The discrepancies of determinants between cross border ma and greenfield FDI evidence in emerging countries

Because of this phenomenon, various research has been done to investigate factors affecting investment decisions of foreign firms to emerging countries through... This research aims at d

UNIVERSITY OF ECONOMICS ERASMUS UNVERSITY ROTTERDAM

HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES

VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE DISCREPANCIES OF DETERMINANTS

BETWEEN CROSS-BORDER M&A AND

GREENFIELD FDI: EVIDENCE IN EMERGING

COUNTRIES

BY

TA THI THANH TRA

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, DECEMBER 2017

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE DISCREPANCIES OF DETERMINANTS BETWEEN CROSS-BORDER M&A AND

GREENFIELD FDI: EVIDENCE IN EMERGING

COUNTRIES

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

DECLARATION

I declare that the thesis entitled “The discrepancies of determinants between cross-border M&A and Greenfield FDI: evidence in emerging countries” has been absolutely conducted by myself under the supervision and guidance of Dr Vu Viet Quang from The University of Economics Ho Chi Minh City I commit that the whole interpretations in the research are based on my academic knowledge and the understanding of literature review presented following the references and this thesis has not been submitted to any graduate program I take full responsibility for the concepts, contentment, and results of this study

TA THI THANH TRA

ACKNOWLEDGEMENT

This thesis reflects not only my work in current times, this is also a milestone that marks one of my most amazing journey When I were freshman, I have been introduced this master program Since then, I have made plan to attend this course because of its unique opportunities and advantages Throughout two years I have learned many different economic fields such as finance, development economics, and international trade This thesis presents the lessons learned in researching one of those aspect: two entry modes of foreign direct investment namely Greenfield investment and Cross-border M&A This thesis is also sweet fruit of dozens of lucky encounters I have experienced from many remarkable individuals who I wish to acknowledge

I would first like to express my deep gratitude to my supervisor, Dr Vu Viet Quang for his wholehearted guidance, enthusiastic support and unceasing encouragement He has mentored me since I have just got an idea and no direction He

is the one who supported me all the time without hesitation His insightful knowledge, valuable suggestions help me to brainstorm concept, expand the literature review, collect data and finish this research Additionally, his optimism and cheerfulness is what

I will remember most, the time spent working with him is truly precious and memorable

Besides, I am always grateful to all the lecturers and the staff of Vietnam – Netherlands Program This is my biggest fortune to have the most conscientiously supporters, they always take me in touch and support when I have any difficulty I owe

my deepest gratitude to Dr Nam, Dr Thuy, who suppose me with all their resources Even this New Year holiday, they spend precious time to help me unconditionally

I am indebted to my precious teammates for their sincerity and willingness to help Although we are very different in personality, interests, and even purpose while attending this course, fate let us meet together and give us precious friendship in real life It is an honor for me to encounter and be friend with all of you Additionally, I would like to give my personal thanks to Mr Khang, Mr Tam, who help me a lot while

I am confusing and struggling with this research I wholeheartedly wish that we all can

graduate on time and the friendship is forever I wish you all the best and hope your

dream come true

Last but not least, I would like to spend my inexpressible gratefulness to my

beloved family who always believe me and give me freedom to do whatever I have

decided They have cherished with me every great moment and supported me all the

time This thesis would not have been possible without their encouragement.

ABBREVIATION

Cross-border M&A: Cross-border Mergers and Acquisitions FDI: Foreign direct investment

Greenfield FDI: Greenfield Foreign Direct Investment

IIAs: International Investment Agreements

ODA: Official development assistance

OLI – theory: Ownership, Location, and Internalization theory RBV: Resource-based view

