Cross-border Acquisitions Research Articles

The role of product lines in determining the degree and speed of integration: evidence from the pharmaceutical MNCs in cross-border acquisitions

Despite the growing number of acquisitions of Business Units (BUs) by Multinational Companies (MNCs), international business literature is limited to investigating the post-acquisition integration at the firm level. Therefore, this research investigates MNCs' strategic motivation in acquiring BUs and how they manage the post-acquisition integration at the BU level. Specifically, this article focuses on studying the pivotal role of acquired BU's product lines in determining the degree and speed of integration. Using multiple case study method in cross-border acquisitions, the analysis reveals three findings. First, acquired BU's product lines are the strategic motive for the acquirer MNCs and, therefore, become significant in the decisions taken during post-acquisition integration. Second, the three phases of acquired product lines, namely marketed, upcoming, and Research and Development (R&D) pipeline, set the speed of integration from fast to slow. Third, acquired product lines' market relatedness determines the degree of integration between the acquirer and acquired BUs.

The effect of transfer pricing and tax haven on cross-border acquisition

The effect of transfer pricing and tax haven on cross-border acquisition

Entry mode decisions in cross-border acquisitions: the role of strategic consistency and flexibility

This paper is aimed at relating size and strategy of cross-border acquirers to their acquisition behaviour by investigating the choices made by acquirers to take over their targets partially or fully. We divided a sample of Japanese cross-border acquirers into firms with consistent or flexible strategies. Based on various arguments from strategy literature and international business literature, we hypothesised and empirically validated that there was an interaction effect between the size and strategy of the acquirer vis-à-vis its decision to attain full or partial acquisition. Our findings indicated that large acquirers preferred full acquisitions while small firms preferred partial acquisitions. Besides size, business strategy mattered too. For small acquirers that subscribed to a consistent strategy, full acquisitions were preferable, while those with a flexible strategy chose partial acquisitions. Nevertheless, the effect of strategy on acquisition behaviour was weak for large acquirers.

Mergers and Acquisitions in Recession Periods

Purpose – This paper investigates the returns on M&A transactions for shareholders of acquiring companies in times of crisis in Brazil. Theoretical framework – Our results are related to previous literature by Brown and Sarma (2007), Malmendier and Tate (2005), and Malmendier and Tate (2008). Our paper contributes to the aforementioned research by relating executives’characteristics to M&A returns in times of crisis. Design/methodology/approach – We adopt the event study method to calculate abnormal returns and use multiple linear regression and propensity score matching techniques to connect returns to executive and firm variables.Findings – We found positive average abnormal returns (between 1.8% and 3.3%) for M&A transactions carried out during recession periods in Brazil. In addition, we identify that abnormal returns during periods of crisis and expansion differ substantially. Finally, we show that executives with a graduate level academic background and less time in the company’s management are associated with positive abnormal returns during crises. Practical & social implications of research – This article assesses the existence of abnormal returns in M&A operations by considering three distinct moments of crisis. The study also links abnormal returns to company variables and executive characteristics. Originality/value – Previous research emphasizes the panorama of acquisition operations, synergies, cross-border acquisitions, and value creation. Therefore, we believe that our paper is pioneering in presenting results on abnormal M&A returns during crisis periods in Brazil. Keywords: Mergers and Acquisitions (M&A), abnormal return, crisis.

Emission Trading Schemes and Cross-Border Mergers and Acquisitions

Emission Trading Schemes and Cross-Border Mergers and Acquisitions

Impact of Upward and Downward Institutional Distance on Cross-Border Acquisition Completion: The Moderating Role of Parent Firm-Specific Advantages

Impact of Upward and Downward Institutional Distance on Cross-Border Acquisition Completion: The Moderating Role of Parent Firm-Specific Advantages

Međunarodne akvizicije i profitabilnost preuzetih kompanija u cementnoj industriji Srbije

Transition to market economy in the Republic of Serbia started with one decade of delay compared to most former socialist countries. The transition has implied liberalization of economic policies in the area of foreign direct investments, even in some industries that have been previously considered strategic. Multinational companies have used new business opportunities and acquired some of the most important and largest domestic companies. This paper analyses the impact of cross-border acquisitions on the profitability of targets in Serbian cement industry during the period 2000-2020. Serbian cement industry includes three cement plants, all of which were acquired in the process of privatization during 2002. The study analyses changes of ROA (return on assets), ROE (return on equity) and ROS (return on sale) of targets in the short term and in the long term after the acquisitions. The research results show that profitability of all companies improved both in the short term and in the long term after acquisitions. These improvements were achieved through higher cost efficiency and more efficient business asset management.

