Abstract
Integrating social network theory with the literature on national distance, we examine how the investment strategy followed by a private equity (PE) firm in an emerging market is affected by the interplay between two important types of national distances – institutional and geographic – and the firm’s centrality in the regional syndication network. Covering over 5,000 investment transactions, we use a dataset of more than 500 PE firms based in both developed and emerging markets targeting three emerging market regions – Latin America, Southeast Asia, and Eastern Europe – from 1996 to 2011. The results show that, depending on the level of centrality of PE firms in regional syndication networks, institutional and geographic distances can have differing effects – both in magnitude and direction – on their investment strategies in emerging markets. Moreover, these effects are contingent on whether the PE firm is from a developed market or an emerging market. We conclude that different types of national distances can operate in dissimilar ways depending on (1) firm-level factors defined at the regional level – such as centrality in the regional syndication network – and (2) the developed market or emerging market nature of the PE firm.
Highlights
Given the increasing importance of emerging markets (EMs) in the world economy, the strategic decision to invest in an EM is important for any firm (Hoskisson, Eden, Lau, & Wright, 2000; Meyer, Estrin, Bhaumik, & Peng, 2009; Peng, Wang, & Jiang, 2008; Wright, Filatotchev, Hoskisson, & Peng, 2005)
Integrating social network theory with the literature on national distance, we examine how the investment strategy followed by a private equity (PE) firm in an EM is affected by the interplay between two important types of national distances – institutional and geographic – and the firm’s centrality in the regional syndication network
Our paper’s general argument is that different types of national distances can operate in diverse ways depending on firm-level factors defined at the regional level – such as centrality in the regional syndication network
Summary
Given the increasing importance of emerging markets (EMs) in the world economy, the strategic decision to invest in an EM is important for any firm (Hoskisson, Eden, Lau, & Wright, 2000; Meyer, Estrin, Bhaumik, & Peng, 2009; Peng, Wang, & Jiang, 2008; Wright, Filatotchev, Hoskisson, & Peng, 2005). Integrating social network theory with the literature on national distance, we examine how the investment strategy followed by a private equity (PE) firm in an EM is affected by the interplay between two important types of national distances – institutional and geographic – and the firm’s centrality in the regional syndication network. Geography affects PE investments in significant ways These effects have been studied empirically in the previous literature (Chen, Gompers, Kovner, & Lerner, 2010; Lerner, 1995; Sorenson & Stuart, 2001).. Our paper’s general argument is that different types of national distances can operate in diverse ways depending on firm-level factors defined at the regional level – such as centrality in the regional syndication network. To tackle this research question, our empirical study distinguishes between developed market (DM) PE firms and EM PE firms
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