S&P500: The Standard & Poor's 500

TCE: Transaction Cost Economics

ABSTRACT

Cross-border M&A and Greenfield FDI have been a common strategy when a firm intends to participate in new markets Those two strategies are FDI mode choice and represent a notable alternative for the expansion plan Both Greenfield FDI and Cross-border M&A play an important role in economic growth in the host country Therefore, this empirical research works on the determinants of home firm decision based on two main respects This study estimates the determinants affective those two decisions Then, this research also provides the empirical evidence of the discrepancies

of those determinants affecting Cross-border M&A and Greenfield FDI The observations are collected from emerging countries as host firms and use United States firms as home firms This research presents four results Firstly, host countries’ macroeconomic determinants between Cross-border M&A and Greenfield FDI have the similar effect Secondly, an enhancement of IPR protection law in the host countries will increase inward Greenfield FDI, while SHR protection law supports cross-border M&A decision Thirdly, firm level determinants have a strong impact on Cross-border M&A decisions Finally, macroeconomic determinants have a positive effect on Greenfield FDI decisions

Key words: Cross-border M&A, Greenfield FDI, emerging countries

JEL Classification: F20, F21, F23

TABLE OF CONTENTS

LIST OF TABLES 3

CHAPTER 1: OVERVIEW OF RESEARCH 4

1.1 Introduction: 4

1.1.1 World Investment context: 4

1.1.2 Problem statements: 5

1.2 Research objectives: 7

1.3 Research questions: 7

1.4 The importance of the study: 7

1.5 Structure of research: 8

CHAPTER 2: LITERATURE REVIEWS 9

2.1 Theoretical Review: 9

2.1.1 Cross-border M&A and Greenfield FDI as choice to entry in a foreign market 9 2.1.2 Firm level and industry level factors affecting the decision of a mode of entry 11 2.1.3 Country level factors affecting the decisions of mode of entry 12

2.1.4 Research needs on cross-border M&As as a mode of entry 13

2.2 Empirical Review: 14

2.2.1 Macroeconomic and firm level determinants: 14

2.2.2 Legal environment in host-country: 17

2.3 Research hypotheses: 18

CHAPTER 3: DATA AND METHODOLOGY 20

3.1 Data collection 20

3.2 Empirical model 21

CHAPTER 4: RESULTS AND CONCLUSIONS 25

4.1 Summary statistics: 25

4.1.1 Data description: 25

4.1.2 The correlation matrix 28

4.1.3 Empirical results: 29

CHAPTER 5: CONCLUSION 36

5.1 Main findings: 36

5.2 Policy implications: 38

5.3 Limitations and further research recommendation: 39

REFERENCES 40

LIST OF TABLES

Table 4.1: Summary statistics 25

Table 4.2: Summary statistics of entry mode choice via regions 27

Table 4.3: The correlation matrix 28

Table 4.4: The determinants of Cross-border M&A and Greenfield FDI 29

Table 4.5: The estimated results for the value of Cross-border M&A and Greenfield FDI using Seemingly Unrelated Regression (SUR) 33

CHAPTER 1: OVERVIEW OF RESEARCH 1.1 Introduction:

1.1.1 World Investment context:

In 2017, global investment is slightly getting better with cautiously optimism forecast from UNCTAD report FDI will be increased by higher economic growth projections around the world, the report expects the value of FDI will reach nearly $1.8 trillion in 2017 However, this report show the ineffective legal policy and geopolitical risks are significant factors that practically damage the recovery In contrast, tax policy represented by corporate tax mostly affect Cross-border M&A decision In 2006, FDI prospects to emerging countries are generally positive excluding those countries in Latin America and the Caribbean Emerging countries as a whole are predict to get about 10 percent of FDI total value in 2017 This assumption bases on considerable development in emerging countries in Asia and Africa, where investors are more confidence to invest due to a better view in major economies through oil prices and regional integration In contrast, Latin America and the Caribbean still face uncertain macroeconomic and policy outlook, especially terrorism and wars which lead to investor’s hesitance Therefore, FDI flows to emerging economies would be continue their recover with a steadily speed, while those flows to developed economies would remain unchanged in 2017

FDI flows come to growth momentum period in 2016 about 2 percent after a strong boost in 2015 Noteworthy is the fall of 14 percent from emerging economies However, they still remain the largest and the most important external source of financial capital for emerging countries – compared with investment portfolio, remittances and ODA In Asia emerging markets, FDI flows fell the first time in five years by nearly 15 percent to $443 billion in 2016 In those market in Africa, FDI flows decrease continuously 3 percent from 2015 to $59 billion In Latin America and the Caribbean, trend in FDI flows speed up to 14 percent to $142 billion, based on weak commodity prices and pressures on exports In conclusion, FDI in lower middle income economies remained delicate with a decline of 13 percent in 2016, while middle income countries fall 6 percent In contrast, upper middle income countries stay stable at $24

billion In developed countries, however, FDI flows increase at least 5 percent to $1 trillion in 2016

