Impact of institutions on cross-border acquisitions and mergers by Latin American firms: a gravitational approach

Purpose This study examines how institutions in both home and host countries affect firms’ cross-border mergers and acquisitions (CBM&As) activity in the six most significant Latin American (LATAM) economies (1995–2018). Design/methodology/approach Data from 1,094 transactions by LATAM companies were used to develop two data panels to examine the impact of institutions on CBM&A activity. Additionally, the influence of the target industry on CBM&A activity is explored. And to operationalize the independent variables, concepts from economic institutionalism are applied. Findings The research findings indicate that the primary motive of acquirers for investing abroad is not to find better formal institutional conditions, but rather to pursue new markets. In contrast, the home country’s formal institutions motivate LATAM firms to invest overseas. Contrary to previously published studies, there is evidence of an inverted U-shaped relationship between institutional informal distance and CBM&A activity conducted by LATAM firms. Originality/value This study analyzes the impact of the formal institutional quality of home and host countries as well as formal and informal institutional distances, on the accumulated value of CBM&As from LATAM. These relationships are underexplored in the literature. This study uses a large and representative sample of complete CBM&As in the region.