The interplay between home and host institutions on CBA ownership decision

Abstract

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.

Effect of populism on the internationalization of emerging market firms

“…Through factor analysis, we extracted a single-factor score with varimax rotation, which is used in the literature; e.g. (Krug and Falaster, 2023). All factor loadings (range: 0.607 to 0.937) exceed the cutoff (≥ 0.40).…”

Home country influence in cross-border mergers and acquisitions by emerging market firms: a systematic review

“…However, Reddy et al (2023) suggested an opposite dynamic where increased ownership is an outcome of home institutional quality enhancement that drives EMFs to seek deeper learning from CBMA targets. Underdeveloped home institutions also affect EMFs' risk preference in ownership sought, such that Latin American acquirers are less negatively affected by host country risk in their ownership, given their adaptability to home high-risk environments (Krug and Falaster, 2023). Despite EMFs' strong CBMA motivation and risk preference, they frequently fail in completing CBMAs because of poor home institutional quality, which undermines their image and competitiveness (He and Zhang, 2018;Zhang, 2022;Zhang et al, 2017).…”