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City-specific determinants of cross-border M&As: an inter-urban gravity approach

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Abstract

Cross-border mergers and acquisitions (M&As) have grown rapidly in recent years and are a major part of foreign direct investment (FDI). However, M&A distribution is highly skewed, with most of the activity concentrated in certain countries and even in certain cities. The fact that only a handful of cities account for most M&As raises a research question as to what city attributes attract foreign investment. Unlike many previous studies that have relied on a gravity model approach using the bilateral volume of FDI, this study examines the determinants of cross-border M&As by applying an FDI gravity model to inter-city investment flows. The results based on panel data of M&A flow across 44 major cities in the world from 2010 to 2017, reveal that the gravity model fits well for even the inter-city data, and show that besides the basic attributes used in conventional gravity models, such as market size and distance between origin city and destination city, and urban-specific attributes such as the agglomeration of the world’s top-ranked firms and international accessibility are positively associated with cross-border inward M&As.

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Data availability

The data that support the findings of this study are available from Bureau van Dijk (BvD). Restrictions apply to the availability of these data, which were used under license for this study. Data are available from Zephyr, the database of M&A transactions with the permission of BvD.

Notes

  1. See Brainard (1997), Markusen and Maskus (2002), Portes and Rey 2005, Bénassy-Quéré et al. (2005), Bergstrand and Egger (2007), Kleinert and Toubal (2010), Blonigen and Piger (2014), Román et al. (2016), and Hoshi and Kiyota (2019). Head and Mayer (2014) provide a literature review with regard to the Gravity Model of FDI. With respect to cross-border M&As, Hyun and Kim (2010) examine the determinants of bilateral M&As using gravity model.

  2. For example, Head et al. (1995) provide evidence that vertical supplier-assembler relationship attracts subsequent FDI by using Japanese multinational enterprises. A meta-analysis of the effect of agglomeration　economies on FDI location by Jones (2017) shows that agglomeration economies have a positive impact on FDI location.

  3. The three criteria for city selection (Institute of Urban Strategies 2018) are as follows: 1. top-ten cities in existing influential city rankings; 2. major cities of countries found in the top ten of existing influential international competitiveness rankings; and 3. cities that do not meet the above criteria but were deemed appropriate for inclusion by the GPCI Executive Committee. However, some cities match one or more of the above criteria but are not evaluated in the GPCI as necessary data are not available.

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Acknowledgements

The authors are grateful to the seminar participants at Aoyama Gakuin University and the University of Hawaii for their helpful comments and suggestions to the earlier version of this paper.

Funding

This work was supported by the Institute of Economic Research, Aoyama Gakuin University, Nomura Foundation, and Japan Society for the Promotion of Science (JSPS) under KAKENHI Grant Number 20K01634.

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Authors and Affiliations

  1. College of Economics, Aoyama Gakuin University, 4-4-25 Shibuya, Shibuya-Ku, Tokyo, 150-8366, Japan

    Banri Ito

  2. Research Institute of Economy, Trade and Industry (RIETI), 1-3-1, Kasumigaseki, Chiyoda-Ku, Tokyo, 100-8901, Japan

    Banri Ito

  3. Faculty of Economics, Osaka Gakuin University, 2-36-1 Kishibe-Minami, Suita-Shi, Osaka, 564-8511, Japan

    Katsunori Shirai

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  1. Banri Ito
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Correspondence to Banri Ito.

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Appendix 1

Appendix 1

Appendix Table 6

Table 6 Correlation matrix
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Ito, B., Shirai, K. City-specific determinants of cross-border M&As: an inter-urban gravity approach. Int Econ Econ Policy 21, 65–88 (2024). https://doi.org/10.1007/s10368-023-00577-6

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