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The impact of the global financial crisis on cross-border mergers and acquisitions: a continental and industry analysis

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Abstract

Drawing attention to the recent empirical study on the 2007–2008 global financial crisis, and cross-border mergers and acquisitions in 26 countries (Reddy et al. in Glob J Emerg Mark Econ 6:257–281, 2014), this paper aims to further examine the impact of the financial crisis on the later form of market in 13 sub-continentals, three sectors and 21 industries. Using Reddy et al. (Glob J Emerg Mark Econ 6:257–281, 2014) research design, we define and test the hypotheses, and improve the discussion on historical views of the financial crisis. We also analyze the market for inbound acquisitions in the world economy, developed markets, developing markets and BRIC group. We find that the rate of growth in number (value) of cross-border acquisitions has markedly declined reporting to continentals and industries during the crisis. We suggest that emerging market economies in Asia, Africa and Latin American regions are found to be exciting in attracting direct international investments from developed and other developing markets whilst focusing deeply on fiscal deregulation and policy amendments, particularly after the crisis.

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Notes

  1. Szyszka (2011) indicated that collateralized debt obligations (CDOs) and credit risk swaps (CRS) are majorly contributed to the current mortgage-related risk.

  2. Also, see Click and Plummer (2005), for the stock market integration of Association of South East Asian Nations (ASEAN) stock markets [Indonesia, Malaysia, the Philippines, Singapore, and Thailand] in the aftermath of Asian financial crisis.

  3. Disaster myopia: competitive, incentive-based, and psychological mechanisms in the presence of uncertainty lead financial institutions to underestimate the risk of financial instability (Cornand and Gimet 2012).

  4. For example, contagion refers to the spread of financial disturbances from one country to others. Also, see the similar studies on financial contagion (Allen and Gale 2000).

  5. An unsustainable weakening of credit standards induced the US mortgage lending and housing bubble, whose consumption impact was amplified by innovations altering the collateral role of housing (Duka et al. 2010).

  6. For example, [in the UK] number of newly registered limited-liability firms steadily declined from 449,700 in 2007 to 372,400 in 2008 and 330,100 in 2009 (Klapper and Love 2011, p. 2).

  7. Other results include, MENA stock markets plummeted, real estate asset prices gone down, GDP growth rates turned negative, spreads on sovereign bonds soared, and risk aversion improved considerably (Neaime 2012). Also, see the linkages between the BRIC group and the US (Xu and Hamori 2012).

  8. Also, see the impact of internal corporate governance on firm performance during the current financial crisis using a dataset of 4046 listed nonfinancial firms from 23 developed markets including US (Gupta et al. 2013).

  9. See Liu (2009), for extensive work in line with Yuan et al. (2010) on empirical evidence and policy implications in the limelight of current crisis.

  10. The authors also mentioned that the demand shock is the most prevalent of the shocks, while the financial shock was least frequent; a long customer–supplier linkage would play a key task in mitigating the supply shock.

  11. See relevant empirical studies on banking, financial markets, FDI and managerial issues around the crisis (e.g., Alexeyeva and Svanström 2015; Brei and Schclarek 2013; Cerutti 2015; De Haas and Van Horen 2013; Ekman et al. 2014; Felton and Reinhart 2008; Griffith-Jones and Ocampo 2009; Iwasaki 2014; Jeong and Kim 2010; Kalemli-Ozcan et al. 2013; Krujilov 2015; Lian et al. 2011; Lou and Yin 2014; McCauley et al. 2012; Moradi-Motlagh and Babacan 2015; Reddy 2015c; Sparrow et al. 2013; Williams and Martinez 2012). For instance, Aalbers (2009), how are different places affected by the crisis. Interestingly, we found a study in Sciences (Nature Climate Change), for example, Peters et al. (2012) examined the rapid growth in CO2 emissions during the post-crisis period.

  12. The author also suggested that a 1 % rise in stock market to GDP ratio would augment foreign acquisitions by 0.955 % (p. 145).

  13. Rao-Nicholson and Salaber (2015a) examined value creation of acquiring banks for a sample of 883 deals between 2004 and 2012. Based on event study method, they found that only acquisitions involving emerging market bidder and developed market target generate positive returns to shareholders during post-crisis. Local deals involving developed markets generate higher returns to shareholders after the crisis than before.

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Acknowledgments

The abridged version of this paper was presented at the 16th EBES Conference held at Bahcesehir University, Istanbul, Turkey on May 27–29, 2015. Authors thank the conference management, session chair (Dr Jonathan A. Batten), participants, and consulting editor and anonymous reviewers of the Eurasian Business Review for suggesting constructive comments that significantly improved the quality of the manuscript. Authors also thank production staff for providing excellent editorial assistance in various stages of the publication. All remaining errors are the responsibility of the authors. The usual disclaimer applies.

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  1. Northeastern Illinois University, Chicago, IL, USA

    Narendar V. Rao

  2. School of Management, Xi’an Jiaotong University, 28 West Xianning Road, Xi’an, 710049, Shaanxi, China

    K. S. Reddy

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Rao, N.V., Reddy, K.S. The impact of the global financial crisis on cross-border mergers and acquisitions: a continental and industry analysis. Eurasian Bus Rev 5, 309–341 (2015). https://doi.org/10.1007/s40821-015-0028-y

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  • DOI: https://doi.org/10.1007/s40821-015-0028-y

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