Abstract
AbstractEmerging market firms (EMFs) are increasingly recognized as a heterogeneous group of business enterprises, providing a unique context for examining the predictive power of existing theories. Drawing on real options and internalization theories, this paper predicts the contrasting effect of bilateral relationships on EMFs' ownership choice in cross‐border acquisitions. The conflicting conjectures are tested using data consisting of almost 1,000 cross‐border acquisition deals. Our results show that weak economic, political and military relationships between acquiring and target countries induce EMFs to opt for full acquisitions. The findings support the view of internalization theory, highlighting that EMFs prefer full ownership over partial ownership by coping with the political risk derived from weak bilateral relationships.
Highlights
Recent studies suggest that consideration of bilateral relationships between nations is crucial for the success of cross-border acquisitions (Bertrand, Betschinger and Settles, 2016; Hasija, Liou and Ellstrand, 2019; Li et al, 2019)
Combining insights from real options and internalization theory, it advances our understanding of how affinity between countries, reflected in their economic, political and military affairs, influences emerging market firms (EMFs)’ ownership choice in cross-border acquisitions (Balabanis et al, 2001; Ramamurti, 2001)
By developing conflicting hypotheses grounded in real options theory and internalization theory, it advances our understanding of how affinity between countries – reflected in their bilateral relationships – shapes international business transactions between firms
Summary
Recent studies suggest that consideration of bilateral relationships between nations is crucial for the success of cross-border acquisitions (Bertrand, Betschinger and Settles, 2016; Hasija, Liou and Ellstrand, 2019; Li et al, 2019). The Foreign Acquisitions & Takeovers Act (FATA) states that individual foreign buyers need approval to acquire more than 15% of an Australian company – or 40% if there is more than one buyer – and the application to acquire a company may be refused if it is deemed to be against the national interest (Economist Intelligence Unit, 2010) This evidence shows that bilateral relationships entail a great deal of complexity (e.g. antitrust laws, merger and acquisition (M&A) regulations) for EMFs’ ownership choice in cross-border acquisitions (Duanmu, 2014; Li and Vashchilko, 2010; Zhang, Zhou and Ebbers, 2011)
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