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

This paper explores the role of policy and economic structure in determining international mergers and acquisitions (M&A) in services sectors. The analysis is based on bilateral sectoral M&A flow data and detailed information on policy barriers from a new database. Restrictive investment policies are found to reduce the probability of M&A inflows, controlling for bilateral frictions such as geography. This negative effect, however, is mitigated in countries with relatively large shares of manufacturing and (to a lesser extent) services in GDP. The same result holds for the number of M&A deals concluded. Findings are robust to accounting for the potential endogeneity of policy restrictiveness. The evidence suggests that the impact of policy is state-dependent and related to the composition of GDP in the target economy.