Financial Markets and Cross Border Mergers and Acquisitions in Africa

Cross border M&As have increasingly become a major component of total FDI flows in both developing and developed economies. In this paper, we investigate the relationship between financial markets and cross border M&A activity on the African continent. We focus on cross border M&A transactions where the equity stake acquired is equal to or exceeds 10% of the voting equity of the target firm. Our sample consists of a maximum of 14 African countries with data covering the period 1993-2008. We use panel data techniques and estimate our empirical models via a Feasible Generalized Least Squares (FGLS) estimation which corrects for heteroskedasticity and autocorrelation. Our findings suggest that banking sector development promotes cross border M&A activity on the African continent. We do not find strong and compelling evidence that stock market development promotes cross border M&A activity. We also provide new and exciting evidence that cross border M&A activity promotes both stock market development and banking sector development in the African context.