Foreign Acquisition Research Articles

GLOBAL INFLUENCES ON GENDER INEQUALITY: EVIDENCE FROM FEMALE EMPLOYMENT IN KOREA

AbstractDo multinational enterprises (MNEs) transfer gender‐equal employment practices across borders? Using firm‐level data for Korea, a country with low gender equality, we find evidence that MNEs bring their home countries' gender norms in employment with them. Foreign‐acquired firms report 2–12 percentage‐points higher female shares of permanent main‐task workers at firm headquarters compared with nonacquired firms and the differential increases with the level of gender equality in the MNEs’ home countries. We estimate that 1 to 7 percent of the productivity increase caused by foreign acquisition can be attributed to workforce reorganization that may reduce gender‐based misallocations of talent.

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.

The Differential Impact of Risk Preferences of Board on Ownership Decisions in Foreign Acquisitions

Drawing on gender role theory and the information economics perspective, we aid in contributing to the ongoing debate of the risk preferences of female directors. Thus we distinguish between types of risk and take the position that the concept of risk is not a monolithic one. By decomposing acquisition risk into ex-ante and ex-post hazards, this cross-national study investigates how female representation on acquirers’ boards affects the level of ownership in foreign acquisitions. We further test how the relationship is moderated by institutional distance. Using a sample of 1,118 firm-year observations in 48 countries from 1997-2016, we find that greater female representation is associated with lower levels of ownership. We also find that institutional distance between home and host countries magnifies this relationship. Our findings support our arguments that female directors prefer different types of risk than their male counterparts, which drives choices about the appropriate level of ownership. We challenge the assumption of rational-risk assessment and unidimensional risk attitudes of female directors, offering unique theoretical implications. Recognizing that the presence of female directors influences the type of preferred risk in acquisitions provides insights that may help match board composition to the optimal risk profile of a firm.

The Role of Country Governance in Firm Responses to Economic Protectionism

Many countries have recently enacted investment-related national security screening laws and regulations (“national security screening laws” for short) that protect domestic firms from foreign ownership. Agency theory prescribes that these laws will dissuade managers from risky, long-term research and development (R&D) investments because these laws can dilute the disciplining role of the market for corporate control. Yet, agency theory’s prescription undermines the importance of country governance that firms are also subject to. We propose that firms subject to different country governance exhibit differential responses to the enactment of national security laws because country governance can shape the type of governance issues faced by firms. In addition, the role of country governance in shaping firms’ differential responses is stronger when managers have a lower level of decision discretion prior to the enactment of these laws. Using 40,843 firms from 61 countries, we find support for our arguments. Findings from this study advance comparative corporate governance research by highlighting that the influence of foreign acquisitions on R&D investment is contingent on country governance that firms are embedded in.

The Impact of National Culture on Firm Gender Diversity

Extant literature in organizational inequality shows that environmental forces affect firm gender equality outcomes. While there is evidence that national gender culture affects individual economic outcomes, little is known about the influence of national gender culture at the firm-level. In this article, I use the context of cross-border acquisitions to study how national culture shapes firms’ arrangements towards gender equality as I explore how foreign acquisitions affect workplace gender equality at acquired firms. I use restricted-access employer-employee data from France matched to M&A data. I use a generalized differences-in differences approach to estimate the impact of acquirer national gender culture on gender equality outcomes at acquired firms after an acquisition. I find that firms acquired by acquirers from more gender egalitarian countries see a larger increase in female representation in management and larger decrease in gender pay gap post-acquisition, compared to firms that get acquired by acquirers from less gender egalitarian countries. This main effect is stronger when the post-acquisition integration process is more thorough and when a new CEO is appointed at the acquired firm.

What drives Chinese overseas M&A investment? Evidence from micro data

AbstractIn recent years Chinese foreign acquisitions have increased significantly. In Europe and the United States, these investments are often criticized. Critics argue that Chinese investors outbid competitors with help from their government, that the acquisitions lead to undesirable technology transfer, or that they may have negative consequences for the employees of the target firm. We use a large deal‐level dataset on cross‐border acquisitions to investigate whether Chinese foreign acquisitions differ from cross‐border investment coming from other countries. We find that relative to non‐Chinese investors, Chinese acquirers indeed appear to be different in some dimensions. They focus on targets with higher debt levels and lower profitability. At the same time, they do not seem to pay more for targets with given characteristics, questioning the view that they are subsidized to outbid other investors. Policy initiatives like the Belt and Road Initiative and Made in China 2025 influence state‐owned but not private Chinese investors, suggesting that geopolitical or technology interests play a role. In the years after the takeover, target companies acquired by Chinese investors exhibit lower growth in capital productivity but a higher growth of employee compensation.

