Performance Of Cross-border Acquisitions Research Articles

Cultural Heterogeneity of Top Management Teams, Cross-Border Acquisitions, and Financial Performance of Chinese Publicly Listed Companies

ABSTRACT Using data from Chinese publicly listed companies (PLCs) over the 2010–2017 period, this paper examines the impact of cultural heterogeneity within the top management team (TMT) on the post-acquisition performance of cross-border acquisitions (CBAs). TMT cultural heterogeneity is measured as the cultural distance between the board chairperson and chief executive officer (CEO), based on the south-rice-north-wheat cultural dichotomy in traditional China in 1916. Overall, we find that TMT cultural heterogeneity can increase the likelihood of CBAs. However, it also has a significantly negative impact on both the market performance and profitability of privately-owned Chinese PLCs after the CBAs. To provide a comprehensive analysis, we also explore the moderating effects of state ownership and high-tech industries. The results reveal that TMT cultural heterogeneity can actually improve the market performance of CBAs conducted by state-owned PLCs, and it can enhance the profitability performance of CBAs within the high-tech industry. Our analysis highlights the significance of TMT cultural heterogeneity during the post-acquisition integration process following CBAs.

Performance of cross-border acquirers from India and China: its sustainability in the long-run?

PurposeEmerging market multinational companies have been vigorous in pursuing inorganic growth through cross-border acquisitions (CBAs). The fundamental studies till now have portrayed that rapid internationalization through CBAs tends to create value for these emerging market firms (EMFs) in the short term. However, there is an ambiguity about whether these firms endure better performance in the long term. The purpose of this study is to assess the long-term (ex-post) financial and operating performance of EMFs involved in overseas acquisitions before the COVID-19 pandemic hit the world economy.Design/methodology/approachCBAs completed by Indian and Chinese companies constitute the sample of the study. The performance has been analysed during the pre-COVID period spanning 17 years from 2001 to 2017. A comprehensive set of 14 financial ratios has been used to represent change (improvement/decline) in enterprises’ post-acquisition operating performance; these ratios have been divided into four broad groups: profitability, efficiency, solvency and liquidity ratios.FindingsThe performance of Indian companies has deteriorated significantly after the acquisition. However, there has been no change (deterioration/improvement), subsequent to CBAs, in the profitability of Chinese firms.Practical implicationsThe findings of the study support that firms from emerging economies exploit CBAs as a “springboard” to obtain strategic assets including intangible resources and brands rather than to achieve synergies through economies of scale and scope. Apparently, outbound acquisitions by emerging economy firms are not driven by cost-reduction or revenue-generation activities.Originality/valueNone of the studies, to the best knowledge of the authors, has carried out performance analysis using a comprehensive set of financial ratios. The comparative study of two emerging economies is another valuable addition to the existing literature. The study holds the potential to serve as the benchmark to assess the performance of CBAs executed after COVID-19.

Fleeing from systemic risk at home through cross-border acquisitions

PurposeViewing the domestic downside risk as a “pushing” factor for outward foreign direct investment (OFDI), this study aims to examine the surge in Chinese cross-border acquisitions (CBAs) between 2008 and 2017, a unique window when private firms in China were allowed to conduct CBAs.Design/methodology/approachThis study examines the effect of down-side risk on cross-border acquisition performance by using the sample of Chinese A-share listed companies from 2008 to 2017. Specifically, this study considers three kinds of systemic risk, systematic risk and idiosyncratic risk, and respectively examines their impact on CBAs activities; this study also investigates their subsequent results after CBAs activities. The contingency effect of state ownership on the above relationship is also discussed.FindingsThe findings reveal that pre-CBA systemic risk explains the volume of CBA activities; CBAs are followed by a reduction in systemic risk; the interactions between systemic risk and CBAs decrease with the level of state ownership; and the above results do not hold for traditional risk measures (i.e. systematic risk and idiosyncratic risk).Originality/valueThis study contributes to the literature by revealing the role of systemic risk as a “pushing” factor in the context of OFDI and suggesting an alternative explanation for CBAs from China: Chinese firms (especially private firms) took advantage of the rare opportunity between 2008 and 2017 given by the government to transfer assets overseas through CBA.

