among developing countries.…”

Cross‐border mergers and acquisitions in services: The role of policy and industrial structure

“…Ahern et al (2012) analyze the effects of cultural values on M&A. Boudier and Lochard (2013) explore the impact of deregulation in services on cross-border M&A focusing on the OECD economies. Ahern and Harford (2014) analyze the importance of inter-sectoral linkages on waves of M&A within the US.…”