Abstract
There are two main modes of entry for Foreign Direct Investment (FDI). These
are cross-border mergers and acquisitions (M&A) and greenfield investment. Most
literature has examined determinants of aggregate FDI without consideration of
entry mode choice. This thesis focused on determinants of the M&A entry mode.
The thesis examined locational —that is, regional- and country- specific factors that
affect M&A in Africa during the period 1990 to 2014. The thesis made various policy
recommendations, which are based on the findings obtained.
The thesis is written in article format with four sub-topics that make up the main
chapters. After the introduction, the second chapter is a theoretical literature review
that explained why international production takes place. The chapter concluded
that developments in theories of FDI since the beginning of this century no longer
view FDI in aggregate form. To understand trends of FDI, researchers also have
to draw from theories that consider entry mode choice. The literature review finds
relevance of FDI theories to M&A in Africa.
The third chapter tested the expectations hypothesis that stock markets encourage
cross-border M&A in South Africa. We use the negative binomial count model and
the Johansen cointegration technique. We find that both the number and the value
of M&A are positively influenced by the performance of the Johannesburg Securities
Exchange during the period 1991 to 2014. Findings from the Vector Error Correction
Model indicated that macroeconomic variables such as exchange rate volatility,
relative inflation rate and economic growth are also important locational or pull
factors for M&A in South Africa.
The fourth chapter investigated the influence of global financial markets and
natural resources on cross-border M&A in Africa. With the use of a dynamic panel
data model, we found that the value of M&A targeting Africa was influenced by
external factors and internal factors. International stock markets exerted a positive
and significant influence on cross-border M&A in Africa, whereas international
interest rates had a negative influence. These findings suggest that cross-border
M&A in Africa are pro-cyclical. Locational factors that pull M&A into Africa include
financial development and macroeconomic stability. The continent’s endowment in
natural resources and the high demand for commodities during the study period had
a significant positive effect on M&A that targeted Africa.
The fifth chapter investigated whether regional integration facilitated cross-border
M&A in Africa from 2000 to 2014. Using a structural gravity model and a global
bilateral dataset of M&A we found that the depth of regional integration determines
intra-regional M&A in Africa. We found that Southern Africa Customs Union
(SACU) and the East African Community (EAC) encourage M&A from within the
customs unions but not M&A from outside the customs unions.
Ph.D. (Economics)