Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249364 
Year of Publication: 
2021
Series/Report no.: 
JRC Working Papers in Economics and Finance No. 2021/2
Publisher: 
Publications Office of the European Union, Luxembourg
Abstract: 
This study investigates the extent to which diplomatic relations affected merger and acquisition (M&A) activities in the European Union during the years 2001- 2019. Implementing a gravity model, we find a U-inverted relationship between diplomatic distance and M&A activities: (i) a worsening in diplomatic relations fosters M&As, but beyond a certain level (ii) an increase in diplomatic distance slows down M&A flows. While (ii) is in line with the dominant evidence found in the literature on political relations and foreign direct investments, (i) suggests that cross-border acquisitions, as supported by the internalisation theory, are a way for the investing firm to mitigate weak diplomatic relations' related issues, such as access to host markets' information and technology. These findings are confirmed especially when foreign investors target technology-intensive firms, as well as in the most recent years.
Subjects: 
Diplomatic relations
Cross-border M&A
EU
Foreign location choices
Gravity model
JEL: 
F21
F52
G34
P16
Persistent Identifier of the first edition: 
ISBN: 
978-92-76-32632-8
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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