Cross-border mergers and acquisitions and European integration

Abstract: Cross-border mergers and acquisitions activities (M&As) sharply increased over the last two decades, partly as a result of financial liberalization policies, government policies and regional agreements. This paper identifies some of the main forces driving M&As, using a unique database on bilateral cross-border M&As at the sectoral level (in manufacturing and services) over the period 1985–2004. The key empirical findings are: (1) EMU helped the restructuring of capital within the same sector of manufacturing activity among euro area firms; (2) joining the EU favoured both horizontal and vertical mergers; (3) policy-makers can help attract capital by reducing the corporate tax rates and the degree of product market regulations and by improving the country's financial systems; (4) the service industry has not yet fully benefited from European integration because the level of protection and barriers to entry in the services sector act as a strong deterrent to cross-border M&As in services.