Diversification strategies and equity market performances

Abstract

Purpose This paper aims to investigate the linkages among foreign direct investment (FDI – greenfield and mergers and acquisitions [M&A]) decisions and equity market returns and volatilities. The main premise is that FDI decisions by multinational enterprises (MNE) are influenced by risk and uncertainty indicated by equity market returns and volatilities in the destination (host) countries. This is so because the events on the stock markets in general and their volatilities in particular signal the vitality of the investment climate of the target market. Understanding volatility in capital markets is important for determining the cost of capital and for evaluating direct investment and asset allocation decisions. Design/methodology/approach Surveys and structured interviews were conducted with senior managers of 11 MNEs based in the USA to collect the data used in this study from November 2017 to October 2018. The paper investigates if FDI decisions of the MNE managers are influenced by risk and uncertainty indicated by equity market returns and volatilities. The paper endeavors to make a contribution to the IB literature in highlighting the role played by equity returns and volatilities in FDI decisions and therewith attempts to integrate finance (capital markets) with international business/strategic decision-making. Findings Capital market performances (returns and volatilities) were found to influence the country choice for location of production facilities (FDI – both greenfield and M&A decisions) as well as timing of the FDI by a MNE. In other words, the share of production capacity optimally located abroad and M&A activities are affected by capital market returns and volatilities.

When degree of integration mediates level of acquired ownership and post-acquisition innovation performance: evidence from cross-border technological acquisitions

“…Four different but related streams of research in CBAs endorsed us to build the present study's theoretical foundations. First, scholars accentuated various factors are the enabler of the acquiring firm's choice of the target firm's equity ownership (Dang et al , 2018; Yavas et al , 2019), and the ownership choice of the acquiring firm has been articulated at different levels comprising minority, majority and full (Demirbag et al , 2007). For instance, Ahmed et al (2020) found that cross-border acquiring firms purchase a lower level of ownership in the target firms' equity in institutionally less-developed economies.…”

Do frequent acquirers outperform in cross-border acquisitions? A study of Indian companies

“…With the liberalisation and globalisation of their economies, companies from emerging markets have increasingly been exploring CBAs to establish a footprint in the global economy. Global Financial Crisis 2007 further provided momentum to multinational companies for exploring growth avenues in markets beyond national boundaries, achieving both geographical and risk Cross-border acquisitions 491 diversification (Yavas et al, 2019).These international acquisitions by emerging market companies have gained wide coverage in the business press, media has been highly enthusiastic and affirmative of these mega-deals. Over time researchers have also reached an agreement that such transactions generate positive and significant abnormal returns (over and above normally expected returns in terms of equity market price) to the acquirers in the short-term around the event announcement (Jain et al, 2020(Jain et al, , 2019bLi et al, 2016;Bhagat et al, 2011;Gubbi et al, 2010).…”