The Norwegian forest concession law of 1909 and concession policy 1909–28

ABSTRACT This paper employs a case study of the Norwegian forest concession law of 1909 and concession policy from 1909–28 to examine the expansion of state resource regulation at the start of the 1900s. The case is studied by examining the main aims of the law and what concession policy was conducted for forests between 1909–28. The forest concession law of 1909 regulated the sale of forests, requiring all buyers of forest property larger than municipal limits to acquire concession. Strict limitations were set on domestic companies’ ability to purchase forests, while foreign companies were effectively barred. Non-local Norwegian citizens were also required to acquire concession. The forest concession law had four aims: (1) Improve local political and economic conditions, (2) Stop foreign acquisitions of forests, (3) Avoid monopolies and unhealthy competition, (4) Avoid speculation on forests. The Norwegian forest concession policy was, in nearly the entire period, to support local and municipal forest ownership and restrict both foreign and domestic companies’ ownership of forests. The law was similar to Finnish and Swedish forest regulations in promoting social goals such as protecting farmers and crofters but was somewhat more protective than the Finnish and Swedish regulations.

Leviathan as foreign investor: Geopolitics and sovereign wealth funds

Sovereign wealth funds (SWFs) are important but understudied state investors. We investigate whether geopolitics influences SWFs foreign acquisitions, asking if and how their FDI patterns differ from those of private firms. Theoretical expectations are mixed. On the one hand, limited managerial control of target firms suggests that SWFs may be unable to pursue political goals, and thus they are no more sensitive to geopolitics than private firms. On the other hand, state ownership of SWFs can generate national security externalities and thereby makes SWFs more sensitive to geopolitics. Utilizing novel big-data measures of cooperative and adversarial relations based on media reporting and three different tests, we examine over 5800 cross-border acquisitions by SWFs and private firms. We find that home–host conflict hinders SWFs more than private firms whereas cooperation helps SWFs more than private firms. Hence, despite SWFs’ lack of managerial control of target firms, state ownership moderates geopolitical influences on their internationalization and makes them more sensitive than private firms to interstate relations. Our findings suggest that government concern over FDI by state entities goes beyond their operational activities.

The micro-foundations of industrial diversification through foreign acquisitions: The multifaceted role of CEO experience

This paper examines the micro-foundations of cross-border industrial diversification strategies. We study the impact of observable CEO experience attributes on the propensity to acquire foreign target firms in unrelated (versus related) industries. Our findings, based on a sample of UK-based firms that engaged in cross-border acquisitions between 2010 and 2016, support an inverted U-shaped relationship between life experience of the CEO and the likelihood of engaging in unrelated foreign acquisitions. Further, we find that CEOs' broad-based work experience, across countries or industries, is associated with a higher propensity to engage in unrelated foreign acquisitions. Finally, CEOs’ education experience in MBA-type qualifications is associated with a preference for related foreign acquisitions. We discuss the theoretical implications of these findings and outline directions for future research in the context of micro-foundations in international business, strategic leadership, and upper echelons theory.

Foreign acquisitions and female employment in manufacturing firms: An empirical analysis for Chile

This paper analyses the effect of foreign ownership on female employment using micro-level data from the Chilean Manufacturing Survey. Particularly, it examines whether foreign-acquired firms hire proportionately more female workers than domestic firms. To control for the possible endogeneity of the foreign acquisition decision, we use propensity score matching combined with a difference-in- differences approach. In addition, we compare firms operating in the same industry-year. Our results show that foreign ownership increases the share of female workers within the firm. One year after acquisition the share of female workers is 1.64 percentage points higher in acquired firms than in non-acquired firms, and this figure increases to 3.55 percentage points two years after acquisition. When we separate female workers into skilled and unskilled categories, we observe that the positive effect of foreign acquisition is present only for skilled women. One year after acquisition, the share of skilled women is 4.60 percentage points higher in acquired firms than in non-acquired ones, and two years after acquisition this figure increases to 6.63 percentage points. We also present evidence that foreign acquisition increases the share of skilled women only when the acquired firm was not an exporter before its acquisition, supporting Becker’s (1957) theory on taste- based discrimination.