Patent- and trademark-seeking outward foreign direct investment by Chinese firms: The role of business group affiliation

AbstractWe examine the relationship between business group affiliation (BGA) of Chinese firms and their foreign acquisitive behavior in terms of technology and brand-oriented strategic assets. Drawing on new internalization, business group, and international business theory, we assert that Chinese business group affiliated firms will more likely pursue foreign acquisitions to seek strategic assets including patents but less likely to pursue foreign acquisitions to seek trademarks. Patents have non-location-bounded (NLB) properties that mean they can be exploited by the business group—not just the firm—back in the domestic market, while trademarks have location bounded (LB) properties that mean they are less easy to exploit by a business group domestically. Using a sample of 779 Chinese cross-border acquisitions between 2006 and 2015, we find support for arguments relating to the differences in relative attractiveness of targets holding patents vs. trademarks for Chinese firms linked to business groups. We discuss how this better helps us understand emerging market MNEs and related theory.

Economic policy uncertainty and acquisition performance: Australian evidence

We investigate the influence of economic policy uncertainty on the market valuation of acquisitions undertaken by Australian firms, finding a negative association between economic policy uncertainty and abnormal returns earned by acquirers. In general, with greater economic policy uncertainty, acquirers pay higher premiums, execute transactions more quickly and are less likely to complete deals. With respect to acquisition choices, acquirers prefer to purchase public targets versus private targets, use stock swaps versus cash in financing deals and are less likely to make cross-border acquisitions. Deals completed at a time of heightened economic policy uncertainty are found to contribute to acquirers’ significant underperformance in the long run. Our main findings are robust after addressing issues related to sample selection bias and selection based on observable firm characteristics. Our findings support the notion that economic policy uncertainty adversely affects acquisition outcomes in Australia.

Board experience and value creation in cross-border acquisitions: The role of acquirer and target country institutions

Our study investigates the effects of board acquisition experience on value creation in cross-border acquisitions and the dependence of this relationship on acquirer and target country institutions. We draw on cross-border acquisition research and institution-based corporate governance research to argue that the effect of board acquisition experience depends on the institutional characteristics of the acquirer and target countries and on cultural differences between these two countries. Based on 1775 cross-border acquisitions of U.S. and European acquirers, we show a positive effect of board acquisition experience on the announcement returns of cross-border acquisitions, which is even stronger when the target country’s takeover regulations are less friendly and when the target and acquirer countries are culturally more distant.

Seeking strategic assets within cross-border acquisition waves: a study of Indian firms

There is evidence to suggest that cross-border acquisitions by emerging market firms exhibit a wave-like pattern. In this paper, we examine the timing of cross-border acquisitions with a strategic asset-seeking motive within cross-border acquisition waves. Our findings suggest that emerging market firms are more likely to pursue acquisitions with a strategic asset-seeking motive during the early and decline phases of the wave, and lower during the wave peak. Further, we show that business group affiliation and foreign institutional shareholding moderate the relationship, thereby strengthening the propensity to pursue strategic asset-seeking acquisitions during the early phase of the wave. Our study based on a sample of 312 cross-border acquisitions conducted by Indian firms, provides support for our hypotheses.

