How do Cross-Border Mergers and Acquisitions Answer to Deregulation in Services?


  • We acknowledge anonymous referee for valuable comments. Thanks also to participants at the ERUDITE seminar, at the AFSE Annual Congress 2010, at the ETSG Conference 2010 and at the Workshop on Regulation, Institutions and Foreign Direct Investment held in Lille in 2010 for their comments.


Whereas competition in the manufacturing sector was progressively ensured beginning with the end of the Second World War, services have been progressively opened to international competition only since the late 1980s and are still among the most regulated sectors in OECD countries. In this paper, we analyse the impact of deregulation in that sector on cross-border mergers and acquisitions (M&As) in services. We find that deregulation favours inward M&As in services. This positive effect occurs through two channels: a reduction in entry costs and an increase in investment opportunities. On the other hand, deregulation has an ambiguous impact on outward M&As that depends on the initial level of regulation in the acquiring country. In particular,we provide some evidence of a U-shaped relationship between deregulation and outward M&As in the service sector. In countries that are initially highly deregulated,deregulation fosters outward M&As. Conversely, in situations in which government control is large, privatisation and deregulation are likely to reduce the incentive for firms to engage in cross-border M&A deals.