Deconstructing International Mergers: The Role of Internet Adoption and Routineness

Abstract

This paper empirically analyzes how Internet adoption has changed the organization of the supply chain of northern firms. We focus on international mergers, which are a growing and important component of foreign direct investment. We use data on North- South vertical mergers and acquisitions for all manufacturing industries. We show that the effect of Internet adoption on the number of mergers and acquisitions is decreasing with the “routineness” of the industry. Our interpretation is that the Internet revolution has enabled new monitoring mechanisms. This has allowed northern headquarters to better monitor suppliers, specially those in less routine-intensive industries. Joint work with Sergi Basco