Influences of Institutional Distance and MNEs’ Host Country Experience on the Ownership Strategy in Cross-Border M&As in Emerging Economies

Abstract

ABTRACT:This paper analyzes ownership strategy in cross-border mergers and acquisitions (CB M&As) undertaken by the multinational enterprises (MNEs) in emerging economies. We use new institutional economics and organizational learning theories to hypothesize and empirically analyze the influence of formal and informal institutional distance, and MNEs' host country experience on the MNEs' choice between full and partial CB M&As. The empirical analysis is based on a sample of 184 CB M&As launched by MNEs in emerging economies. Our empirical results revealed that high formal and informal institutional distances lead to a preference for partial CB M&As however, MNEs' host country experience moderated the relationship between institutional distance and the MNEs' choice between full and partial CB M&As. We found that MNEs with prior investment experience in the focal emerging market opted for full CB M&As over partial CB M&As despite high formal and informal institutional differences.

Formal institutional uncertainty and equity sought on foreign market entry: does industry matter?

“…Ando (2012) shows that the effect of formal institutional distance on the percentage of equity sought is reduced for firms with greater international experience, and also for firms with combined greater international experience and host-country experience. Likewise, Arslan and Dikova (2015) also confirm that the effect of formal institutional distance on the percentage of equity sought is weaker for firms with greater host-country experience.…”

“…Accordingly, evidence shows that acquirers tend to opt for lower equity share in their cross-border targets when host country risk is higher (Chari and Chang, 2009). While the direct effect of institutional risk or uncertainty on the entry mode choice has been extensively investigated (Brouthers and Hennart, 2007), there are relatively fewer studies on moderating factors affecting this relationship (Ando, 2012;Arslan and Dikova, 2015;Cui and Jiang, 2012;Liou et al, 2017). The studies available show that diverse factors come into play, such as acquirer's international experience (Ando, 2012), acquirer's host country experience (Arslan and Dikova, 2015), state ownership of acquirer (Cui and Jiang, 2012), and even the stage of development of home country human resources (Liou et al, 2017).…”

Influences of cognitive dimensions on the collaborative entry mode choice of small- and medium-sized enterprises

“…Institutional distance refers to differences in both formal and informal institutions of home and host countries of entering firms (e.g., Estrin et al, 2009;Arslan and Dikova, 2015).…”

“…Literature has shown that these cognitive aspects of institutional differences tend to influence a range of subsidiary management issues for internationalising foreign firms. Some of these issues include understanding the desires of local employees, transfer and management of organisational knowledge to the subsidiary, and the degree of adaptation required for operational strategies (e.g., Michailova and Hutchings, 2006;Chang et al, 2012;Arslan and Dikova, 2015).…”

“…Hall, 1993;Denison et al, 2004;Runyan et al, 2006;Ahammad et al, 2016). Informal institutions and corporate culture also tend to influence a firm's strategic approaches to manage collaborations with other foreign firms (Chang et al, 2012;Arslan and Dikova, 2015). Moreover, we pay attention to the time trends of country, because they represent a significant cognitive dimension to individuate a host country (Glaister and Buckley, 1996;Newburry, 2012).…”