Institutional Distance, Inter-Country Relationship, and Cross-Border M&A Performance of EMNEs

Abstract

How do the country-level institutional difference and inter-country relationship influence the value creation of cross-border mergers and acquisitions (M&As) by emerging market multinational enterprises (EMNEs)? Drawing on institutional-based view, this study investigates how the regulatory distance between home and host country affects stock market reactions to cross-border M&As announcement by EMNEs, using a sample of 1083 deals from 2003-2018 by Chinese listed firms. Our findings indicate that (1) The announcement of cross-border M&As will generate positive stock market reaction for EMNE acquirers. (2) M&A direction as well as regulatory distance matters, EMNEs are more likely to achieve better stock market reaction when they acquire targets from regulatory similar countries, but will gain less cumulative abnormal returns when the targets are from more institutionally mature countries, comparing to institutionally weaker ones. (3) Inter-country relationship can mitigate the negative influence of regulatory distance. EMNEs’ acquiring targets from ‘One Belt One Road’ (B&R) countries are more likely to bring about better stock market reactions in spite of the regulatory distance.