Assessing factors affecting Cross-border M&A versus Greenfield FDI: a Cross Country Analysis

Multinational Enterprises can expand their operation to foreign markets using two main investment approaches: cross-border M&A and greenfield FDI. Due to the lack of sizeable empirical literature, the following study investigates and compares the main determinants driving cross-border M&A and greenfield FDI in selected European, Asian, and North American countries. The paper empirically analyzes the extent to which economic, labor force, institutional-political, and monetary-financial variables influence the choice of foreign establishment. The study applies three empirical methods, the ordinary least squares, random effects, and fixed effects, to the panel data of 70 countries. We find a robust and positive relationship between GDP and FDI of both modes in developing countries and a negative association in Asian developed and transitioning countries. Additionally, the labor force participation rate negatively affects cross-border M&A in developing countries. In contrast, the inflation rate provides evidence of a positive effect on greenfield FDI in Asian, European, and North American countries.