Investment policymaking becomes more and more complex over time Governments appear to move towards sustainable development and globalization so the policies are more challenging and multifaceted, so this reduces the predictability of policies for speculators Therefore, a criterion system gets international support and focuses on sustainability and inclusiveness that may lower uncertainty and improve investment stability In recently years, investments deals mostly focus on investment promotion, facilitation and liberalization Foreign investors receive more and more fair treatment from governments while entering markets Compared to 1900s, policy makers set new restrictions and regulations more than 20 percent, which mainly aim at manifest the context of mergers and acquisitions controls foreign investors At least 108 countries launch specific investment laws the same as IIAs These laws share basic components

in prologue, definitions, entrance and treatment of takeovers, investment incentives and debate agreement, so they should go hand in hand New challenge for government in target countries is digital development because of its important impact on global patterns of investment

a major participant in foreign investment (Untacd, 2017)

United States firms invest their capital to foreign countries via two primary modes, Greenfield FDI and Cross-border M&A According to World investment report

2017 from United Nations Conference on Trade and Development, Cross-border M&A volume from United States capital in 2016 stands at $77,948.5 mil, sudden decrease of

39.04% over 2015, Greenfield FDI, by the other hand, reaches to $155,152.7 mil, up 30% compared to 2015 In the 2006-2016 period, Cross-border M&A changes irregularly, while investments through Greenfield FDI have been more balanced and changed little over the years Overall, total investment via Greenfield FDI is practically higher in both quantity and quality compared to Cross-border M&A

Emerging market is a country that contains several characteristics of a developed market, however, it does not meet standards to be a developed market (MCSI, 2014) This means that those countries would turn to developed markets in the near future or were in the past lately The economies of China and India are considered to be the largest emerging markets (IMF, 2016) By emphasizing the variables of World Bank economic category, Bremmer (2014) defines an emerging market or emerging country

as “a country where politics matters at least as much as economics to the markets” In the end, emerging country or emerging market contains following characteristics Firstly, the purchasing power parity (PPP) per capita income of this country is consisted

of the range from 10% to 75% of the average EU per capita income Secondly, this country has experienced a brisk economic growth that has narrowed the income gap with developed countries in the latest decade Finally, during this decade, this country has conducted serious institutional transformations which donated to merge its market more deeply into the world economy Therefore, emerging countries appears to be a result of the current globalization In this case, the list of emerging market are taken from IMF in 2016

Emerging countries remain attractive investment destinations for a variety of reasons, including their large consumer base, a productive workforce, a business environment that encourages innovation, and their legal protections are getting better and better In the 2008-2016 period, both of volume and number of foreign direct investment to Asia emerging countries increase steadily over the years, especially after the economic crisis in 2008 In parallel with global trends from 2008 to 2016, the volume of capital from U.S firms to Asia emerging countries grow gradually However, their Greenfield FDI has a higher investment value than Cross-border M&A over the years Because of this phenomenon, various research has been done to investigate factors affecting investment decisions of foreign firms to emerging countries through

different periods However, these trends raise questions about Cross-border M&A and Greenfield FDI characteristics, which determinants led to the difference between Greenfield FDI and Cross-border M&A investment decision, even if they are all modes from FDI? Is there any similarity between these two flows?

1.2 Research objectives:

Although research about both cross-border M&A and Greenfield FDI determinants have increased in recently, those comparing between these factors are still generally absent This research aims at discovering not only the factors affecting Cross-border M&A and Greenfield FDI from U.S firms to emerging countries but the comparison between them By identifying this blank space in the previous literature, this paper therefore contributes to the current research by estimating these determinants

by two modes of FDI and, consequently, by indicating the heterogeneity of cross-border M&A and greenfield FDI determinants, which have received little academic attention until now This paper investigates whether common determinants lead to both cross-border M&A and Greenfield FDI decisions and evaluates whether such factors have difference impact between them Especially, this research focus on developing countries from six regions around the world as host countries and United States firms as home-country investors in the 2008-2016 period Therefore, this study aims at supporting a panoramic view of this issue

1.3 Research questions:

Based on the research objectives, the study focuses on the questions as follows:

 What are the determinants of Cross-border M&A and Greenfield FDI?