Cross-border acquisitions and the performance of Chinese publicly listed companies

Based on resource dependence theory, agency theory, and institutional theory, we develop an integrated conceptual framework for motivations, moderators, and performance of Chinese cross-border acquisitions. We then use a unique dataset, which covers the 2003–2016 period, to examine how market-seeking, resource-seeking, and managerial self-interest motivations of cross-border acquisitions influence the performance of China’s manufacturing sector publicly listed companies (PLCs). Analysis of the aggregated data shows strong support for market-seeking motivation for cross-border acquisitions. But we only find weak support for resource-seeking motivation. Our analysis also reveals the underlying agency problem thus supporting the managerial self-interest motivation for cross-border acquisitions. Disaggregated data analysis shows that all cross-border acquisitions are driven by market-seeking motivation, whereas resource-seeking is the main driver of acquisitions by state-owned and low-tech PLCs. Acquisitions by China’s private-owned PLCs and medium/high-tech PLCs are also motivated by managerial self-interest in free cash flow, which leads to the principal-agent conflict.

Liability of emergingness and EMNEs’ cross-border acquisition completion: A legitimacy perspective

This paper contributes to the literature on emerging multinational enterprises (EMNEs) by revealing how the conditions in their home countries influence their cross-border acquisitions. The study focuses on the liability of emergingness (LOE). It develops an integrative theoretical framework based on neo-institutional theory and the concept of legitimacy to explain the relationship between LOE and EMNEs’ cross-border acquisitions completion and the situational conditions that shape this relationship. The study uses data on 27,648 announced acquisitions conducted by EMNEs from 24 emerging economies in 175 host countries to estimate the relationships. The results reveal that, while two types of LOE (economic and institutional) have negative impacts on cross-border acquisition completion, the negative impacts become less important or disappear when the host country’s unemployment rate is too high, and the host country’s institutional quality is too low. This finding suggests that EMNEs can mitigate the negative effect of the LOE by carefully choosing a good time and a suitable location to enter into these transactions.

What drives cross-border acquisitions of hotel companies based in an emerging economy? A study on Chinese hotel corporations

This study takes Chinese hotels as example, explores the driving forces and objectives underlying the cross-border acquisitions (CBAs) of hotel corporations based in emerging economies (EEs) from three perspectives: the institutional conditions of EEs; the characteristics of the hotel industry; and the types of the acquiring corporations. To this end, 20 senior corporate executives who served as decision makers in seven Chinese hotel corporations’ CBAs were interviewed. The findings identify four emerging objectives of Chinese hotel corporations: 1) create network; 2) export the brand; 3) obtain land resources; and 4) transfer assets. The findings also demonstrate that the institutional conditions of EEs, the characteristics of the hotel industry and the types of the acquiring corporations are important influential factors in the CBAs decisions of Chinese hotel corporations.

Do home country stability factors matter for domestic and cross border mergers and acquisitions? A case of G19 countries

This study explores the impact of home country stability factors (CSF)—political stability, corruption and governance—on mergers and acquisitions (M&A) volume and whether it differs between domestic and cross-border acquisitions. Domestic acquisition volume is mainly driven by low corruption and high governance, despite political instability. Increased governance boosts inbound acquisitions, followed by low corruption and greater political stability. Low corruption drives outbound acquisitions, followed by greater governance and political stability. The effect of CSF on propelling M&A volume varies by institutional setting. Low corruption is a unique factor that enhances a country's competitiveness in the pecking order of M&A.

Returnee managers as an asset for emerging market multinational enterprises: Chinese cross-border acquisitions (2008–2017)

Returnee managers, a scarce human resource for emerging market multinational enterprises in the past, are becoming increasingly abundant, and their value is at risk of diminishing. The analysis of Chinese cross-border acquisitions (2008–2017) reveals that only returnee managers from the same country in which an acquisition is targeted facilitate the acquisition, whereas the others fail to make a difference. The impacts are stronger when the acquiring company has less international experience and when the target country has a weak institutional environment. Thus, returnee managers as an asset should be deployed where they are most needed and least substitutable.

