Cross-border Acquisition Deals Research Articles

Riding on information-based advantages: Business group affiliation and cross-border acquisition completion

This study examines the impact of business group affiliation on the likelihood of completing cross-border acquisitions. Drawing on information asymmetry theory, we hypothesize that business group–affiliated firms are more likely to complete cross-border acquisition deals than standalone firms. Recognizing the role of formal and informal institutions in shaping information asymmetry in cross-border acquisition transactions, we also investigate the contingent effects of regulatory quality distance (a formal institutional factor) and cultural distance (an informal institutional factor) on the above relationship. Our empirical analysis, based on a sample of 1293 cross-border acquisition deals announced by Indian firms between 2000 and 2017, offers interesting insights. Specifically, we find that business group affiliation positively influences the likelihood of cross-border acquisition completion and that regulatory quality distance between the home and host countries attenuates this effect. However, contrary to our expectations, cultural distance also attenuates the positive impact of business group affiliation on cross-border acquisition completion, challenging the expectation that business group affiliation advantages would mitigate information asymmetry across all contexts. Thus, our study underscores the context-dependent nature of business group affiliation advantages, which are shaped by formal and informal institutional factors in cross-border acquisitions.

최고경영자의 정치적 연계가 국제인수합병 거래기간에 영향을 미치는가? 중국 인수 기업을 중심으로

This paper aims to explore whether and how CEO political connections affect the duration of cross-border acquisition deals involving emerging-market acquirers. Drawing upon the human capital theory and institutional theory, this study proposes CEO political connections as the human capital for the strategic resources of the emerging-market acquirers to fill institutional voids. Using the Heckman selection model, the hypotheses were tested with cross-border acquisitions by Chinese acquirers from 2011 to 2016. The results show that acquisition deals take less time to complete for acquirer CEOs with political connections than for acquirer CEOs without political connections. Moreover, high marketization of the home region and high governance quality of the host country weaken the negative association between CEO political connections and acquisition duration.

조직학습이 해외 인수의 거래완료 가능성과 기간에 미치는 영향에 관한 연구: 미국 보험 산업을 중심으로

This paper aims to verify the question of whether organizational learning affects the completion likelihood and duration of firms’ CBA (cross-border acquisitions) deal-making process. By drawing on the organizational learning theory, we hypothesize that firms’ past acquisition success, failure and divestiture experiences have positive learning effects that encourage firms to exploit their existing knowledge and explore new knowledge respectively, which in turn increase the likelihood of subsequent acquisition deal completion, as well as reduce the duration of the acquisition process. We test our hypotheses by using data of 937 firm’s cross-border acquisition deals in the U.S. insurance industry from 1998 to 2019. We confirmed that past success and past divesture experiences are positively associated with acquisition completion. We further confirmed that past success and past divesture reduce deal-completion durations. The findings contribute to organizational theory by confirming the firm's accumulated experiences in the past have a positive impact on the deal completion and deal duration of cross-border acquisition.

Does economic freedom distance affect long-run post-acquisition performance and ownership level in cross-border acquisitions?

Using a large international sample of 35,798 cross-border acquisition (CBA) deals, we find strong evidence that economic freedom distance affects long-run post-acquisition performance and ownership level. We build our arguments using organizational imprinting theory to show that greater economic freedom distance leads to higher post-acquisition performance. However, our findings show that greater ownership level in the target firm adversely affects the imprinting effects in CBA deals. In addition to arbitrage advantages, higher economic freedom distance increases information asymmetry risks for MNEs, prompting them to opt for lower ownership levels. Finally, we demonstrate that ownership decisions of MNEs from emerging economies differ significantly from those that domicile in developed countries.

When Money Can’t Buy Everything: Sellers’ Perspective in Cross-border Acquisition Auctions

We investigate how the role of selling firms in cross-border acquisition deals. We focus on the important but less studied context of cross-border multiple bidder acquisition auctions, in which bid...

Economic Freedom and Cross-Border Acquisitions from Emerging Markets into Developed Economies

Extending the home base perspective by considering investors' parent countries, this study examines the effect of economic freedom (EF) on emerging-market enterprises' (EMEs) overseas acquisition completion in developed countries. Using a large data set of 5,174 cross-border acquisition deals from ten major emerging markets (EMs) during 1985–2011, we find that (1) the probability of deal completion is positively associated with the levels of EF of the acquirers' countries, the acquirers' parent and the target; (2) the EF of the countries of acquirers' parents has a substitutive effect on that of the acquirers' countries; (3) the difference of EF between the targets' countries and the countries of acquirers' parents negatively influences deal completion; and (4) the difference of EF between the targets' countries and the acquirers' countries negatively influences deal completion. These findings have important theoretical implications for international business scholars, as well as practical implications for managers and for policymakers of EMEs that are active in foreign direct investment.

Tata Motors’ successful cross-border acquisition of Jaguar Land Rover: key take-aways