Do multinational enterprises with better social performance have a higher likelihood of cross-border acquisition completion? Analyzing the role of reputation for social performance in cross-border acquisitions

The social performance (SP) of a firm is associated with many positive organizational outcomes. Nonetheless, little is known about the effect of the SP of a multinational enterprise (MNE) on the likelihood of cross-border acquisition completion (CBAC). Investigating the link between MNEs’ SP and the likelihood of CBAC is important because it will increase our understanding of how stakeholders reward MNEs with better reputations. Drawing on the signaling and reputation for SP literature, we explore how acquisition complexity, reputational risk, and firm visibility influence CBAC. Based on a sample of 578 cross-border deals undertaken by acquirers in the noncyclical consumer industry (NCCI), our results support a positive relationship between MNEs’ SP and the likelihood of CBAC and strengthening moderating effects of acquirer size and public targets. JEL CLASSIFICATIONS: G34, M16

Stewardship, institutional investors monitoring, and firm value: Evidence from the United Kingdom

Stewardship encourages institutional investors to perform a monitoring function through cooperation and collective action. The United Kingdom was the first country to publish a Stewardship Code. This motivates us to investigate the monitoring role of institutional investors in the UK. We find that institutional ownership has a positive influence on firms' one-year future valuation and quality of corporate governance practices. The positive relationship identified is mainly driven by independent and long-term (ILT) institutional ownership. We additionally demonstrate that acquirers with higher ILT institutional ownership make better acquisition decisions. The performance of cross-border acquisitions does not differ from the performance of domestic deals. Overall, our results are consistent with the view that ILT institutional investors contribute to firm monitoring and promoting sound corporate governance practices, which can be attributed to their long-term investment horizons and arm’s-length relationships with investee companies.

The influence of cultural tightness-looseness on cross-border acquisition performance

A growing body of research in economics focuses on whether cultural differences in social norms affect economic outcomes. Here we examine how differences in the strength of social norms—or tightness-looseness (TL)—across countries can explain the financial performance of cross-border acquisitions (CBAs). We hypothesize that differences in TL hamper CBA performance, and further propose that the direction and absolute level of TL, industry relatedness, and membership in high-tech industries moderate the TL-CBA performance relationship in important ways. Using data for 4,717 CBAs in 30 countries between 1989 and 2013, we find that a one standard deviation increase in TL difference is associated with an average decrease in acquirer's return on assets equivalent to 245 million US dollars in its net income. We further find that this effect is particularly pronounced when the acquirer is tighter than the target, at greater levels of tightness, and in high-tech industries. Theoretical and practical implications of the strength of social norms for CBAs as well as the broader field of economics are discussed.

Cross-border acquisition performance of emerging market multinational enterprises: The moderating role of state-ownership and acquisition experience

This paper draws on the resource-based view and organizational learning theory to analyse the moderating role played by state ownership and acquisition experience in the performance of emerging market multinational enterprises (EMNEs). We contribute to the evolving literature on state-owned EMNEs by identifying various post cross-border acquisition (CBA) strategies, which have an impact on the performance of such firms that differs for the one they have on privately owned EMNEs. We test our hypotheses by performing a panel regression analysis on a large firm-level dataset spanning 43 emerging markets over the 2006–2015 period. Overall, our findings point at an inverted U-shape relationship between diversification through CBAs and firm performance. More specifically, this concave relationship is greater when the diversification occurs in developed countries, as opposed to emerging ones. Furthermore, there is evidence that state-ownership and EMNE acquisition experience moderate these relationships both in domestic and foreign markets, albeit with different intensities.

Post-acquisition control strategy and cross-border acquisition performance of Chinese MNEs: a fsQCA approach

PurposePost-acquisition control is a crucial factor affecting acquisition performance. We investigate how post-acquisition control strategy affects cross-border acquisition performance of Chinese multinational enterprises (MNEs) through a configurational perspective.Design/methodology/approachBased on 70 cross-border acquisition cases by Chinese MNEs, we adopt fuzzy-set qualitative comparative analysis (fsQCA) to study the combined effects of strategic control, operational control, institutional distance, cultural distance, relative capacity and business relatedness on the cross-border acquisition performance.FindingsOn the basis of fuzzy set analysis of multiple interdependent factors, we identify six configurations that are conductive to achieving high cross-border acquisition performance and two configurations that relate to the absence of high performance, thus shedding light on the casually complex nature of performance drivers of acquisitions.Originality/valueThis study provides a holistic, configurational approach to investigating cross-border acquisition performance by emerging market firms. Our results provide some compelling evidence that accounts for the causal complexity of post-acquisition control strategies and acquisition outcomes in the context of emerging economies.

