The relevance of political affinity for the initial acquisition premium in cross‐border acquisitions

Bertrand, Olivier; Betschinger, Marie-Ann; Settles, Alexander

doi:10.1002/smj.2438

Cited by 124 publications

(182 citation statements)

References 91 publications

(143 reference statements)

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“…The host developed market stakeholders, such as community leaders, industry associations, and regional government agencies, may all have different legitimacy requirements based on their expectations of an MNE’s business operation. These societal actors in the host market are less likely to consider the foreign acquirers to be a threat when there is a higher level of political affinity between two countries (Bertrand et al, ). The aligned national interests between the home and host country can help MNEs gain needed legitimacy to operate in the host market.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…The aligned national interests between the home and host country can help MNEs gain needed legitimacy to operate in the host market. A lack of political affinity has been shown to increase the premium acquirers need to pay to purchase the target (Bertrand et al, ). Host market stakeholders are likely to be suspicious of M&A deals and to be less cooperative with the foreign acquirers.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…For instance, prior research suggests that host market firms which were formerly protected by trade policies may engage in non‐market political strategies to obtain government protection from foreign acquirers, especially against those acquirers originated from countries where host developed market firms had poor experience with in their prior internationalization (Bonardi, ; Schuler, ). As such, MNEs originated from countries with low levels of political affinity potentially face larger obstacles created by the host developed market governments’ protective stand for domestic firms (Bertrand et al, ).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…A higher level of political affinity that aligns national interests between home and host countries may help MNEs address stakeholders’ concerns for legitimacy in the host market by enhancing external stakeholders’ cooperation as well as strengthening internal stakeholders’ trust. By contrast, MNEs tend to pay a higher premium to acquire a target in a country with lower political affinity to ‘dissuade target firms from leveraging government intervention to oppose the acquisition’ (Bertrand et al, , p. 2071). Consequently, acquiring MNEs originating in a country with a high level of political affinity will be in a better position to leverage that legitimacy in the host nation, and experience better post‐acquisition performance.…”

Section: Introductionmentioning

confidence: 99%

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Navigating the New Normal: Political Affinity and Multinationals’ Post‐Acquisition Performance

Hasija

Liou

Ellstrand

2019

J Management Studies

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The New Normal in the international business landscape reflects a world challenged by economic volatility and political hostilities. This suggests increased political risk, even for MNEs operating in developed markets. We use the legitimacy‐based view of political risk to examine how political affinity between host and home markets may contribute to an MNE’s post‐acquisition performance in a developed market. A high degree of political affinity signifies aligned national interests thus reducing legitimacy concerns faced by MNEs during post‐acquisition integration. Based on cross‐border M&A deals focused on U.S. targets completed by MNEs representing 45 countries between 2004 and 2012, we find that MNEs from countries with greater political affinity to the U.S. experience better post‐acquisition performance. We also investigate two country‐level factors that intensify the threat to legitimacy; the MNEs’ home market economic status and the presence of a financial crisis in the host market. Our findings indicate that political affinity mitigates risk for MNEs originated from emerging economies much more than for MNEs originated from developed economies, whereas a financial crisis reduces the benefit of political affinity.

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Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Navigating the New Normal: Political Affinity and Multinationals’ Post‐Acquisition Performance

Hasija

Liou

Ellstrand

2019

J Management Studies

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“…Besides, the local protectionism in each administrative area is serious, and the government officials at various levels will make a lot of demands and restrictions on enterprises, especially foreign enterprises for consideration of their achievements. For firms who want to enter into a new area or market but do not have sufficient external legitimacy, the institutional environment seems expensive and difficult to manage, and it will cost a lot (Bertrand, Betschinger & Settles, 2016). As for enterprises that can meet the expectations of the government, they will acquire policy and resource support.…”

Section: Contribution Of This Paper To the Literaturementioning

confidence: 99%

Application of Mediating Effect Test in Social Science Research: an Empirical Analysis of Geographic and Institutional Factors

Yue

Hua

Luan

2017

EURASIA J MATH SCI T

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Test for mediating effect is an important method in social science research. In this paper, we applied mediating effect test in corporate acquisition research. Acquisition is one of the most important ways to expand a company, especially in emerging markets. From the perspective of institutional view, we made an empirical research on the relationship between geographic and institutional factors and the acquisition performance based on a sample of acquisitions in China. We found that acquisition legitimacy based on different region, including external and internal legitimacy, has positive effect on acquisition performance. We conclude that cross-region acquisition has negative influence on external legitimacy of acquisition, while having no significant influence on internal legitimacy of acquisition.

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Institutional determinants of ownership positions of foreign acquirers in Africa

Ellis

Lamont

Holmes

et al. 2017

Global Strategy Journal

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Research summary Using unique features of the African context and blending institutional, hostage, and transaction cost theories, we address gaps in our understanding of institutional determinants of ownership position in cross‐border acquisitions (CBAs) in emerging countries. We focus on two traditional institutional determinants: Informal and formal institutional distances between the two firms’ home countries and two determinants that are particularly acute in the African context: the colonial ties between and fractionalization of the two firms’ home countries. We find colonial ties and uncertainty avoidance distance, an indicator of informal institutional distance, are negatively related to ownership position. Conversely, we show that formal institutional distance and the host country's fractionalization positively influence ownership levels, but the latter effect is weakened when acquirers come from more fractionalized home countries. Managerial summary We examine the effects of four institutional factors that influence organizational decision‐making in the African context: (a) its colonial history, (b) differences in informal cultural norms, (c) differences in formal regulatory structures, and (d) ethnic and linguistic diversity within a country on the percentage of equity ownership that foreign acquirers hold in African target firms. Results indicate that this equity position is lower when colonial ties and greater differences in uncertainty avoidance exist between the acquirer's home country and the target African country. Conversely, foreign acquirers’ equity ownership positions are higher when there are greater formal regulatory differences between the two countries and the host country is more ethnically and linguistically diverse, though the latter effect is reduced when the acquirer is from a home country that is also diverse.

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The relevance of political affinity for the initial acquisition premium in cross‐border acquisitions

Cited by 124 publications

References 91 publications

Navigating the New Normal: Political Affinity and Multinationals’ Post‐Acquisition Performance

Navigating the New Normal: Political Affinity and Multinationals’ Post‐Acquisition Performance

Application of Mediating Effect Test in Social Science Research: an Empirical Analysis of Geographic and Institutional Factors

Institutional determinants of ownership positions of foreign acquirers in Africa

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