Political animosity in cross-border acquisitions: EMNCs’ market and nonmarket strategy in a developed market

Abstract

Purpose Many multinational corporations that originate from emerging economies (emerging market multinational corporations (EMNCs)) opt for acquiring a target firm in a developed market to expediently upgrade their strategic capabilities. To successfully achieve their strategic goals in the developed markets, EMNCs may use market actions and nonmarket actions to mitigate the potential risk derived from the national political differences between their home emerging economy and host developed economy. This paper aims to extend the legitimacy-based view of political risk to study the influence of political animosity – defined as misalignment of the host-home countries’ national interests – on the EMNCs’ market and nonmarket strategy in a developed market. Design/methodology/approach In this paper, we examine all EMNCs that made cross-border acquisitions of the USA targets from 2005 to 2011. The final sample consists of 252 acquisitions originating from 25 emerging markets. This paper used Tobit regression analysis to test the direct and moderating hypotheses. Findings Facing a high level of political animosity between their home country and the host developed economy, EMNCs use a market strategy by acquiring less ownership stake in the developed market, as well as engage in a nonmarket strategy by increasing lobbying activities. In addition, because of the heightened legitimacy concerns of developed market shareholders, cross-listed EMNCs have a greater tendency than non-cross-listed EMNCs to improve their legitimacy through their market and nonmarket strategy. Originality/value The current paper sheds light on EMNCs’ international strategy in developed markets by examining both market and nonmarket actions. EMNCs are shown to be strongly motivated to engage in acquisitions in developed markets so they can acquire invaluable strategic resources, such as brands and distribution channels, to compete with the developed market multinationals. A sophisticated ownership strategy and corporate political activities are invaluable for EMNCs to catch up with developed market multinationals.

The multi-faceted impact of host country risk on the success of private participation in infrastructure projects

“…We empirically demonstrate that intermittent natural disasters risk represents a relevant threat that reduces the likelihood of success whereas rule of law has no significant effect. In doing so, we point to the importance of the distinction between exogenous and endogenous risks, as the former are fully out of the control of the firm, whereas the latter can be, to some extent, controlled and shaped through corporate political action and lobbying (Hillman and Hitt, 1999;Hillman et al, 2004;Liou et al, 2021).…”

“…While firms have little or no influence on the sources of exogenous risk, they might have some control on the sources of endogenous risk, individually or in association with other firms, by developing political capabilities such as negotiation and lobbying skills, personal ties and connections with politicians, campaign contributions, political coalitions, etc. (Hillman and Hitt, 1999;Henisz, 2003;Hillman et al, 2004;Jiménez, 2010;Liou et al, 2021). This is particularly the case in highly regulated sectors such as the infrastructure sectors (García-Canal and Guillén, 2008;Holburn and Zelner, 2010;Jiménez et al, 2014;Fern andez-Méndez et al, 2015) and the natural resources sector (Lupton et al, 2021), where given the salient policy issues under administrative consideration, firms tend to get involved in political actions (Buchholz, 1990;Vogel, 1996;Bonardi and Keim, 2005).…”

“…As investors might feel that endogenous risks are to some extent manageable through individual or collective political capabilities, it is likely that they will find it easier to create the consortium of partners and cheaper to raise the required capital, given the relatively lower perception of risk compared to exogenous threats. Note that this might happen even in the case of firms with no or little political capabilities at the moment, as they might feel they can develop them later via campaign contributions, recruiting former politicians to the board of directors, hiring professional lobbyist, or even benefiting from collective actions with other firms in the industry which might have an influential role in the host country political environment (Hillman and Hitt, 1999;Hillman et al, 2004;Liou et al, 2021). Overall, the fact that it is possible to exert some influence on the source of this type of risk (unlike in the case of exogenous risk), reduces the perception of risk for those involved in the project (e.g.…”

“…In responding to our research question, our paper contributes to the growing field of literature focused on private participation projects (Jiang et al, 2015;Jiménez et al, 2017;Dorobantu et al, 2021) by showing empirical evidence that exogenous risk represents a relevant threat that reduces the likelihood of success. In contrast, endogenous risk has no significant effect as a result of the perceived or real degree of control that investors can exert over the outcomes by relying on their capabilities, either individually or in a collective way, to shape policy changes through corporate political action and lobbying (Hillman and Hitt, 1999;Hillman et al, 2004;Liou et al, 2021). As previous studies in this area had uniquely analyzed risk from a single dimension perspective, our findings therefore make an important contribution and address a gap in the literature by building on the work of Buckley et al (2020) on the multi-faceted effect of risk on FDI entry choice and applying the theoretical distinction between exogenous and endogenous risks to the context of private participation projects.…”

Everyone must help: performance implications of CEO and top management team human capital and corporate political activity

“…Researchers generally study CPA in isolation from other market actions of the organization, but recently researchers have identified that managers engage in nonmarket activity in combination with market actions in an effort to increase performance (Funk and Hirschman, 2017; Ahammad et al , 2017; Liou et al , 2021). In continuing the research investigating CPA as an approach used in conjunction with other market-based strategies, we examine the interplay in human capital and political activity.…”