Spatio-Temporal Patterns of the International Merger and Acquisition Network

Abstract

This paper analyses the world web of mergers and acquisitions (M&As) using a complex network approach. We use data of M&As to build a temporal sequence of binary and weighted-directed networks for the period 1995-2010 and 224 countries (nodes) connected according to their M&As flows (links). We study different geographical and temporal aspects of the international M&A network (IMAN), building sequences of filtered sub-networks whose links belong to specific intervals of distance or time. Given that M&As and trade are complementary ways of reaching foreign markets, we perform our analysis using statistics employed for the study of the international trade network (ITN), highlighting the similarities and differences between the ITN and the IMAN. In contrast to the ITN, the IMAN is a low density network characterized by a persistent giant component with many external nodes and low reciprocity. Clustering patterns are very heterogeneous and dynamic. High-income economies are the main acquirers and are characterized by high connectivity, implying that most countries are targets of a few acquirers. Like in the ITN, geographical distance strongly impacts the structure of the IMAN: link-weights and node degrees have a non-linear relation with distance, and an assortative pattern is present at short distances.In the past two decades foreign direct investments (FDI) have become a major source of capital inflows for both developed and developing countries 1 , with mergers and acquisitions (M&As) as the dominant mode of FDI, representing more than 80% of total national FDI 2 . In recent years, within the framework of a complex-network perspective, an increasing body of literature has been studying international trade [3][4][5][6][7][8][9][10][11][12] , financial flows between countries, mostly considering transactions in equity securities, such as common stock and debt securities 13,14 , and, more recently, both financial and trade flows together 10,15,16 . The statistical analysis of these networks can complement traditional international trade and investment indicators, and can help explaining country growth and development patterns.Although the study of the determinants of M&As has been of great interest to economists, only recently the attention has been focused on the topological properties of cross-border M&As as a network of complex interactions (in terms of M&As flows) between countries (nodes). Two recent contributions analysed cross-border investments for specific regions. Sánchez Díez et al.17 studied the role of Spanish investments in Latin America. They showed that Spain had played a central role in Latin American investments that recently decreased with the arrival of new investors. Using data from the OECD, Garas et al.18 explored the properties and the link between the international migration network and the international FDI network (IFDIN), employing undirected network statistics and stocks of FDI. Using a gravity model, they found a strong relation among FDI and migration for those countries that are more ...