 How do these determinants affect the value of Cross-border M&A and Greenfield FDI?

1.4 The importance of the study:

Various studies have been estimated the Cross-border M&A and Greenfield FDI determinants, the discrepancies among them are simultaneously analyzed Moreover, this is the one of the few studies that take into account the interaction of macro and firm-specific variables of host countries in order to identify the differences and similarities among cross-border M&A and Greenfield FDI determinants The research also contributes to a lot of studies that have been published in discovering the effect of those

FDI flows in developing countries The empirical results will support the policy makers

in emerging countries while making efforts to attract foreign investments from developed countries Not only does the study give governments suggestions on how to adjust their policies to attract investments, but it also provides host firm with some recommendations on whether enclitic foreign investments is a right way to follow

1.5 Structure of research:

The remainder of this paper is organized as follows In Section 2, the brief literature review of both theory and empirical research will be presented In Section 3, the data and methodology are described In Section 4, empirical results and explanation will be gave out Section 5 discusses new empirical evidence and concludes

CHAPTER 2: LITERATURE REVIEWS 2.1 Theoretical Review:

2.1.1 Cross-border M&A and Greenfield FDI as choice to entry in a

foreign market

There is an extensive literature on Cross-border M&A and Greenfield FDI as a potential mode of entry into a foreign market such as Andersen (1997), Brouthers and Brouthers (2000), Kogut and Singh (1988) Greenfield FDI includes the establishment

of owned subsidiaries in new countries so they offer the highest level of internal resources and technology control at a highest costs as well (Hennart & Park, 1993) Costs come from not only set up physical facilities but also build the relationships and networks with distributors, customers, and even government to run effectively and smoothly in the new markets (Andersson, Johanson, & Vahlne, 1997) Cross-border M&A allows the home firm to obtain host firm resources such as facilities, technology, and human resources, so home firm gain access to markets and local government Cross-border M&A also give a high control level over capital and resources, which is less than Greenfield FDI is but more than international alliances are (Newburry & Zeira, 1997) Cross-border M&A may be initiated to internalize an activity to reduce or avoid transaction costs

Those theoretical research also prove that the decision of a Cross-border M&A

or Greenfield FDI as a mode of entry into a foreign market is frequently affected by three level factors Firstly, factors at firms level such as international trade experience, local business, production diversification, internal similarity, and worldwide investment strategy Secondly, factors at industry level such as technological power, advertising power, and sales ability Finally, factors at country level such as host country’s market growth, culture differences to avoid risk propensity

Many researchers have compared Cross-border M&A with Greenfield FDI to identify factors that affect the FDI entry mode choice However, the experimental consequences considering the determinants of them are mixed Based on equity or non-equity approaches, theory and research are probably robust, the theoretical foundations

of the determinants of these two entry mode stay weak The theoretical review prove that most of perspectives have applied Transaction cost economics theory (TCE) and

Ownership – Location – Internalization (OLI) (Shimizu, Hitt, Vaidyanath, & Pisano, 2004) Besides, firm characteristics and their heterogeneous resources and capabilities have not get enough attention (Madhok, 1997) Therefore, complementary resources of target firms and international impacts demands more examination in future research on Cross-border M&A and Greenfield FDI Home firms should take a careful holistic sentiment about firm level, industry level and country level factors while entering foreign market to eliminate information asymmetry (Kogut & Singh, 1988) or liability

of foreignness (Zaheer, 1995) Researchers have employed plenty of theoretical perspectives to explain the entry mode decision (Andersen, 1997), but the vast majority have approved the TCE and OLI framework by Dunning (1993) and (Williamson (1975)) However, some of theoretical researchers have estimated the effects from each

of the factors differently For example, Brouthers and Brouthers (2000) and (Hennart

