Emerging market firms and the role of bilateral trade openness

Article published by Joosung Lee and Hyungseok Yoon in the Technology Analysis & Strategic Management journal on October 11th, 2015. Hyungseok Yoon is a professor and researcher at EMLV and member of the Devinci Business Research Group at Pôle Léonard de Vinci

This paper investigates the role of bilateral trade openness in technology acquiring cross-border mergers and acquisitions (M&As) by emerging market firms (EMFs). The cross-border M&A, patents, and financial data from January 2000 to December 2013 have been utilized for empirical analyses.

According to the World Investment Report (2010), the outward foreign direct investment from emerging economies has increased to a record high of 25% of the global total (UNCTAD 2010). During the first decade of the twenty-first century emerging market firms (EMFs) from Brazil, Russian, China, India and Mexico have completed 7140 outbound acquisitions.

In fact the number of completed cross-border mergers and acquisitions (M&As) by EMFs has increased from 290 in 2000 to 509 in 2013 and the value of deals has exceeded US$103 billion.

By analyzing cumulative abnormal returns of the acquirer EMFs from Brazil, Russia, China, India, and Mexico, the value-creating nature of technology-acquiring cross-border M&As has been confirmed.

In addition, the number of the patents owned by the target firms showed a positive and significant effect on the stock performance of cross-border acquirers. Finally, the bilateral trade openness significantly and positively moderated the relation between the innovation capability of the target firms and EMFs’ stock performance.

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