eThesis - Kauppakorkeakoulun sähköiset gradut

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PURPOSE OF THE STUDY:

The purpose of this study in to determine whether or not there is a need for a new type of internationalization theory and to examine the motives for the international expansion of emerging market multinational enterprises (EMNE) that have been proposed recently. This study concentrates on Russian outward cross-border acquisitions. To my knowledge, this is the first attempt to test these motives in connection with actual cross-border transactions. Moreover, this is the first study where country risk and the tax conditions of the target country are being tested as determinants for cross-border acquisitions by EMNE. I investigate how the level of country risk and the tax haven status of the target country affect both the volume of transactions and the market reactions to these transactions.

This study aims to contribute not only to our understanding of the phenomenon of outward FDI (OFDI) from the emerging economies, but also to contribute to recent domestic and international discussion regarding Russian FDI in offshore financial centers (OFC). Despite some evidence that OFC attract Russian OFDI, there are no studies that investigate to what extend OFC attract actual Russian cross-border acquisitions or acquisitions by the emerging market companies in general. Also, the value implications of Russian cross-border acquisitions are also still unclear.

DATA:

The acquisition data is gathered from the Securities Data Corporation's (SDC) merger database. Stock market data and other company data is gathered from the Thomson Reuters database. The time period for the sample data is from 1998 to 2012 because country risk estimates for countries provided by IHS Inc. are only available from 1998 onwards. The total sample gathered for the analysis of the determinants of Russian outward cross-border acquisitions consists of 950 cross-border acquisitions distributed over 15 years and 81 countries. The final sample for the analysis of abnormal returns consists of 115 observations.

MAIN RESULTS:

The findings suggest that target country risk has a significant negative effect on the volume of Russian outward cross-border acquisitions; a 1% increase in the country risk level leads to a 0.24% decrease in the volume of cross-border acquisitions (CBA) to that country. Also, I find that the tax haven status of the target country has a positive effect on the volume of Russian acquisition in a country. According to the results, the tax haven status increases volume by 15.3%. However, the results concerning tax haven status are not highly significant.

Further, I find that the effect of both determinants has changed over time. Results show that a 1% increase in the country risk level leads to a 0.48% decrease in the annual volume between 2009 and 2012, whereas the effect is only 0.17% for the earlier sub-period. Also, the tax haven status increases the volume by 21.4% between 2009 and 2012, but only by 12.4% during the period of time between 1998 and 2008.

Interestingly, the results suggest that companies assess the different components of the country risk of the target country separately and that some of the risks are more important than others. According to the analysis, legal risk, tax risk and operational risk of the target country are more important for Russian companies than political, economic and security risks.