This is the accepted version of the paper.This version of the publication may differ from the final published version. This paper presents a new scoring methodology designed to measure a country's capability of attracting and sustaining business investment activity in the form of cross-border inflow and domestic mergers and acquisitions (M&A). We compute a theoretically grounded maturity index for M&A purposes based on groups of country development factors which have been identified as key drivers of corporate investment activity in economics, finance and management literature. By using the index, which has been successfully tested against M&A activity in a time series analysis, we show that the drivers of M&A activity differ significantly at different stages of country maturity. Specifically, for mature countries, the quality of their regulatory systems, political stability, economic and financial health, socio-economic environment and technological developments all determine differences country-level M&A activity. For countries in the transitional stage, it is instead economic and financial health, socio-economic environment, technological developments, quality of infrastructure, and availability of sizeable assets which drive M&A activity. Finally, only the quality of infrastructure and availability of assets are significant factors in explaining the differences in M&A activity in emerging economies.
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This paper investigates distress classification measures in the banking sector. The power of ten different accounting measures is tested using media coverage as the benchmark for a sample of 1,175 banks which participated in merger and acquisitions or divestiture deals over the past 22 calendar years. According to the results of the study, a bank should be defined as distressed if the ratio of its non-performing loans to total loans is in the two highest deciles of the industry, using a three-year moving average. This measure is typically favored by practitioners, who maintain that other common measures, e.g., those involving provisions for loan losses, are not as accurate as they express only a managerial forecast. Interestingly, measures that capture capital adequacy too often depict the bank as healthy even if it is de facto distressed, while measures of asset quality, though highly correlated with each other, tend to overestimate the number of distressed banks.
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