Uncovering latent clusters in cross-border M&A completion data: The role of institutional and economic factors

Abstract

We analyze institutional and economic drivers behind cross-border mergers and acquisitions (M&A) completion ratios between 2004 and 2018 from both the acquirer and target country perspective using a novel regression technique named Classifier Lasso (C-Lasso), which identifies latent clusters in panel data and simultaneously estimates regression coefficients. We find that two country clusters exist for both the acquirer and target country perspective, which do not reflect the frequently assumed dichotomy between developed and emerging economies. For the country clusters comprising considerably more (fewer) EU member states, institutional development has an overall negative (positive) effect on cross-border M&A completion for both outward and inward M&A. Thus, which institutional and economic factors constitute a boon or a bane for M&A completion depends on the country's perspective and its affiliation to additional supra-national environments.