The influence of generalized and arbitrary institutional inefficiencies on the ownership decision in cross-border acquisitions

Falaster, Christian; Ferreira, Manuel Portugal; Li, Dan

doi:10.1057/s41267-021-00434-1

Cited by 25 publications

(31 citation statements)

References 96 publications

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“…Could these conflicting results be generated by an unseen (or rather under-observed) condition? We follow the institutions-based view (Falaster et al , 2021; Silva et al , 2019; Verbeke, 2019; Jackson and Deeg, 2019; Pessegueiro et al , 2018) and argue that these variations occur according to characteristics found in the institutional framework.…”

Section: Introductionmentioning

confidence: 90%

“…When a MNE decides to invest in foreign countries, it must choose between entry mode choices (Chen, 2008; Pinto et al , 2017; Falaster et al , 2021). On the one hand, it may opt to establish a foreign operation and create its facility (greenfield facility) or engage in an acquisition (Anand and Delios, 2002; Dikova and Van Witteloostuijn, 2007; Hennart and Park, 1993).…”

Section: Theorymentioning

confidence: 99%

“…On the one hand, it may opt to establish a foreign operation and create its facility (greenfield facility) or engage in an acquisition (Anand and Delios, 2002; Dikova and Van Witteloostuijn, 2007; Hennart and Park, 1993). On the other hand, it must choose whether it establishes wholly-owned subsidiaries or forms joint ventures with local partners (Beamish and Banks, 1987; Dikova and Van Witteloostuijn, 2007; Hennart, 1991; Falaster et al , 2021). Wholly owned subsidiaries imply that the acquisition must be total, while joint ventures are partial acquisitions where the totality of the company is split through different ownership entities (Chen, 2008).…”

Section: Theorymentioning

confidence: 99%

“…The choice between wholly-owned subsidiaries and joint ventures is a critical one for MNEs because it determines the level of control that the MNE will have over the foreign operation (Falaster et al , 2021). Joint ventures give the MNE a minority ownership stake and less control over the foreign operation, while wholly-owned subsidiaries give the MNE complete control over the foreign operation (Chen, 2008).…”

Section: Theorymentioning

confidence: 99%

“…Recently, researchers have examined emerging economies with the institution-based view to provide different and valuable insights regarding enterprise strategies in those countries (Hoskisson et al , 2000; Wright et al , 2005; Godinez and Liu, 2015; Silva et al , 2019). Some researchers have been convincingly compelling that IB researchers should concentrate their attention on the context of the institutions (Falaster et al , 2021; Jackson and Deeg, 2019; Verbeke, 2019; Leung et al , 2005; Redding, 2005) to get better insights regarding strategies and performance. Thus, we use this perspective to understand the influence of the institutional environment on diversification strategies, especially in emerging economies.…”

Section: Introductionmentioning

confidence: 99%

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An institutional approach on the effects of diversification type

Krug

Falaster

2022

MRJIAM

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Purpose In this study, the authors argue that there is more than meets the eye on the effects over postacquisition performance and diversification. This study aims to propose that the conditions that allow higher returns are dependent on the institutional context. The authors suggest that diversification strategies differ in their impact on postacquisition performance when moderated by the institutional inefficiencies of economies. Design/methodology/approach This research is based on a quantitative approach. The authors statistically test the hypotheses based on multiple regression analysis. Findings Results show a negative moderating effect of the institutional inefficiencies of the target country on the relationship between the diversification decisions of the firm and its postacquisition performance. So that Latin American firms that perform Cross-border acquisitions with higher degrees of diversification are related to worse performance. However, the degree of institutional inefficiencies negatively moderates this relation, attenuating the negative effects of diversification over performance. Originality/value Although past research has shown that economies with high institutional inefficiencies can benefit from higher levels of diversification, no study has considered the impact of the institutional inefficiencies when discussing many economies, to authors’ acknowledgment. The authors provide evidence that, in the case of Latin American firms, diversification reduces performance; however, the degree of institutional inefficiencies negatively moderates this relation.

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Section: Introductionmentioning

confidence: 90%

Section: Theorymentioning

confidence: 99%

Section: Theorymentioning

confidence: 99%

Section: Theorymentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

An institutional approach on the effects of diversification type

Krug

Falaster

2022

MRJIAM

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Foreign institutional investors and equity share decisions in cross‐border mergers and acquisitions

Wajda,

Bu,

Shi

2024

Global Strategy Journal

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Research SummaryThis study examines the role of foreign institutional investors in shaping acquiring firms' equity share decisions in cross‐border mergers and acquisitions (M&As). We argue that foreign institutional ownership (FIO) from a given country is positively associated with the share of equity sought in the target firm in this country because foreign institutional investors can help reduce information asymmetry between the acquiring and target firms. Moreover, this positive relationship is stronger if target firms are in countries with weaker institutional development because acquiring firms suffer from higher information asymmetry and thus are more inclined to rely on foreign institutional investors for information. Findings from a sample of 4166 cross‐border M&As by US firms lend support to our arguments.Managerial SummaryCan foreign institutional investors influence acquiring firms' equity share decisions in cross‐border M&As? We posit that local knowledge and information foreign institutional investors provide to acquiring firms can reduce uncertainty in the M&A process. Using data on cross‐border M&As by US firms, we find that high levels of FIO are positively associated with the equity sought in target firms by acquirers. This effect is stronger when target firms are located in countries with weak institutions. Our study highlights the beneficial role of FIO that firm executives should be aware of and has practical implications for how firms manage the M&A process.

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The interplay between home and host institutions on CBA ownership decision

Krug

Falaster

2022

Thunderbird Intl Bus Rev

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Cross-border acquisitions (CBAs) are one of the key strategies for internationalization.However, most of what is known about CBA strategies relies on the effects of the host country's environment or the home country's conditions. In this article, we analyze the interplay between these two important factors. We show that companies from less institutionally developed countries are more influenced by poor institutional conditions found in host countries. We analyzed a dataset of 1,390 cross-border acquisitions performed by Latin American firms. The literature on the subject points out that less developed host environments lead to fewer shares of ownership acquired in CBAs.However, we confirmed that the quality of the home country's institutional environment positively moderates the effects of the host environment over ownership choice in the acquisition. This effect is due to companies from less developed environments being able to use their embedded capabilities to better navigate faulty institutional environments abroad.

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The influence of generalized and arbitrary institutional inefficiencies on the ownership decision in cross-border acquisitions

Cited by 25 publications

References 96 publications

An institutional approach on the effects of diversification type

An institutional approach on the effects of diversification type

Foreign institutional investors and equity share decisions in cross‐border mergers and acquisitions

The interplay between home and host institutions on CBA ownership decision

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