& Park, 1993) prove the effect of industry level and country level factors such as high

or low market growth, while Kogut and Singh (1988) found the impact of low cultural distance between home and host countries Additionally, other researchers demonstrate the influences of firm level factors such as the product diversity level by Wilson (1980), international trade experiment (Harzing, 2002) and local customs knowledge (Barkema

& Vermeulen, 1998)

Besides, the impact of IPR and SHR to Cross-border M&A and Greenfield FDI have been researched by various theoretical studies Those studies explore the link between the legal environment concerning those legal enviroments and FDI entry mode

in emerging countries with mix results For example, the all of theoretical studies by Grossman and Helpman (1993), Maskus and Penubarti (1995), Glass and Saggi (2002), and Lai and Qiu (2003) affirmed that an enhancement in IPR legal protection laws and SHR legal protection laws of emerging countries leads to the decrease in FDI inflows, whereas those by Braga, Grepioni, and Desiraju (1998), Javorcik (2004), and (Branstetter & Saggi, 2011) prove the opposite results Therefore, this study will take a careful look at IPR and SHR impact on Cross-border M&A and Greenfield FDI in the empirical model The empirical literature review of these factors will also be considered more in the following section

2.1.2 Firm level and industry level factors affecting the decision of a mode

of entry

Based on investment strategy of home firm, the diversification action impacts decision of a mode of entry If home firm strategy is to access complementary utility, it will focus on the qualities of resources, host firm current resource portfolio, and even the embeddedness level in the targeted firm Based on a theoretical framework from TCE, Hennart and Park (1993) concluded that home firm primarily chooses Cross-border M&A if its interest in a part of the target assets, because it can focus on assets which suitable with firm strategy In contrast, home firm commonly chooses Greenfield FDI if host firm assets are strictly embedded and distributed, so it probably take more control of host firm

Madhok (1997) researches choice of mode of entry based on TCE and OLI framework These theories bring up some valuable concerns that the organizational power framework becomes more suitable with nowadays investment context, which means future research should take a careful look in industry factors due to the importance of firm resources Moreover, (Anand & Delios, 2002) discovered the fungibility technological power across countries, and the power of brand by using host firm and industry characteristics also influence choice of a mode of entry Therefore, those papers recommend that home firms should have clearly distinguish between capability-seeking and capability-exploiting acquisitions based on the availability and importance of the different kinds of potential host firms resources

The most value resources by investing firms are commonly intangible and knowledge-based resources However, it is extremely difficult for home firms while identifying and managing those assets In this case, they prefer equity-based modes to manage intangible assets and R&D and advertising intensity (Delios & Beamish, 1999) Vermeulen and Barkema (2001) use organizational learning perspective to prove that Cross-border M&A will broaden the firm knowledge-base While Greenfield FDI creates a path dependence that eventually produces inertial corporate governance in new firm, Cross-border M&A expand the firm’s knowledge base and reduce organizational inertia

In another way, Hennart and Park (1993) employ a multiple theoretical framework composed of TCE and RBV to research about the kind of advantage possessed by home firm They discovered that Japanese firms, those have a strong technological advantage, prefer Greenfield FDI over Cross-border M&A This entry mode support them better ways to transfer the advantage to the foreign facility The result can be explained that firm with high and complex technology base get more and more difficult to transfer that technology to foreign country Moreover, their training this to acquired firms will face the same difficulties in human resources, capital and may be unsuccessful That is why high-tech firm would rather choose Greenfield FDI, this is more simple and affordable to train their own staff transferred to the foreign facility

Brouthers and Brouthers (2000) investigate the impact of investment size on the entry choice They verify that home firms prefer Greenfield FDI with relatively small investments, whereas Hennart and Reddy (1997) found exactly the opposite results, they concluded that large firms have more difficult in integrity so they prefer Greenfield FDI

In contracts, Padmanabhan and Cho (1995) found no relationship between investment size and entry mode choice The mode of entry choice can also be influenced by other firm-level factors, such as time pressure However, they suggest that the investor can only choice Cross-border M&A when they has a short amount of time In fact, Greenfield FDI process demand more time to moderate

