The effect of local corruption on ownership strategy in cross-border mergers and acquisition

This paper focuses on how corruption affects an important internationalization behavior of firms: the extent of control – wholly owned subsidiary or equity participation – exercised by firms involved in cross-border mergers and acquisitions. We analyze individual data on cross-border M&A carried out by firms located in the seven largest European countries, and operating in the 10 SIC divisions. We thus consider 20,034 international M&A deals completed in 137 host countries over the period 2000–2012. We find that the relationship between the level of corruption in the host country and the firm's probability of opting for full control mode in cross-border M&A is U-shaped. Moreover, we add to the literature by demonstrating that industry relatedness between acquirer and target and the level of connectivity between home and host countries moderates the relationship between corruption in the host country and the level of control.