Investigating employee and organizational performance in a cross‐border acquisition—A case of withdrawal behavior

AbstractOver the last two decades, performance management systems (PMSs) have been the focus of increasing attention. However, scant research has examined the link between individual‐ and organizational‐level performance in the context of cross‐border mergers and acquisitions. Employee withdrawal adversely affects organizations, and has thus been associated with negative consequences for organizations and regarded as a counterproductive work behavior. Our article presents an empirical investigation of determinants and consequences of employee withdrawal, and its impact on willingness to share tacit knowledge, knowledge transfer, and cross‐border acquisition performance in the context of Chinese acquisitions in the UK. Based on a cross‐sectional survey of 103 employees of an UK subsidiary and Chinese acquiring firm, we found that trust in the acquiring firm significantly reduces acquired firm employee withdrawal behaviors. Moreover, our findings indicate that employee withdrawal behaviors negatively impact employee willingness to share tacit knowledge. The findings further confirm that such willingness positively influences knowledge transfer, which, in turn, has a positive effect on cross border acquisition performance. Our article contributes to the PMS literature by enhancing the understanding of the process through which human resource management systems affect outcomes at different levels of analysis in the context of the cross‐border acquisitions.

A fuzzy-set qualitative comparative analysis of ownership strategy and acquisition performance in cross-border acquisitions

Based on a survey database of cross-border acquisitions by Chinese private firms, this study uses a fuzzy-set qualitative comparative analysis (fsQCA) to explore the holistic impact of acquisition ownership, organizational factors and environmental factors on acquisition performance in cross-border acquisitions. It is found that the cross-border acquisitions taken by Chinese private enterprises have four kinds of acquisition ownership strategies leading to high acquisition performance under different internal and external conditions. This study points out that ownership strategy is a key decision affecting cross-border acquisition performance and provides a variety of paths leading to the same outcome rather than just finding the linear relationship between corporate activity and performance. This study supports the assumption of equivalence, and reveals a variety of scenarios in which cross-border acquisition ownership contributes to the outcome of high cross-border acquisition performance, and further confirms the view of causal asymmetry between condition and outcome. This study reveals whether the proportion of cross-border acquisition ownership affects cross-border acquisition performance and under what circumstances is conducive to the realization of expected cross-border acquisition performance.

Post-M&A Performance in Cross-Border Acquisitions - The Role of M&A Experience

We did an extensive review of the literature on post-M&A performance and found that only a limited number of studies have factored in both M&A experience and the degree of Internationalization of the acquirer, while assessing post-M&A performance. We also observed that not many studies have segregated M&A experience into domestic and cross-border and studied their impacts separately. In this study, we examine the roles played by both domestic and cross-border M&A experiences of the acquirer on the relationship between institutional distance and M&A performance. We used the lenses of institutional theory and organizational learning theory to examine and discuss the roles played by these two experiences.

Organizational Imprinting and Cross-Border Acquisition Performance: An Emerging Market Perspective

In the last few decades, as many emerging economies have liberalized, cross-border acquisitions have been an important strategic lever for firms to fill their resource voids. However, there is little research that examines whether being embedded in a closed set-up for an extended period would affect the post-acquisition performance of these cross-border deals. Borrowing the arguments from organizational imprinting and organizational learning, we hypothesized and found the empirical support that the degree of organizational imprinting negatively impacts the post-acquisition performance of the cross-border acquisitions done by firms from emerging markets. Furthermore, we found support for the moderating impact of technological intensity and industry dynamism on this baseline relationship. We tested our predictions on a dataset comprising 312 majority stake cross-border M&A deals done by publicly listed Indian firms from 2003 to 2015.

Cross-Border Acquisition Performance of EM MNEs: The Moderating Role of State-Ownership & Performance

This paper draws on the resource-based view and organisational learning theory to analyse the moderating role of state ownership and acquisition experience for firm performance of emerging market multinational enterprises (EMNEs). We contribute to the evolving literature on state-owned EMNEs by identifying various post cross- border acquisition (CBA) strategies, which differ in their impact on performance compared with privately owned EMNEs. We test our hypotheses using panel regression analysis on a large firm-level dataset spanning 43 emerging markets over the period 2006-2015. Overall, our findings indicate an inverted U shape relationship between diversification through CBAs and firm performance. More specially, this concave relationship is greater in the case of diversification that occurs in developed countries (DCs) compared with diversification in emerging markets (EMs). Furthermore, these relationships are moderated, albeit at different levels, by state- ownership and the EMNE acquisition experience both in the domestic and foreign markets.

The performance of cross-border acquisitions targeting African firms

This paper examines the performance of cross-border acquisitions (CBAs) of fims domiciled in Africa. We examine 503 deals involving firms from 23 developed and 20 emerging countries, acquiring targets in 33 African countries. We find that, on aggregate, Africa bound CBAs significantly underperform, and that emerging economy acquirers outperform their developed economy counterparts. Further, significant variations in deal performance is documented when the target firms are categorised according to the level of development of African financial markets, industries, and to some extent, economic blocs. The results are robust to various firm, industry, deal and country specific characteristics.