2.1.3 Country level factors affecting the decisions of mode of entry

First of all, a cultural issue that has significant impact on entry choice is the ability to combine resources, especially human resources The phenomenon of combining different cultures has been examined in the literature by Brouthers and Brouthers (2000), Hennart and Reddy (1997), and Kogut and Singh (1988) By those researches, cultural distance is a convenient proxy for calculating firm’s country risk

In fact, cultural distance declares the discrepancies between home firm and host firm Therefore, it also shows the level of the potential investor’s strategic advantages to impose to other countries For example, both Child and McGrath (2001) and Kogut and Singh (1988) use a multiple theoretical framework namely TCE, institutional theory to verify that cultural distance among home firm and host countries practically affect home

firm decision Moreover, the bigger the gap, the greater the investor's preference for Greenfield FDI Home firm specifically emphasized that the primary difficulty of cultural distance would be reflected by high management costs during the integrating

In contrast, Brouthers and Brouthers (2000) verify an opposite results with the same theoretical framework They confirmed that small cultural distance leads home firm to choose Greenfield FDI to avoid specific aid of host firm, while large cultural distance makes home firm decide Cross-border M&A to receive a higher level of legitimacy from host country

Moreover, various theoretical research reported mixed results for product diversification by Barkema and Vermeulen (1998) and multinational experience by Barkema and Vermeulen (1998); Brouthers (2002); Wilson (1980)

2.1.4 Research needs on cross-border M&As as a mode of entry

Many previous researches accept the benefits of international investment as given However, there are only several researches compare Cross-border M&A and Greenfield FDI determinants As above discussion, while factors at level country and industry findings are relatively robust, factors at host firm level findings are more mixed For example, the level of global experience calculated by the export ratio has been found to be associated with both Cross-border M&A and Greenfield FDI from Brouthers (2002); Barkema and Vermeulen (1998); Kogut and Singh (1988) results Host firm has more advantages when firm already has trade experience, so trade should

be take as an influent on the entry mode selection, the similar results has been proved

by Beckman and Haunschild (2002); Agarwal and Ramaswami (1992); and Anderson and Gatignon (1986) Additionally, this field needs more attention to the comparison between Cross-border M&A and Greenfield FDI determinants Furthermore, although value of the investment is frequently reported as determinants of Cross-border M&A and Greenfield FDI, it still lack empirical evidence to prove Therefore, researchers should pay attention to the value of Cross-border M&A and Greenfield FDI Finally, it

is not clear whether research findings related to large multinational enterprises can be extended to small- or medium-sized firms Erramilli and D'Souza (1993) So firm size should be taken to estimate as elements that affect Cross-border M&A and Greenfield FDI

2.2 Empirical Review:

2.2.1 Macroeconomic and firm level determinants:

In previous research, many empirical results prove that common macroeconomic factors of host country have an impact on Cross-border M&A and Greenfield FDI Even though those previous studies focus on the factors that affect Greenfield FDI and Cross-border M&A separately, they both suggest that macroeconomic determinants of host countries have a strong impact on Cross-border M&A and Greenfield FDI decisions Because these are two modes of FDI, the previous results suppose the statement that the most of host-country macroeconomic factors are similar between the two types of FDI

Ayers, Lefanowicz, and Robinson (2003) base on a tax policy perspective of 565 taxable cash-for-stock and 370 tax free stock-for-stock acquisitions, their results suggest that capital gains tax policy plays an important role in corporate acquisitions One more suggestion of this paper is that changing capital gains tax ratio adjusts the cost of corporate acquisitions and thereby may influence the movement of capital via corporate acquisitions Huizinga and Voget (2009) also suppose for Ayers et al (2003) research, they found that the international tax system influence the organizational results of Cross-border M&A For example, emerging countries that oblige low levels of international taxation are more attractive the parent companies of recently created multinational firms Besides, GDP per capita, stock market index between home country and host country have a positive correlation to number of Cross-border M&A

Rossi and Volpin (2004) apply a sample containing all Cross-border M&A deals announced in 49 major countries, announced in the 1990s and completed by the end of

