Network information and cross‐border M&A activities

Abstract

Research Summary How information about social networks affects firms’ global expansion is an important but rarely investigated question. We argue that different sources of network information will affect a firm's investment activities in the global market, but their relative importance may vary. Moreover, the influence of network information can be bounded by the global trade network. The results from a sample of cross‐border merger and acquisition (M&A) activities conducted by U.S. publicly listed firms reveal that although M&A experience of both interlocking and joint venture partners affects the focal firm's global expansion, the effect of interlocking partners is more influential than joint venture partners. Meanwhile, when mutual trade dependence between countries is high, the positive effect of network information from board interlocks diminishes. Managerial Summary Firms are hesitant to engage in cross‐border M&As, because it is difficult for them to get information about local business practices and environmental idiosyncrasies. This study shows that firms can deal with this challenge by accessing relevant information from the M&A experience of interlocking partners and joint venture partners. The information generated from the M&A experience of interlocking partners is even more valuable and important than that of joint venture partners in shaping firms’ cross‐border M&A decisions. Moreover, the M&A experience of interlocking partners and joint venture partners is particularly valuable for firms contemplating M&A activities in a country with relatively fewer buyer‐seller exchange networks with their home country.

The boundaries of the firm in global strategy

“…Thus, starting in the hierarchies, we have the analysis by Minbaeva and Santangelo (2018) of how multinationals manage knowledge transfer across borders and the role that boundary spanners play. We then move to two analyses of cross-border mergers and acquisitions: the study by Xia, Ma, Tong, and Li (2018) on how the experience gained via the network of relationships of the firm supports its cross-border mergers and acquisition; and the study by Ellis, Lamont, Holmes, Ro, Faifman, DeGhetto, and Parola (2018) on the role that distances in informal and formal institutions between home and host play on mergers and acquisitions. We then jump to the study of cross-border alliances with the analysis by Pesch and Bouncken (2018) on international alliances and how cultural intelligence facilitates them.…”

Making connections: Social networks in international business

“…The effect was even stronger when firm-specific uncertainty was higher. A strategic outcome of global alliance networks was studied by Xia, Ma, Tong, and Li (2018), who demonstrate that interlocking partners affect MNCs' cross-border acquisitions more than do joint venture partners, due to superior information conveyed by interlocked global networks. Sharma, Kumar, Yan, Borah, and Adhikary (2019) examine the performance outcomes of MNC buyer-supplier networks in 28 countries and show that density negatively affects the MNC's total international revenues, while centralization and average clustering coefficient influence the outcome via inverted-U-and U-shaped relationships, respectively.…”

Vicarious Learning: How Entrepreneurs Enhance a Firm’s International Competitiveness Through Learning From Interlocking Director Network Partners

“…Interlocking directors are widespread and common in companies, and, compared to obtaining information from social media or consultancies, they make it possible for a firm to access the interlocking partner's board and to acquire more reliable and complete information about their experiences of investing in foreign markets (Tuschke et al, 2014;Zona et al, 2018). Relatedly, Xia et al (2017) observed that the number of CBAs conducted by an acquirer in a country is positively related to the number of CBAs that its interlocking partner has had in that country. Therefore, this paper explores how an entrepreneur promotes their firm's international competitiveness-especially with respect to completing a CBA-through vicarious learning from their interlocking partners.…”

“…An interlocking company represents a "conduit of information" (Useem, 1984) that could provide knowledge about how to manage country-specific acquisition issues and deal with foreign stakeholders, such as governments, communities, and local customers (Francis et al, 2014). Xia et al (2017) found that, if network partners have engaged in a CBA in a particular country, knowledge and experience in respect of that country will have been generated, and the firm which aims to undertake a future CBA may benefit from this network relationship and perform better by adopting the same strategy in that country.…”