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Institutions as a Mediator of the Effect of Crossborder Mergers & Acquisitions on Domestic Investment

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  • Jelena Zvezdanović Lobanova
  • Davorin Kračun
  • Alenka Kavkler

Abstract

In this article we analyse the impact of the interaction between cross-border mergers and acquisitions and the quality of the institutional setting on domestic investment using panel data for 22 European transition countries from 2000 to 2014. We investigate whether the progress and durability of institutional reforms have a crucial influence on the economic performance of cross-border mergers and acquisitions in transition countries. Our empirical findings indicate that contemporaneous cross-border mergers and acquisitions have a crowding-out effect on domestic investment in the year of merger or acquisition, but the influence of their lagged level has a strong crowding-in effect one year later. We find that the overall quality of the institutional setting and the rule of law negatively and significantly affect the relation between this type of foreign direct investment and domestic investment, both in the short and long run. Political stability exhibits a positive and significant impact on domestic investment in the current period and over time.

Suggested Citation

  • Jelena Zvezdanović Lobanova & Davorin Kračun & Alenka Kavkler, 2018. "Institutions as a Mediator of the Effect of Crossborder Mergers & Acquisitions on Domestic Investment," Prague Economic Papers, Prague University of Economics and Business, vol. 2018(4), pages 479-493.
    • Handle: RePEc:prg:jnlpep:v:2018:y:2018:i:4:id:665:p:479-493
    DOI: 10.18267/j.pep.665
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    More about this item

    Keywords

    cross-border mergers and acquisitions; institutional setting; domestic investment; transition countries;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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