Contextualizing speed and cross-border acquisition performance: Labor market flexibility and efficiency effects

There is general agreement that acquisition integration is decisive for acquisition performance. Despite this consensus, there are heterogeneous results on integration measures, such as integration speed with empirical research supporting the benefits of either fast or slow integration. We argue that the business environment surrounding acquisitions has the potential to reconcile conflicting findings. We develop how institutional factors (i.e., labor market flexibility and efficiency) influence the relationships between speed of human and functional integration on acquisition performance. With a sample of 203 transactions from acquirers from central Europe and Scandinavia, we find human and functional integration speed have divergent effects on acquisition performance. Further, both relationships are moderated by labor market flexibility and efficiency, but in different ways. Implications for research and practice are discussed.

Value creation in cross-border acquisitions: The role of outside directors' human and social capital

Do outside directors influence the performance of cross-border acquisitions? We use resource dependence arguments and a sample of 431 relatively large cross-border acquisitions undertaken by U.S. firms to explore how the human and social capital of outside directors on the acquiring firm's board influence shareholder value creation. Findings indicate that human and social capital linked to board tenure, external board appointments, and region-specific cross-border acquisition experience, but not target firm industry experience, have an impact on acquiring firms' shareholder value. Our study's theoretical and empirical contributions, along with managerial implications, are discussed.

Cross-border arbitrage and acquirers’ returns in the Eurozone crisis

Using a sample of 1263 European acquisitions over 2004–2012, we show that the performance of cross-border acquisitions is significantly affected by the Eurozone and the euro debt crisis. First, due to financial market integration and the elimination of exchange rate risk, intra-Eurozone acquisitions do not earn any abnormal returns for bidders. Second, as a result of the euro debt crisis and the temporary misvaluation among European countries, acquisitions earn positive abnormal returns only for non-Eurozone companies acquiring Eurozone targets. These abnormal returns are driven by the depreciation of the euro and the use of low-cost capital available to overvalued acquirers.

Out of Africa: The role of institutional distance and host-home colonial tie in South African Firms’ post-acquisition performance in developed economies

The colonial ties and institutional distance affect the cross-border acquisition performance of internationalizing South African firms who acquire targets in developed economies. Along with these main effects, this paper examines the moderating effect of the colonial tie on the effects of institutional distance on post-acquisition long-term operating performance. Using data on South African acquisitions in developed economies, this study finds that the colonial tie has a negative impact on the long-term operating performance of South African acquirers. Yet, the colonial tie also moderates the effects of institutional distance. This work contributes to the discussion on host-home country institutional distance and its impact on post-acquisition long-term operating performance and how colonial past can influence the performance of acquirers from South Africa and other such countries with colonial history.

Effects of cultural distance on foreign acquisitions: evidence from italian acquired firms

The present paper aims at analyzing the influence of cultural distance on acquisitions from MNEs of Italian mid-sized firms in terms of the economic performance of target firms. In literature a variety of works has focused on cultural distance as an explicative variable of the results of cross-border acquisitions. Using data from the Mediobanca Research Department Database we analyze Italian midsized firms acquired from MNEs between 1999 and 2009, in order to understand whether or not their performance improved over the post-acquisition period. Using a multidimensional measure of cultural distance, we tested the relationship between cultural distance and target firm’s performance in cross-border acquisitions by means of a regression analysis. Our study is the first to examine the impact of cultural distance on post-acquisition performance using the universe of Italian acquired midsized firms. The findings support our hypothesis that cultural distance has a negative effect on post-acquisition performance.

Rule of law or country level corporate governance: What matters more in emerging market acquisitions?

A study of post-acquisition performance of cross border acquisitions involving emerging market firms shows that when developed market firms acquire emerging market firms, rule of law in the target country has a significant favorable impact on post-acquisition performance; while country level corporate governance has no impact. Contrarily, when emerging market firms acquire developed market firms, country level corporate governance in the target country has a significant adverse impact on post-acquisition performance, while rule of law has no impact. We provide evidence that if rule of law in the emerging market target country is less evolved but not dismally low, the developed market acquirer can seize the opportunity to enforce better discipline at the firm level in the target firm and thereby enhance post-acquisition performance. However, in the case of emerging market firms’ acquisitions, lower the difference in country level corporate governance, superior gains are assured. The study provides evidence that location level factors affect post acquisition performance differently for ADTE and AETD acquisitions and ADTE acquisitions give importance to rule of law, while AETD acquisitions emphasis on corporate governance factors to ensure value creation in acquisitions and the results are robust after controlling for country effects and year effects.