Purpose This paper aims to focus on Tata Motors, an automobile company from an emerging market, and its successful acquisition of two global marquee car brands in Jaguar and Land Rover (JLR). It traces the evolution of JLR under the stewardship of Tata Motors over an eight-year long period and examines the strategic reasons for the success of the acquisition. Design/methodology/approach The paper approaches strategic issues in cross-border acquisitions using an illustration of a successful deal. It is based on statements of leaders and secondary data about the acquirer and acquired organizations. The paper explores the strategic challenges faced when emerging market firms carry out cross border acquisition deals. It recommends the short-term and long-term strategies that acquirers can follow to improve the chances of a successful acquisition. Findings Any acquisition is challenging. Cross-border acquisitions face greater challenges, especially if the acquirer is from an emerging market country while the target company is from a developed country. Success of the acquisition, especially over the long run, depends on both internal factors that are under the control of the acquirer’s management, as well as external environmental factors that it needs to address. Both patience and luck are required ingredients for success in such contexts. Practical implications While the general temptation in any acquisition is to extract synergies as quickly as possible, the Tata Motors’ acquisition of JLR is an exception. Tata Motors carefully handled short-term challenges and continued to invest in the core competencies of JLR and reaped benefits over the long run. It was also fortunate that a variety of factors in the external environment turned favorable for Tata Motors and JLR in the eight years since the deal took place. Social implications It concedes that during an M&A deal, the leaders of a seller organization may be nervous about their future. JLR trade union leaders were initially not sure whether jobs in UK would remain secure. To ensure success of the deal, the leaders of the acquirer firm need to balance the interests of multiple stakeholders, both in the short-term, as well as over a longer-term perspective. Originality/value The paper considers the Tata Motors’ acquisition of JLR. It is an example of a large, difficult cross-border acquisition by an emerging market based company. While the acquisition proved difficult in the short term, it has yielded excellent dividends to the parent company over the long term. This paper explores the reasons why this cross-border acquisition succeeded and recommends strategies that other companies considering cross-border acquisitions can consider to improve their chances of success.

The effects of industry relatedness and takeover motives on cross-border acquisition completion

Abstract This study builds on behavioral perspectives about risky decision-making and aims to identify the industry- and firm-level factors that affect decision makers' expected returns, perceived risk, and attitude toward risk. Together, these three criteria lead to the ultimate completion or abandonment of a cross-border acquisition after a public announcement. By using data from 1985–2008, this study presents empirical results from cross-border acquisitions. The results show that a cross-border acquisition deal is more likely to succeed when the degree of relatedness between an acquirer's and a target's businesses is high. The findings also show that acquisitions with strategic rather than financial motives are more likely to succeed.

Economic nationalism and foreign acquisition completion: The case of China

Extending institutional theory, we incorporate a neglected but important component of formal institution, economic nationalism, into a model that specifies its effects on cross-border acquisition success. We suggest that economic nationalism has a dynamic nature and sees the interaction between protectionism and liberalism. As such, it exerts both positive and negative effects on foreign investments, contingent on how these investments are perceived as aligned with the national interests as reflected by national security considerations, foreign relations, and growth strategy. Using a data set containing 7275 announced cross-border acquisition deals in China during 1985–2010, the study finds that (1) when an acquisition activity targets essential industries or state-owned enterprises, it is less likely to be completed because of provoked national economic security concerns; and (2) when an acquirer brings technology and/or capital, or/and helps to restructure poorly-performing firms, or/and the acquirer comes from a country with good foreign relations with China, the acquisition is considered as safe and helpful for the country's development, and it is more likely to be completed.

Conglomerate diversification through cross-continent acquisition: Vedanta weds Cairn India

Subject area corporate policy and strategy – mergers and acquisitions. Study level/applicability Post graduation (MBA and other management degrees). It includes courses on Strategic Management, Business Environment and International Business. Case overview Markets are becoming highly connective, accessible and communicative and reaching maturity at a very high phase. Acquisition is a choice to enhance the emerging and diversified markets. This case paper presents insights on Vedanta – Cairn India cross-border acquisition deal in Indian oil and exploration industry. This case synchronizes the gap between strategic planning and outcome of actions. The study exclusively evidences the reaction of stocks of all attached parties against acquisition announcement and compares with market performance. Expected learning outcomes Strategic mapping of business negotiations, while in-organic choices, further the impact of economic, political, legal and regulatory factors on cross-border mergers and acquisitions (M&A), deliberate deal financing mechanism and leadership diplomacy. It proposes from the viewpoint of corporate in-organic alternatives and to strengthen the upcoming research field of strategy & policy. Supplementary materials Global M&A market, shareholding pattern, income statement and balance sheet of Cairn India Ltd, financial figures of Vedanta Resources, tabular data on stock and index performance, deal structure and teaching note.

Completion of Chinese overseas acquisitions: Institutional perspectives and evidence

This study investigates how institutional factors influence the likelihood that Chinese overseas acquisition deals are completed. We argue that a Chinese firm to succeed in a cross-border acquisition is an outcome of the multi-level institutional contingencies. Using a data set containing 1324 announced Chinese cross-border acquisition deals over the 1982–2009 period, the study finds that the likelihood of a Chinese firm to succeed in a overseas acquisition is lower, if (1) the target country has a worse institutional quality, (2) the target industry is sensitive to national security; and (3) the acquiring firm is a state-owned enterprise. In addition, the study finds host country's institutions moderate the effect of the two firm-level factors: the learning experience and state-owned ownership.

Cross-border acquisition abandonment and completion: The effect of institutional differences and organizational learning in the international business service industry, 1981–2001

Based on the concepts of North's (1990) political economy of national institutions and economic behavior, we investigate how formal and informal institutional features influence the likelihood that a cross-border acquisition deal will be completed, as well as the time taken for its completion after announcement. Additionally, we study how past experience with completed acquisition deals moderates the effects of institutional differences. We focus on a relatively new context – the pre-completion stage of acquisition processes. We test our hypotheses using data from 2389 announced cross-border acquisition deals in the international business service industry (1981–2001). We find that differences in national formal and informal institutions explain part of the variation in the likelihood that an announced cross-border acquisition deal will be completed, as well as the duration of the deal-making. In addition, organizational learning moderates the effects of institutional distance: past experience with completed cross-border acquisition deals increases the likelihood of a subsequent deal completion in institutionally closer environments, but shortens the deal duration in institutionally distant environments.