Chinese MNE acquisition of unrelated foreign businesses: The role of diversified business group affiliation, private ownership and strategic asset seeking

While the acquisition by Chinese firms of unrelated foreign businesses has become quite common, it is a highly risky undertaking not fully explained by international business scholars. Using resource-based and institutional theory, we hypothesize that affiliation with a domestically diversified business group confers pre- and post-acquisition advantages and legitimacy, fostering unrelated foreign acquisitions. In addition, we argue that private ownership as well as a motive to seek strategic assets amplify this tendency among Chinese firms affiliated to diversified groups. Ordered logit modelling for 662 Chinese cross-border M&As over a 10-year period provides support for our hypotheses. Our findings shed new light on: the distinctive characteristics of Chinese MNEs; broader conceptual arguments regarding the strategy of emerging market MNEs; the apparent paradox of why Chinese MNEs have used international acquisitions to diversify at a time when many Western diversified conglomerates are divesting non-core businesses.

Quantifying productivity gains from foreign investment

We revisit the relationship between foreign investment and productivity of acquired firms. First, we construct a panel firm-level dataset for eight advanced European countries covering domestic and foreign acquisitions together with detailed balance sheet information for the years 1999–2012. Second, we address the challenge of identifying a causal relation. To that end, we compare foreign to domestic acquisitions in addition to accounting for the impact of majority versus minority acquisitions after controlling for country and sector trends. The productivity of foreign acquired affiliates increases modestly after four years, but only when majority stakes are acquired by foreigners. Our results are driven by foreign acquisitions and not by foreign divestment.

Wage gains from foreign ownership: evidence from linked employer\u2013employee data

We compare the wages of skilled workers in multinational enterprises (MNEs) versus domestic firms, the earnings of domestic firm workers with past, future and no MNE experience, and estimate how the presence of ex-MNE peers affects the wages of domestic firm employees. The analysis relies on monthly panel data covering half of the Hungarian population and their employers in 2003–2011. We identify the returns to MNE experience from changes of ownership, wages paid by new firms of different ownership, and the movement of workers between enterprises. We find high contemporaneous and lagged returns to MNE experience and significant spillover effects. Foreign acquisition has a moderate wage impact, but there is a wide gap between new MNEs and domestic firms. The findings, taken together, suggest that MNE employees accumulate partly transferable knowledge, valued in the high-wage segment of the local economy that is connected with the MNEs via worker turnover.

Foreign Investors and Target Firms’ Financial Structure: Cavalry or Locusts?

We study how FDI affects the financial structure of targeted firms, by looking at a sample of foreign acquisitions that occurred in Italy between 1998 and 2016. We show that the entry of foreign investors promotes the diversification of financing sources. Moreover, foreign acquisitions lower investment sensitivity to the availability of bank credit and the cash flow sensitivity of cash, allowing targeted firms to rely more on non-bank external financing channels. Importantly, these effects are stronger for investment in intangible assets. These findings suggest that the positive productivity effects of FDI emphasized in the literature are, at least in part, traceable to enhanced investment in capital that is harder to finance through the banking sector.

Gathering round Big Tech: how the market for acquisitions reinforces regional inequalities in the US

Are the agglomeration economies of technology hubs augmented by a localized market for start-ups – acquisitions, and IPOs? How does this affect the ability of places outside of those hubs to foster digital startups as a tool of local economic development? We study this with a particular focus on acquisitions by the seven largest American digital platforms – Amazon, Alphabet [Google], Apple, Microsoft, Facebook, Oracle and Adobe, which we call, collectively, Big Tech. We cover the years 2001-2020. We show that firms acquired by Big Tech are, disproportionately to the sectors in which they operate, concentrated in major tech clusters, and particularly in the Silicon Valley (San Francisco/San Jose). Foreign acquisitions by Big Tech also show a marked concentration in a few countries, and particular places in those countries. NASDAQ IPOs of firms in relevant sectors are similarly concentrated. Acquisition, or the less common alternative, IPO, is the second major phase of financing for a digital start up. The first phase is commonly associated with venture capital (VC), and location proximate to venture capital companies has often been seen as a motivation for locating in a tech cluster. We find, however, that neither VC funding, nor funding an investor located in the Silicon Valley, predicts either acquisition by Big Tech, or IPO. Funding by any of the VCs that helped launch the Big Tech firms, however, is strongly associated with Big Tech acquisition. This suggests an important role for social networks in both the first and second phases of financing, but not necessarily a geographical role in the first phase.We argue that the acquisition market – and its effects on both the major tech hubs and the left behind rest – depends crucially on the proprietary control of access to various digital network products. Regulation of these markets, particularly in the form of common carrier status and open standards, could achieve a considerable re-balancing.

