The Influence of Foreign Directors on Cross-Border M&A Completion

Abstract

Purpose - The purpose of this study is to empirically examine the influence of foreign directors on the likelihood of cross-border merger and acquisition (CBMA) deal completion, and to investigate the moderating effect of past M&A experience. Despite the significant influence that board diversity can have on M&A decisions and its role as a decision-maker, insufficient research has been conducted on the impact of boards on M&A completion. Foreign directors, as a representative proxy for board diversity, can bring broader perspective and knowledge about a foreign environment when firms pursue CBMAs. In addition, they can provide strategic advice and counsel to a firm by objectively evaluating the information necessary for the processing of CBMAs, thereby enhancing the quality of CBMA decision-making. This study expects that the resources that foreign directors possess may have a positive influence on the CBMA process, improving the acquirer’s ability to find a more suitable target and reducing country differences that may arise during the negotiation process. Moreover, the study also expects that this effect is strengthened within an acquirer that has prior M&A experience since the firm can gain knowledge and accumulate the capabilities essential to pursuing subsequent M&As. Design/Methodology – Using a sample of 460 CBMA deals conducted by 377 publicly listed Chinese acquirers between 2009 and 2017, we employ logistic regression to examine our hypotheses. The study utilized the dummy variable of whether a CBMA deal is completed as the dependent variable, foreign directors on board of directors as an independent variable, and past M&A experiences as moderating variables. Findings – The study shows the positive role of foreign directors within an acquirer in enhancing the likelihood of CBMA deal completion. Additionally, the result also shows that the acquirer’s past M&A experience positively moderates the influence of foreign directors on the likelihood of CBMA deal completion. Originality/value – The study emphasizes that the international experience and knowledge brought by foreign directors to underwriting firms in pursuing and executing CBMA deals, characterized by high uncertainty and risk, can effectively mitigate these challenges.