spillovers (Ethier 1986; Fosfuri, Motta & Rønde 2001; Havr ́anek & I ̆sov ́a 2012; Rodr ́ıguez-Clare 1996), suggests that the desire for technological and knowledge transfer could motivate emerging market firms to acquire firms in an advanced economy. At the same time, emerging-market firms may have specialized managerial and operational expertise which the firms could spillover to markets very similar in nature to their home markets. This _technology transfer_ hypothesis argues that it is not only the home country’s innovative capacity that may influence M&A choices, but also that of the host country.

Finally, political and policy factors may play a role in international M&A as well. Possibly the most likely channel where public policy could affect M&A deal flows is the residual accumulation of reserves as a consequence of existing trade patterns. In addition, policy factors that may affect M&A could take other forms, such as the presence of bilateral investment treaties (BITs) (B ̈uthe & Milner 2008; Neumayer & Spess 2005), or risks associated with economic policy or political conditions (Busse & Hefeker 2007). Accordingly, we cluster these variables into the class of _political economy_ explanations, which we consider in our empirical work.

# **4 Data Description and Econometric Methodology**

## **4.1 Data sources and description**

The cross-border M&A investment database used for this paper was compiled from a variety of sources. The primary data for M&A deals were drawn from a larger dataset compiled by Thompson-Reuters SDC Platinum, which covers all publicly disclosed cross-border transactions for which the ultimate acquiring company was based in an emerging-market country, and the immediate target company was located in a country other than that of the ultimate acquirer. Transactions that were included involved either two or more companies pooling their assets to form a new entity (a _merger_ ), or a foreign company gaining a portion of a domestic company (an _acquisition_ ). All completed and partially completed deals were included, as well as intended and pending deals announced after September 1, 2009. The definition of a cross-border M&A transaction used in this paper includes any deal where any equity stake is obtained by the acquirer firm.<sup>8</sup> When no deals were recorded for any country and year, the dependent variable was coded as zero.<sup>9</sup> The compilation resulted in a working database that covers some 10,000 companies from 61 emerging-market economies, over the period between 1997 and 2010.

These were merged with the main independent variables of interest and additional controls, which were drawn from a variety of additional sources. These include macroeconomic conditions from the World Bank’s World Development Indicators (WDI) and the IMF’s International Financial Statistics (IFS); financial factors from Dealogic DCM Analytics, MSCI,

> 8This grouping includes investments where share purchases resulted in acquisitions of less than 10 per cent of a firm’s voting shares, a narrower but commonly-used definition of FDI.

> 9The database also provides historical information on acquirer and target countries (both immediate and ultimate), status, sector, and consideration offered. These were used in the section describing stylized facts in the data, but were excluded from the econometric analysis.

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