The effect of the digital readiness of economies on international M&A performance

Abstract

PurposeUnderstanding the mechanism through which digital economy is significantly impacting all dimensions of global economy has become a rising priority in recent years. The purpose of this paper is to investigate the critical role of digital readiness of economies around the world on the performance of international M&As as one of the major corporate strategies for firms' global expansion. We also study circumstances under which digital readiness of an economy matters to international M&As.Design/methodology/approachThe authors examined how digital readiness superiority (or inferiority) of the United States in comparison with host countries impact capital market reaction to international M&As announced by US public companies. To do this study, analysis was run on a sample of 1,393 IMAs by publicly traded US firms during the 2010–2016 period.FindingsThe study reveals that those public US companies that target companies in countries, in which the US has superior digital readiness to them, show better performance in terms of investors' reaction (capital market reaction) to the announcement of international M&As. In fact, markets will look at the superiority of US digital readiness to target country as an opportunity for transferring digital capabilities. Moreover, these patterns are pronounced in those M&A deals in which the acquiring company is from high-tech industry. However, interestingly when US companies already have a profitable growth track record or when acquirer and target are in the same industry, the market reacts negatively to this digital superiority.Originality/valueOverall, this study contributes to a better understanding of the mechanisms through which digitalization of economies impact the performance of multinational enterprises. It adds to the information management literature on corporate global strategy and is one of the first to examine the role of digital readiness on international M&As performance.

The way digitalization is impacting international financial markets: Stock price synchronicity

“…Using the Networked Readiness Index (NRI) as a measure of a country's digitalization level (Moeini Gharagozloo et al, 2020), we find a significant negative relation between stock price synchronicity and the development level of the digital economy. Specifically, a one standard deviation increase in the NRI decreases our R 2 -based stock price synchronicity measure by 1.0448 standard deviations.…”

The effect of change readiness of economies on international M&A flows

“…Surprisingly no support was found for the effect of change readiness on the direction of those IMAs engaging in industry-related. Rationally speaking, it is considered that when firms engage in industry-related M&As, they would need to consider post M&A integration of the two firms to generate synergy (Henningsson and Carlsson, 2011; Giacomazzi et al , 1997), which means the lack of change readiness of the host country can cause interruption for the operations of both acquirer and target. However, results (in Table 7) did not support the industry-related IMA deals hypothesis.…”

“…Third, for industry-related IMA deals, the study expected that the change readiness of a host country has a positive impact on attracting industry-related deals to that country. The main argument here was that after an industry-related deal, the acquirer is highly likely to engage in integration to use the benefits of the synergy (Henningsson and Carlsson, 2011; Giacomazzi et al , 1997). Therefore, they are more likely to be more impacted by the change readiness of the host country.…”

“…While a large of stream of extant literature focuses on internal conditions of acquiring and target firms (Teerikangas and Josep, 2012) in this study the necessity to shift the attention from internal environment to external environment surrounding the firms in an international M&A was realized (Ferreira et al, 2014;Hutzschenreuter et al, 2016;Gharagozloo et al, 2020). This study examines the effect of change readiness of economies on international M&A capital flows.…”

The relationship between the withdrawal of the digital economy's innovators, government interventions, the marketization level and market size based on big data

“…The marketization process is not only related to the development of the macroeconomy but it also influences the business' activities of the micro-markets' subjects (Gharagozloo et al , 2020). The influence of marketization on the innovators' withdrawals from the market can also be analyzed in two aspects: the influence of marketization on innovation and the influence of marketization on financial innovation.…”