Firm Heterogeneities, Multi-Dimensional Proximities, and Systematic Dynamics of M&amp;A Partnering: Evidences from Transitional China

Jiawei Wu

doi:10.3390/systems10020032

Abstract

Corporate investment strategies and decision-making processes are crucial for understanding the operation and evolution of socioeconomic systems. Mergers and acquisitions (M&As) have been the main mode of corporate investment, growth, and upgrading, deeply affecting corporate reorganization, regional industrial restructuring, and economic globalization. By building a database including 5543 M&A partnerings and 1.89 million M&A non-partnerings, this study aims to uncover the systematic dynamics of M&A partnering in regional China during different phases since the mid-1990s, with particular attention given to the effects of firm heterogeneities and multi-dimensional proximities. Although geographical, cognitive, organizational, and institutional proximity dimensions are significantly influential for M&A partnering, we find that the effects of multi-dimensional proximities differ across M&A types and involving firms. Specifically, organizational proximity matters more for large- and medium-sized acquirers, while institutional proximity plays a more vital role in the acquisition target selection of private-owned and small-sized acquirers. Cognitive proximity measured by industrial and technical relatedness is more crucial for horizontal, vertical, and conglomerate M&As that are tightly associated with the corporate product, technical, and functional upgrading. The results indicate that the benefits of cognitive proximity may offset the risks and costs resulting from long-distance M&As, demonstrating the interactive dynamics between proximity dimensions. Our findings suggest that firm heterogeneities, proximity dynamics, and contextual factors should be focused on when explaining the investment decision-making processes of individual corporations in emerging and transitional economies such as China.

Highlights

The variegated investment activities of corporations are an important component of the real economic world [1–3]
By building a database including 5543 mergers and acquisitions (M&As) partnerings and 1.89 million M&A non-partnerings, we focus on three related research questions: (1) How do multidimensional proximities at the firm level affect M&A partnering? (2) How do acquiring preferences vary by corporations with different attributes? (3) How do the influences of proximities differ across M&A types? This study aims to advance our understanding of the socioeconomic system by uncovering the driving mechanisms behind corporate investment strategy (i.e., M&A)
The results suggest that institutional proximity measured by the similarity of corporate ownership structures might be a key determinant of M&A partnering of Private-owned enterprises (POEs)

Summary

Introduction

The variegated investment activities of corporations are an important component of the real economic world [1–3]. A large body of literature has illustrated that corporate investment and relevant choices should be considered as a complex decision-making process, which is sensitive to contextual factors [7,8], place-specific attributes [1,9,10], organizational structures [11,12], and entrepreneurial behaviors [13,14]. There exist significant differences in decision-making mechanisms and locational implications of various investment modes, including greenfield investment (GI) and mergers and acquisitions (M&As), of individual corporations [15–17]. The linchpin of M&As is the partnering of the acquirer and the target, and this is different from the optimized choice of location in the process of corporate GI [26,27]. Research on differences in M&A partnerings of manufacturing and service sectors, as well as state-, foreign-, and private-owned corporations, is quite limited

Objectives

Results

Discussion

Conclusion