Assessing market attractiveness for mergers and acquisitions : The M & A maturity index 1

Abstract

This paper presents a new scoring methodology designed to measure a country’s capability of attracting and sustaining business investment activity in the form of cross-border inflow and domestic mergers and acquisitions (M&A). We compute a theoretically grounded maturity index for M&A purposes based on groups of country development factors which have been identified as key drivers of corporate investment activity in economics, finance and management literature. By using the index, which has been successfully tested against M&A activity in a time series analysis, we show that the drivers of M&A activity differ significantly at different stages of country maturity. Specifically, for mature countries, the quality of their regulatory systems, political stability, economic and financial health, socio-economic environment and technological developments all determine differences country-level M&A activity. For countries in the transitional stage, it is instead economic and financial health, socio-economic environment, technological developments, quality of infrastructure, and availability of sizeable assets which drive M&A activity. Finally, only the quality of infrastructure and availability of assets are significant factors in explaining the differences in M&A activity in emerging economies.