1. Public Organisations and New Approaches to Building Markets in Asia
Research Workshop
April 17-19, 2011
Lee Kuan Yew School of Public Policy, National University of Singapore
Institutions and the Market
for Corporate Control in Asia:
An Empirical Analysis
Alberto Asquer
Lecturer/Assistant Professor
Faculty of Economics
University of Cagliari, Italy
aasquer@unica.it

2. Introduction
We witnessed a dramatic surge in financial flows both
domestically and internationally in the last a few decades.
The growth of financial flows (both domestically and
internationally) is viewed favourably as it provides more
stability and economic growth, more efficient allocation of
resources, more investment projects, risk diversification,
support to trade, alignment of world prices, and channelling of
saving to profitable uses.
It also viewed negatively as it hurts incumbent positions,
exposes business and people to risk of uncertain market
outcome, and puts at risk of short term crises for long term
benefits, while some restrictions may help industrial
development or be beneficial to protect from swings of
investors' moods.

3. Introduction
Provided that the effects of the growth of financial flows are
debated, we pose a number of (explanatory and normative)
issues:
1. Does the increase of financial activity and integration of
financial markets contribute to the convergence ('catching up')
between developed and developing economies?
2. If it is the case, should developing countries stimulate the
increase of financial activity by opening their domestic
markets to global flows?
3. If so, what policy reforms should be pursued to stimulate
financial activity both domestically and internationally?

4. Introduction
We focus on the Market for Corporate Control (MCC)
It is part of the equity market related to the transactions of
controlling stakes of business companies (i.e., M&A deals)
It is generally viewed favourably as it relates to the efficient re-
allocation of company assets, market discipline on under-
performing management teams, financial restructuring,
acquisition of competences, establishment of synergies,
internationalisation of domestic companies, and attraction of
'brownfield' foreign direct investments (FDI)
Provided that M&A take place in a context of information
asymmetry and uncertainty, it is affected by institutions and
institutional quality related to protection of shareholders' value
from expropriation

5. General evidence
Empirical focus on Asian countries (Thomson ONE Banker):
Period 1983-2010: 38,210 M&A deals, total US$ 3,398 bn)

6. General evidence
Empirical focus on Asian countries (Thomson ONE Banker):
Distribution of total number of deals per country

7. General evidence
Empirical focus on Asian countries (Thomson ONE Banker):
Distribution of total value of deals per country

8. General evidence
Empirical focus on Asian countries (Thomson ONE Banker):
Distribution of total number (left) and total value (right) of M&A
deals per industrial sector

9. Research design
Hypothesised relationships:
Features of country's institutions affect the intensity of M&A
activity
Intensity of M&A activity: measured as
a) total number of deals, and b) total value of deals, per 4 years
with respect to
A) domestic M&As, and B) cross-border M&As
Features of institutions: measured as
a) indices of institutional governance (Kaufmann et al., 2009,
available from 1995 onwards)
b) indicators of political institutions (Keefer, 2009; Beck et al.
2001, available from the 1970s onwards)
Control variables: capitalisation on GDP, equity traded volume
on GDP, GDP

10. Research design
Models estimated:
Method: backward elimination of least significant variables,
stopping rule Akaike Information Criterion
Countries included in the analysis: China, India, Indonesia,
Japan, Malaysia, Philippines, Singapore, South Korea, Taiwan,
and Thailand

11. Research design
Models 1-4: the role of institutional governance (Kaufmann et
al., 2009)
log(Yit) = α + β1 voiceAccit + β2 polStabCrimeit + β3 govEffectit +
β4 regQualityit + β5 ruleOfLawit + β6 corruptControlit +
β7 capitOnGDPit + β8 tradeOnGDPit + β9 GDPit + uit (1)
Models 5-8: the role of political institutions (Keefer, 2009)
log(Yit) = α + β1 systemit + β2 yrsoffcit + β3 militaryit + β4 defminit +
β5 execrlcit + β6 liecit + β7 eiecit + β8 fraudit + β9 majorityit +
β10 herfgovit + β11 herfoppit + β12 checksit + β13 checks_laxit +
β14 capitOnGDPit + β15 tradeOnGDPit + β16 GDPit + uit (2)

12. Results
Models 1-2, domestic M&As ← institutional governance
Total number of domestic M&A Total value of domestic M&A deals
deals

13. Results
Models 3-4, cross-border M&As ← institutional governance
Total number of cross-border Total value of cross-border
M&A deals M&A deals

14. Results
Models 5-6, domestic M&As ← political institutions
Total number of domestic Total value of domestic
M&A deals M&A deals

15. Results
Models 7-8, cross-border M&As ← political institutions
Total number of cross-border Total value of cross-border
M&A deals M&A deals

16. Results
Final model estimates (significant regressors):
1) Political institutions that make government position more
'contestable' seem related to higher M&A activity
2) Regulatory quality seems related to higher intensity in the
number of domestic M&A activity
3) Economic and financial development is related to M&A
activity

17. Discussion
Less 'contestable' government positions (e.g., presence of
military chief executive, support of large share of parliamentary
seats, cohesion of government coalition, or fragmentation of the
opposition) may induce less M&A activity because acquirers
perceive higher risk of value expropriation of their investments
through hostile government policies.
Less 'contestable' government positions may induce less M&A
activity because the government becomes more deeply involved
in political economy decisions, with the effect of blocking
unwanted M&As or slowing down the merger or acquisition
decision making process.
Locals' perceptions of high regulatory quality do matter for
domestic M&A (sensibly not for foreign acquirers).
Do institutional governance features really matter so little?
(e.g., negative effect of 'rule of law')

18. Thank you