Following a long stream of literature on the drivers of Mergers and Acquisition (M&A) activities, this study examines the effect of corporate leverage on several decisions of M&A deals in the context of the United Arab Emirates (UAE). Using M&A data from the Thomson One database for the period between 2005 and 2022, we find that corporate leverage significantly influences the type of M&A target. This study further adds to the prior literature on the contradictory behaviours of high and low leverage firms by examining whether acquisition decisions differ amongst them in M&A deals in the UAE context. Results indicate that high (low) leverage firms are less (more) likely to acquire private targets and more (less) inclined to acquire a target from a different (same) industry. Furthermore, our results show that the relationship between the method of payment used in M&A deals and corporate leverage is insignificant. We control for endogeneity using Heckman’s two-stage method. In brief, this paper extends the literature with conclusive evidence that considerations of capital structure can significantly anticipate and explain firms’ behaviour toward M&A choices. The implication of findings may include a call to reform some aspects of the Competition Law in the UAE by requiring private firms to enhance their disclosure practices similar to their public counterparts.

The number of countries with special economic zones worldwide increased reaching *** in 2018, from about ** in 1975. Free trade zones facilitate the accessibility of investors to the market and offer an encouraging incentive for foreign direct investments.

 Overview of Special Economic Zones

Free trade zones are geographical areas in a host country that serve the purpose of providing an encouraging atmosphere for foreign investors to enter the market. The special economic zones (SEZ) have special regulations such as reduced taxes and duties, better infrastructure, and favorable labor laws. The monetary and non-monetary incentives reduce the risk involved in entering a new market and encourage foreign direct investments. Free trade zones gained popularity over the years, reaching about *** thousand zones globally. The United Arab Emirates (UAE) was the leading nation in the number of free trade zones in the Middle East and North Africa (MENA) region at ** zones in 2018. Special economic zones increase cost efficiency for foreign investors and serve as an opportunity for the host country to improve its political relations with other countries.

 MENA Special Economic Zones 

With the increased focus on foreign direct investments and its contribution to the development of countries in the MENA region, free trade zones started becoming a part of most of the economies’ regimes. FDIs in the region almost reached ** billion U.S dollars in 2017 after the economies recovered from the crisis that followed the Arab Spring years earlier. Special economic zones support the host countries combat unemployment by creating job opportunities. Both the male and female unemployment rates in the MENA region in 2019 were above the global average, with the female unemployment being ***** times the global average. The UAE is the leading economy in the free trade zone market, attracting more than **** billion U.S. dollars of foreign direct investments in 2019. The fDI Magazine ranked the Dubai Multi Commodities Center (DMCC) as the top free trade zone globally for *** continuous years.

Inbound tourism in the UAE registered healthy growth during the historic period (2009–2014), with trips increasing from 9.1 million in 2009 to 13.4 million in 2014. The growth was largely driven by the UAE’s efforts to attract tourists by investing in tourism infrastructure such as theme parks and stadiums, and emerging as the global aviation hub by building two world-class airports in Dubai (Dubai International and Al Maktoum International). Additionally, political instability in other key tourist destinations in the Middle East such as Egypt also supported the growth. However, arrivals from Russia dipped by 3% in 2014 due to economic crisis in the country and the depreciation of ruble. Domestic trips totaled 7.6 million in 2014 while outbound trips stood at 4.6 million. Saudi Arabia is the most preferred outbound travel destination for the UAE residents and most trips are religious. They visit Mecca and Medina, which are considered holy places for Muslims Read More