The moderating influence of market potential and prior experience on the governance quality-equity participation relationship

Abstract

PurposeThe purpose of this paper is to theorize and examine how target country governance quality, target country market potential and acquirer’s prior experience impacts equity participation in cross-border acquisitions.Design/methodology/approachThe hypothesized effects are tested using a sample of 1,447 acquisitions undertaken over an 11-year time by US-based multinational enterprises (MNEs) in four emerging markets: Brazil, Russia, India and China (BRIC).FindingsAnalysis suggests that target country governance quality (government effectiveness, rule of law and control of corruption) strongly influences equity participation, and market potential moderates the influence of governance quality on equity participation. Further, findings demonstrate that acquirer’s target country acquisition experience amplifies the positive influence of market potential on governance quality-equity participation relationship.Originality/valueThis study adds to the existing knowledge of equity participation in cross-border acquisitions (CBAs) undertaken by foreign MNEs in BRICs. This understanding is important since MNEs across the globe invest in BRIC utilizing CBA, and related research remains limited.