can promote M&A, as can financial depth in the host country. By relaxing constraints to financing, barriers to horizontal firm expansion are lowered, and firms are encouraged to pursue the M&A route.

The negative and significant coefficients on the innovation variable in the host country lend little support to the technology transfer argument. Indeed, across all specifications, emerging economy firms appear to invest less in countries with more granted patents.<sup>14</sup> This could be, in part, because emerging economies now already account for a significant share of global innovation (Aizenman & Noy 2007; World Bank 2011), and it is the emerging economies that engage in the technology transfer to less innovative host nations. Whatever the motivation, the evidence does suggest that, if firms choose to pursue cross-border M&A, it seems unlikely that they do so for reasons of acquiring technology.

Finally, there is some evidence that political and policy variables make a difference to M&A. BITs are positively related to acquisitions in emerging economy country-pairs, and the magnitude of this effect is substantial (although the coefficient is only marginally statistically significant). In particular, the positive and significant effect of political stability on acquisitions in advanced countries seems to suggest that firms actively seek to lower their political-risk exposure through their M&A activities in advanced economies (since higher values of the measure indicate _less_ risk).<sup>15</sup> Similarly, firms from more economically stable emerging economies are more likely to seek to diversify their exposure by acquisitions in other emerging markets.

# **5.2 Robustness checks**

To examine the strength of the results reported in Table 1, we experiment with two sets of additional robustness checks. The first set of checks allows for additional factors that may be associated with cross-border M&A, or alternative measures of existing variables. In the interest of space, and given the relatively good performance of the parsimonious model ( _B2_ ), we rely on this specification as the basis for the robustness tests to follow.<sup>16</sup> The results of this first set of checks are reported in Table 2.

In the benchmark models, per capita GDP was used as a proxy for factor prices. While doing so considerably expands the data coverage, there may be concern that this measure may be capturing other relevant factors beyond factor prices _per se_ . For example, GDP per capita—

> 14One argument against this is that patents may reflect the extent to which the legal structure of the country supports patent filings, rather than innovation. While this may be true, the legal environment is controlled, in part, by our inclusion of the political risk variable. Furthermore, we regard the patent data as the best proxy that we have available for measuring innovative capacity. As an additional robustness check, however, we substitute the total patents measure with data that includes only cross-border patents granted (which arguably better controls for differences in domestic patent law). While the results are somewhat weaker, the qualitative message remains unchanged; these additional results are available on request.

> 15M&A activity does not, however, appear to respond to political risk measures in South-South acquisitions. This suggests that the hypothesis that emerging market firms may exploit their comparative advantage in more challenging institutional environments is not supported by the evidence presented here, a result that has also been corroborated by others (Arita forthcoming).

> 16Results obtained with the fully specified model ( _B3_ ) were qualitatively similar, and are available from the authors on request.

13