Determinants of stock market reaction to cross-border acquisitions: evidence from emerging economies

PurposeThe global economy has witnessed an exponential increase in cross-border acquisitions (CBAs) by emerging market companies (EMCs), demanding a relook at their internationalization strategy. The purpose of the study is to investigate whether the announcement of CBAs by EMCs creates value for the equity-holders of acquiring firms and identify factors affecting the valuation of acquiring companies.Design/methodology/approachThe paper investigates the announcement impact of CBAs of CNX Nifty 500 Indian and SSE 380 Chinese companies. The event study analysis of 553 Indian and 125 Chinese acquisitions supports the contention that CBAs are indeed a strategic choice of EMCs for value creation.FindingsCBAs generate positive and statistically significant abnormal returns for shareholders of both Indian and Chinese acquirers. The markets, however, differ in terms of their motivations; country-level factors have been observed to exert significant influence on the returns of Indian acquirers. Indian companies experience larger value creation on acquiring firms established in developed, institutionally closer and/or economically distant markets. The findings support the asset-seeking motive of Indian companies.Originality/valueThe research work contributes to the evolving stream of CBAs literature with a focus on the globalization strategies of EMCs. The present study is a modest attempt to lay the foundation for a new theoretical framework (asset-seeking perspective) of overseas acquisitions from emerging economies. The existing studies on emerging economies have emphasized, in isolation, either Indian CBAs or international acquisitions by Chinese firms. Being so, the study is unique and original in the sense that it is a comparative study of India and China.

The impact of OFDI in global cities on innovation by Indian multinationals

ABSTRACT We investigate the impact of Outward Foreign Direct Investment (OFDI) on the innovation performance of Indian multinationals by analysing their choice of entry mode (cross-border acquisitions versus greenfield investments) and their international location decisions (i.e. choice to locate in a global city). We rely on an augmented fractional logit estimator for 170 foreign investments in high- and medium-high tech manufacturing sectors in the period 2003 to 2011 and find that: (i) compared to greenfield investments, acquisitions generate more technological opportunities; (ii) location in a global city has a negative impact on the Indian companies’ innovation performance; (iii) the positive effect of acquisition decreases if the investment is focused on a global city. These findings should be informative for both firms and government authorities involved in developing going-global strategies.

International strategies of Chinese tourism MNEs: the impact of the belt and Road Initiative and state ownership

PurposeThe Belt and Road Initiative (BRI), an ambitious plan led by the Chinese government aiming to reach a close integration between countries, is reshaping the global institutional landscape. Chinese state-owned enterprises (SOEs) play a leading role in the BRI and they usually follow an unconventional behavior derived from the institutional influence of their home government. Prior research reports that institutional distance between home and host countries has an impact on multinational enterprises’ (MNEs’) ownership level in their foreign subsidiaries. Therefore, our aim is to investigate how institutional distance, the BRI and state ownership affect Chinese tourism MNEs' ownership level in their cross-border acquisitions.Design/methodology/approachDrawing on the institutional theory, this study develops several hypotheses that are tested using a sample of Chinese MNEs from accommodation, travel agencies, transport and leisure/entertainment industries.FindingsThe results show that the idiosyncratic characteristics of being an emerging-market MNE belonging to a soft-service industry is associated with a positive relationship between institutional distance and a high ownership level in cross-border acquisitions. They also indicate that targeting a country included in the BRI and being an SOE negatively moderates that relationship.Originality/valueThis study extends institutional theory in the case of tourism firms from an emerging economy. It also addresses an under-research topic in the literature, namely, how the BRI is leading Chinese tourism MNEs to redesign their international strategies.

Transforming Korean business? Foreign acquisition, governance and management after the 1997 Asian crisis

ABSTRACT The surge in cross-border acquisitions of Korean businesses, following the 1997 Asian Crisis, raised strong debates about the strategic motivations of foreign investors and the failings of selling firms. This article assesses their impact on the governance, management, and competitiveness of the resulting joint ventures and newly-formed enterprises. Contrary to local perceptions, ‘fire-sales’ and financial opportunism had not motivated foreign buyers, which sought to transform their acquisitions. Nor does government pressure to reform or poor liquidity fully explain the strategies of their Korean counterparts. Through case studies, the article provides insights into the long-term development of governance and management in Korean business.