The Effect of Foreign Acquisition on Firm-Level Productivity: A Literature Survey

The Effect of Foreign Acquisition on Firm-Level Productivity: A Literature Survey

Corporate Profit Tax and Strategic Corporate Social Responsibility Under Foreign Acquisition

Abstract This study investigates government public policies facing competing firms’ strategic corporate social responsibility (CSR) activities and finds that the choice of CSR crucially depends on corporate profit tax. We demonstrate that strategic CSR decreases while social welfare increases with corporate tax. When the government grants uniform output subsidies, we show that bilateral CSR leads to a lower CSR level than under unilateral CSR but bilateral CSR is always beneficial to society. However, when the government grants discriminatory output subsidies which yield different levels of unilateral CSR, we show that domestic CSR leads to a lower CSR level than under foreign CSR. In an endogenous CSR choice game, domestic CSR (no CSR) is a Nash equilibrium when corporate tax is low (high) under the uniform subsidy, while foreign CSR could be a Nash equilibrium when corporate tax is low under the discriminatory subsidy.

Strong alien or weak acquaintance? The effect of perceived institutional distance and cross-national uncertainty on ownership level in foreign acquisitions

PurposeFocusing on the direction of foreign acquisition, this study aims to differentiate the effect of institutional distance on the level of ownership. The authors identify several theoretical and methodological issues that might account for the inconsistencies in the literature and provide remedies accordingly. Specifically, the authors propose perceived institutional distance as a conceptualization of distance that controls for asymmetric uncertainty.Design/methodology/approachThe authors test the framework with ordinary least squares regression for a sample of 14,192 firm-entries in 115 target countries over 2007–2017.FindingsThe authors find that institutional distance shows a negative effect on equity ownership in all-inclusive global samples, while there are two imbalanced opposite effects if direction is considered. This casts doubt on the validity of studies that ignore direction. The authors suggest that multinational enterprises entering countries with lower-quality institutions tend to perceive more pronounced distance effects than those expanding the other way around. Hence, the authors argue that “perceived institutional distance” better explains the functional role of distance than simple distance.Practical implicationsThis study better delineates the link between distance and uncertainty and enhances managerial insights for entry mode selection. For policy-making purposes, the authors also show that improvement in institutional quality has a different effect on foreign resource commitment in developed and developing countries.Originality/valueTo the best of authors’ knowledge, this is the first study that considers both directionality and imbalance in institutional distance and proposes a measure to control for non-linear asymmetric relationship between distance and ownership. The authors extend the institutional theory and show the superiority of perceived institutional distance in predicting ownership implications.

Foreign acquisition and R&D activities: evidence from a small open economy

ABSTRACT This paper examines the effect of the foreign acquisition on domestic firms’ R&D activities using a firm-level dataset. We exploit a rich dataset of South Korea, which is a representative small open economy. We find that foreign takeover leads to increased R&D expenditures, which are more outsourced. The effect stood out after the global financial crisis, for listed companies and companies that rely on trade.

Information Asymmetry and Host Country Institutions in Cross-Border Acquisitions.

Mergers and acquisitions (M&As) are often dubbed as a market for lemons because of the extent of information asymmetry embedded in M&A transactions. A country’s institutional environment influences the quality and overall reliability of formal disclosures, thereby altering the extent of information asymmetry affiliated with an M&A transaction. We argue that the caliber of the host country's institutions—formal market-supporting institutions and the informal cultural institution of uncertainty avoidance—affects the public arbitration phase of M&A transactions, i.e., the phase in which firms attempt to resolve issues related to information asymmetry. We test our hypotheses using a sample of 3376 foreign acquisitions completed by U.S. firms between 2006 and 2016. Our results indicate that formal institutions lower arbitration duration. But, while high uncertainty avoidance lowers duration as expected for countries with low market-supporting institutions, it more strongly raises the duration for countries with high market-supporting institutions.