2002, and reported by SDC Platinum - a database from Thomson Financial This paper suppose evidence that the volume of Cross-border M&A activity is significantly of considerable size in countries with better accounting levels and powerful shareholder protection In Cross-border M&A deals, target firms typically come from countries with poorer investor protection, namely emerging countries, suggesting that cross-border transactions play a governance role by improving the degree of government policy to protect firms Erel, Liao, and Weisbach (2012) investigate majority of cross-border mergers from private firms outside of the United States By analyzing a sample of 56,978 Cross-border M&A in the 1990-2007 period, their results show that geography,

the quality of accounting revelation, and bilateral trade raise the likelihood of mergers and acquisitions between two countries Furthermore, this paper contribute evidence that firms possibly be purchasers if they allocated from countries whose value of stock market is increasing, whose currency has appreciated lately, and high market-to-book value of firm, in contrast, firms tend to be targets In addition, Di Giovanni (2005)make

an effort to answer the question that what roles do macroeconomic and financial variables play in the Cross-border M&A decision of home-country firms He uses a large panel data set of Cross-border M&A deals from 1990 to 1999 Specifically, the size of financial markets measured by the stock market capitalization to GDP ratio, has

a significantly affirmative association with home-country firms investing overseas

Javorcik (2004) studies on macroeconomic determinants of host country on Greenfield FDI via 1405 firms that answered questions regarding their undertaken and planned investments in Eastern Europe and the former Soviet Union through Worldscope from 1989 to 1994 The result also shows that countries with a larger population size attract more Greenfield FDI, which is clarified by the economies of scale enjoyed in large markets GDP per capita appears to be negatively affect to Greenfield FDI attraction because the higher GDP per capita, higher labor cost is Corporate taxation and openness to trade appear to have a statistically significant influence to home country investment decision Moreover, this paper supposes evidence that Greenfield FDI are more likely to be tackled by firms without previous regional experience Cheng (2006) proves that market transaction situation, industrial concentration have strong impacts on Greenfield FDI through estimating data from a

2005 mail survey of Taiwanese manufacturing firms engaged in international operations

Globerman and Shapiro (2005) study about the determinants of both inward and outward M&A in a cross-section data of 154 countries in the period 1995-2001 They suppose that the majority variables which effect on inward and outward M&A are generally the same that really influence the overall FDI and even FDI modes However,

it obviously has some differences in the structure of Cross-border M&A and Greenfield FDI In particular, the economic growth play an important role of FDI and Greenfield FDI, but not of the Cross-border M&A flows In other words, a country that shows a

fast economic growth tends to be host, primarily, of foreign investment via the establishment of new firms; simultaneously, this country encourages its companies to invest abroad, through Cross-border M&A Neto, Brandão, and Cerqueira (2010) studies about macroeconomic determinants of Cross-border M&A and Greenfield FDI After collecting and analyzing a panel data of 53 countries from 1996 to 2006, the results show that size of the economy, degree of openness and the governance level are generally positively correspond with both inward and outward investment Furthermore, the coefficient values are very similar in each group of equations However, some differences between the structure of Cross-border M&A, Greenfield FDI and aggregate FDI

Head and Ries (2008) develop a model explaining foreign direct investment based on an international market for corporate control After controlling for geographic and cultural distance effects between bilateral partners, FDI depends on origin-country effects (outward effects) and destination country effects (inward effects) The latter includes a “bid competition” term that reflects characteristics of competing countries Our model highlights the importance of taking into account the influence of third-country effects in bilateral estimation, thus echoing the insight of Anderson and Gatignon (1986) for the application of the gravity equation to bilateral trade

The empirical results from Nagano (2013) on home firm determinants confirm that there is no significant correlation between the home firm's stock price and its FDI decision Especially, the author finds the empirical evidence to prove this phenomenon Although two variables have a positive relationship, the reason for the opposite statement is that purpose of various Cross-border M&A deals by United States firms acquiring new additional market and responding to demand in foreign countries Therefore, the stock market expects an enhancement in the financial performance of the host firm through annual revenue or assets

