Prague Economic Papers 2018, 27(4):479-493 | DOI: 10.18267/j.pep.665

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

Jelena Zvezdanović Lobanova1, Davorin Kračun2, Alenka Kavkler3
1 Center for Economic Research, Institute of Social Sciences, Belgrade, Serbia (jzvezdanovic@idn.org.rs)
2 Faculty of Economics and Business, University of Maribor, Maribor, Slovenia (davorin.kracun@um.si)
3 Faculty of Economics and Business, University of Maribor, Maribor, Slovenia (alenka.kavkler@um.si)

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.

Keywords: cross-border mergers and acquisitions, institutional setting, domestic investment, transition countries
JEL classification: E22, F21, F23, O52

Accepted: February 13, 2018; Published: August 1, 2018  Show citation

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Zvezdanović Lobanova, J., Kračun, D., & Kavkler, A. (2018). Institutions as a Mediator of the Effect of Crossborder Mergers & Acquisitions on Domestic Investment. Prague Economic Papers, 27(4), 479-493. doi: 10.18267/j.pep.665
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