Diplomatic relations and cross-border investments in the European Union

This study investigates the extent to which diplomatic relations are related to cross-border merger and acquisition (M&A) activities in the European Union during the years 2001–2019. Implementing a gravity model, we find a positive relationship between diplomatic distance and M&A activities, meaning that weaker diplomatic relations are linked to increases in inward M&As. This finding holds when foreign investors target high-tech firms, are private rather than state-owned enterprises, or buy larger shares of the target companies. This evidence suggests that cross-border acquisitions could be a way for the investing firm to mitigate issues related to weak diplomatic relations, such as access to host markets’ information and technological knowledge.

DAMIOLI Giacomo;  GREGORI Wildmer; 

2023-11-16

ELSEVIER SCIENCE INC

JRC125052

0176-2680 (online),   

https://www.sciencedirect.com/science/article/pii/S0176268022000659,    https://publications.jrc.ec.europa.eu/repository/handle/JRC125052,   

10.1016/j.ejpoleco.2022.102261 (online),