Abstract
The central proposition of this paper is to assess the performance of cross-border acquisitions made by Multilatinas. Applying the event study method to a sample of 607 announcements of acquisitions during the period 1989-2011 by 182 Multilatinas from Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela, we conclude that: (a) on average, these announcements have a neutral impact on the short-term returns to acquiring companies' shareholders; (b) cross-sectional analysis reveals that relative size of the deals have a negative and significant effect on investors' reactions and; (c) unlike the institutional distance between home and host countries, cultural distance matters, since it has a negative and significant effect on the perceptions that investors have regarding the expected economic impact of acquirers' cross-border merger and acquisition (M&A) decisions. Inasmuch as the market rationality assumption that underlies the event study method has been questioned, future research lines are proposed in order to search for alternative long-term performance constructs concerning M&A processes in general that can: (a) shed light on the reality of value creation (and destruction) from cross-border acquisitions made by Multilatinas; and (b) contribute to strategy, international business and M&A theories and practice.
Highlights
Other theories endeavor to explain some specific phenomena, such as the expansion of NorthAmerican multinational companies in the post-war period (Vernon, 1979), as well as the internationalization patterns of Nordic multinational companies, commonly known as the Uppsala School, and called the gradualism and learning model (Johanson & Vahlne, 1977). It was from the Ownership-Location-Internalization (OLI, or the eclectic) paradigm proposed by John Dunning (1988, 2001) – according to which the competitive advantages of multinational companies arise from the ownership of specific resources and capabilities (Ownership), from the geographical location of their operations (Location) and from the decision to internalize key activities (Internalization) rather than subcontracting them under market conditions – and the studies by Rugman (1981, 1996) and Hennart (1977, 1982) that internalization theory gained momentum to be considered the dominant paradigm to understand, explain and predict multinational enterprise (MNE) internationalization strategies, both from developed countries and from emerging economies
To our knowledge this is the first attempt to look at the performance of cross-border acquisition (CBA) activities developed by a sample of emerging economies (EMNEs) located in Latin America, which can be regarded as a natural laboratory for the study of the internationalization process followed by companies, as a strategic response to the sweeping promarket reforms carried out by most of the countries in this region
We have investigated a rather contentious issue which is related to value creation and destruction from cross-border acquisitions made by EMNEs in general and we have concluded that announcements of cross-border acquisitions made by Multilatinas – despite their apparently competent strategic responses to pro-market reforms and their acquisitive prowess – did not, on average, create value for their shareholders
Summary
The extensive and diversified academic production in internationalization and international business areas, from the 1950s-1960s, has been a response to the increasing interest in transnational companies and their economic and social impacts on the economies from which they originate, and on the countries hosting their foreign direct investments (FDIs).Analogously to Coase’s (1937) central proposition to understand and explain the reason for the existence of the firm, different theoretical streams – focused especially on corporations headquartered in developed countries – have striven to understand and explain the reason for a multinational enterprise (MNE) to exist, focusing on aspects linked to the extension and pattern of their activities.While Hymer’s (1976) seminal contribution and Caves’ (1971) studies were based on the theoretical background of industrial organization and imperfect markets, it was only with Buckley and Casson (1976, 2003) that a more explicit treatment was given to the relationship between market imperfections and internationalization movements (Rugman, 1981).Other theories endeavor to explain some specific phenomena, such as the expansion of NorthAmerican multinational companies in the post-war period (Vernon, 1979), as well as the internationalization patterns of Nordic multinational companies, commonly known as the Uppsala School, and called the gradualism and learning model (Johanson & Vahlne, 1977).it was from the Ownership-Location-Internalization (OLI, or the eclectic) paradigm proposed by John Dunning (1988, 2001) – according to which the competitive advantages of multinational companies arise from the ownership of specific resources and capabilities (Ownership), from the geographical location of their operations (Location) and from the decision to internalize key activities (Internalization) rather than subcontracting them under market conditions – and the studies by Rugman (1981, 1996) and Hennart (1977, 1982) that internalization theory gained momentum to be considered the dominant paradigm to understand, explain and predict MNE internationalization strategies, both from developed countries and from emerging economies. To our knowledge this is the first attempt to look at the performance of cross-border acquisition (CBA) activities developed by a sample of EMNEs located in Latin America, which can be regarded as a natural laboratory for the study of the internationalization process followed by companies, as a strategic response to the sweeping promarket reforms carried out by most of the countries in this region.
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