Those variables are examined by much more authors such as Kogut and Singh (1988), Hennart and Park (1993), Andersson et al (1997), Brouthers (2002), Larimo (2003), Dyck and Zingales (2004), Porta, Lopez‐de‐Silanes, and Shleifer (2006), Comment and Schwert (1995), and Nagano (2013), who investigated the choice between Greenfield FDI and Cross-border M&A via host-country macroeconomic

determinants Based on summary the previous studies, this paper will estimate the discrepancies of macroeconomic factors of host-country between Cross-border M&A and Greenfield FDI The variables represents the macroeconomic determinants in this research conclude per capita income, population size, corporate tax rate, and bilateral trade, following Nagano (2013) For the results, this paper expected that only corporate tax rate negatively impacts on both investments, while the remaining variables have a positive influence

2.2.2 Legal environment in host-country:

The biggest debate of determinants impacts on cross-border M&A and Greenfield FDI, however, comes from host-country legal environment For example, the theoretical research conclude that a decrease in FDI inflows could be explained by

an enhancement in IPR legal protection laws by Madhok (1997), Glass and Saggi (2002), Mathew and Mukherjee (2014), whereas Braga et al (1998), Javorcik (2004), and Branstetter and Saggi (2011) cites evidence about the opposite result In additions, both positively and negatively impacts regarding the relationship between IPR protection laws and FDI inflows in host countries are studied by Klein (2015), Branstetter (2017), and Nair‐Reichert and Duncan (2008)

While many existing studies such as Grossman and Helpman (1993), Javorcik (2004), and Branstetter (2017) confirmed the relationship among IPR protection laws

of host country and its inward FDI entry mode, whereas this relationship between IPR protection laws and Cross-border M&A does not have However, SHR protection laws

of host firm have a negligible influence the Greenfield FDI choice of home firms on the results from the comprehensive literature review by Neary (2009) Meanwhile, Ahern and Dittmar (2012) and Erel et al (2012) argue that SHR protection laws affect Cross-border M&A choice Therefore, this research assumes that IPR protection law of host country has positively impact to Greenfield FDI, not Cross-border M&A, while SHR protection law in host country leads to opposite results So home firm likely to choose Cross-border M&A rather than Greenfield FDI when the host country efficiently commits shareholder rights laws and the home firm prefer to choose Greenfield FDI rather than Cross-border M&A if the host country sufficiently imposes intellectual property rights laws

2.3 Research hypotheses:

Based on the research questions, the study has four hypotheses, two for the determinants of Cross-border M&A and Greenfield FDI and the others for the value of these two entry modes

Firstly, this paper hypothesizes that some of the macroeconomic factors applied

in previous research are common, such as by Erel et al (2012) for Cross-border M&A decision and Javorcik (2004) for Greenfield FDI In this present research, we use host country per capita GDP, population size, corporate tax rate, and bilateral trade as independent variables which are proven by Javorcik (2004), Huizinga and Voget (2009), and Ivus (2010) Therefore, this paper hypothesizes that per capita GDP, population size, and bilateral trade have positive significant impacts on both Cross-border M&A and Greenfield FDI, except for corporate tax because the relationships of these independent variables with FDI are all supported in Cross-border M&A and Greenfield FDI studies, respectively

Hypothesis 1 Host countries’ macroeconomic determinants between

Cross-border M&A and Greenfield FDI are similar to each other

Secondly, while many existing studies, which have been reviewed, confirm the relationship between host-country IPR protection laws and inward FDI, such a relationship between IPR protection laws and cross-border M&A does not hold In contrast, previous studies also verify the relationship between host country SHR protection laws and Cross-border M&A, while it hardly impacts Greenfield FDI choice Therefore, we hypothesize that host country IPR protection law enhances inward Greenfield FDI but not cross-border M&A, while host country SHR protection law shows the opposite results

Hypothesis 2 An enhancement of IPR protection law in the host country will

increase inward Greenfield FDI, while SHR protection law supports cross-border M&A decision

Thirdly, the above two hypotheses have not mention host firm factors which various papers support the positive relationship between host firm's financial situation and the FDI mode choice Javorcik (2004) and Branstetter and Saggi (2011) illustrate that host firm’s total assets and total sales positively impact the decision of home firm