Abstract
The purpose of this paper is to analyze the relationship between home country institutions and cross-border merger and acquisition (M&A) motives of MNEs from the Asia-Pacific region, with a focus on the role of regulatory quality and dynamics. We empirically examine how M&A motives are affected by elements related to risk of the institutional environment of the acquiring firm’s home country regulatory quality over time. The study is grounded in the general theory of springboard MNEs, and the institutional views of cross-border operations, namely the institutional escapism and institutional fostering perspectives. Using data on over 700 cross-border M&As of European firms by Asia-Pacific MNEs in 2007–2017, we analyze the rationales for these deals and their relationship to the institutional characteristics of the buyers’ home countries including regulatory quality and voice and accountability. We found that the quality of home country regulatory environment is significantly related to domestic firms’ motivation for international M&As. However, the significance and sign of the effects differ for different types of motives and over time. Our findings contribute to the literature on general versus emerging MNE-specific internationalization theories (particularly the theory of springboard MNEs) by expounding on the types and dynamics of cross-border M&A motives.
Highlights
Outward foreign direct investment (FDI) from the Asia-Pacific region is an important trend and area of research (Paul and Benito 2018), and over a third of global outward FDI are cross-border mergers and acquisitions (M&As) (UNCTAD 2020)
This study responds to the recent calls for a dynamic perspective on emerging market MNEs (EMNEs) FDI and M&As and their motives (Elia and Santangelo 2017; Kumar et al 2020) and a need for a general multinational enterprise (MNE) theory that would include both unique features and similarities between advanced and emerging MNEs (Luo and Tung 2018)
The negative effect on the ‘expand offerings’ and ‘cross-border/expand geographic footprint’ motives are confirmed in models using ‘estimate’ measure of voice and accountability. This suggests that institutional fostering and institutional escapism effects can work differently for various types of institutions. These findings extend the analysis of Hur et al (2011) who found that voice and accountability had the strongest effect on M&A inflows among the other institutional indicators, with regulatory quality and government effectiveness showing significant results
Summary
Outward foreign direct investment (FDI) from the Asia-Pacific region is an important trend and area of research (Paul and Benito 2018), and over a third of global outward FDI are cross-border mergers and acquisitions (M&As) (UNCTAD 2020). While the importance of cross-border M&As in firm internationalization is evident (Luo and Tung 2018), theory and research explaining the motives related to why they are undertaken has recently seen new calls for a better understanding of how these motives might differ between acquirers from advanced and emerging economies (Xie et al 2017; Sutherland et al 2020), especially in the Asia-Pacific region (Faff et al 2019) where there are both rising emerging economies (Scalera et al 2020) and developed countries active in M&As (Ahmed 2019; Luo et al.2019). This study responds to the recent calls for a dynamic perspective on EMNE FDI and M&As and their motives (Elia and Santangelo 2017; Kumar et al 2020) and a need for a general multinational enterprise (MNE) theory that would include both unique features (e.g., home country institutional volatility) and similarities (e.g., a desire to achieve economies of scale and expand geographic footprint) between advanced and emerging MNEs (Luo and Tung 2018)
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