Page 80 - Azerbaijan State University of Economics

N.V. Abdullayeva: Value creation through mergers and acquisitions in energy sector

When analyzing the mergers and acquisition transaction one of the

characteristics to consider is whether the deal is domestic ( i.e. the target is located

in the same country as the bidder) or cross-border (i.e. bidder is acquiring the target

that is located in different country). A large number of studies classify the following

factors that influence the decision whether to enter foreign market by acquiring or

merging with local companies or not:

a. Country-level factors such as growth opportunities and market size, cost

cutting, strategic geographic location, cultural and behavioral differences between

target‘s and bidder‘s countries, and openness to Foreign Direct Investment (FDI).

b. Industry-level factors such as innovation and technology concentration and

sales force intensity.

c. Company-level factors such as international and/or local experience,

innovation strategies, know-how and etc.

Rossi and Volpin (2004) found that firms located in countries with weak investor

protection tend to be acquired than those with strong ones, while bidders are likely

to be from countries with comparatively stronger investor protection. Buch and

DeLong (2004) argue that information costs and restrictions in regulatory systems

evidently decrease the number of cross-border deals. Empirical findings of common

studies shows that CAR of target companies in cross-border deal is higher than

target companies involved in domestic deals (Dewenter, 1995). One of the possibly

reasons for lower shareholder gains of the bidder is the fact that when executing

cross-border deal and thus entering into foreign market, the company has to deal

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