Skip to main content
SpringerLink
Log in

Does Regional Integration Change the Effects of Country-Level Institutional Barriers on M&A? The Case of the European Union

  • Research Article
  • Published:
Management International Review Aims and scope Submit manuscript

Abstract

This paper raises the question of whether the process of regional integration experienced by the European Union (EU) has affected the growth strategies of firms pursuing cross-border mergers and acquisitions. More precisely, it examines whether the effects of known country-level barriers to cross-border mergers and acquisitions (M&A) have weakened as the EU has developed, thereby creating a propensity by firms inside and outside the EU to invest more in the region. Overall, the results show support for this idea, revealing that cultural and political barriers to cross-border M&A significantly explain the governance decision implemented by foreign buyers earlier in the life of the EU, whereas they do not after the Union has taken steps towards integration. These barriers also affect EU-based acquirers differently from non-EU-based ones. A number of implications of these findings are discussed.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others

Notes

  1. The EU-15 countries are Austria (joined in 1995), Belgium, Denmark, Finland (joined in 1995), France, Germany, Greece, Italy, Ireland, Luxembourg, Netherlands, Portugal, Spain, Sweden (joined in 1995), and the United Kingdom. Ten more countries joined the EU-15 group in 2004: Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. Two more countries joined the Union in 2007, to create the so called EU-27: Bulgaria and Romania.

References

  • Aktas, N., Bodt, E., & Roll, R. (2007). Is European M&A regulation protectionist? Economic Journal, 117(522), 1096–1121.

    Article  Google Scholar 

  • Amihud, Y., & Lev, B. (1981). Risk reduction as a managerial motive for conglomerate mergers. Bell Journal of Economics, 12(2), 605–617.

    Article  Google Scholar 

  • Anderson, E., & Gatignon, H. (1986). Modes of foreign entry: a transaction cost analysis and propositions. Journal of International Business Studies, 17(3), 1–26.

    Article  Google Scholar 

  • Barkema, H. G. (1997). Working abroad, working with others: how firms learn to operate international joint ventures. Academy of Management Journal, 40(2), 426–442.

    Article  Google Scholar 

  • Barkema, H. G., Bell, J. H. J., & Pennings, J. M. (1996). Foreign entry, cultural barriers and learning. Strategic Management Journal, 17(2), 151–166.

    Article  Google Scholar 

  • Bartlett, C., & Ghoshal, S. (1989). Managing across borders: the transnational solution. Boston: Harvard Business School Press.

    Google Scholar 

  • Blonigen, B. A. (1997). Firm-specific assets and the link between exchange rates and foreign direct investment. American Economic Review, 87(3), 447–465.

    Google Scholar 

  • Brouthers, K. D. (2002). Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 33(2), 203–221.

    Article  Google Scholar 

  • Brouthers, K. D., & Brouthers, L. E. (2003). Journal of management studies, 40, 5.

  • Buckley, P. J., & Ghauri, P. N. (2004). Globalisation, economic geography and the strategy of multinational enterprises. Journal of International Business Studies, 35(2), 81–98.

    Article  Google Scholar 

  • Campa, J. M., & Hernando, I. (2004). Shareholder value creation in European M&As. European Financial Management, 10(1), 47–81.

    Article  Google Scholar 

  • Caves, R. (1997). Multinational enterprises and economic analysis (2nd ed.). Cambridge: Cambridge University Press.

    Google Scholar 

  • Cebenoyan, A. S., Papaioannou, G. J., & Travlos, N. G. (1992). Foreign takeover activity in the U.S. and wealth effects for target firm shareholders. Financial Management, 21(3), 58–68.

    Article  Google Scholar 

  • Chan, C. M., Makino, S., & Isobe, T. (2010). Does subnational region matter? foreign affiliate performance in the United States and China. Strategic Management Journal, 31(11), 1226–1243.

    Article  Google Scholar 

  • Chang, S. J. (1996). An evolutionary perspective on diversification and corporate restructuring: entry, exit, and economic performance during 1981–89. Strategic Management Journal, 17(8), 587–611.

    Article  Google Scholar 

  • Coff, R. W. (1997). Human assets and management dilemmas: coping with hazards on the road to resource-based theory. Academy of Management Review, 22(2), 374–402.

    Google Scholar 

  • Coff, R. W. (1999). How buyers cope with uncertainty when acquiring firms in knowledge-intensive industries: caveat emptor. Organization Science, 10(2), 144–161.

    Article  Google Scholar 

  • Delios, A., & Beamish, P. W. (1999). Ownership strategies for Japanese firms: transactional, institutional, and experience influences. Strategic Management Journal, 20(10), 915–933.

    Article  Google Scholar 

  • Delios, A. H., & Henisz, W. J. (2000). Japanese firms’ investment strategies in emerging economies. Academy of Management Journal, 43(3), 305–323.

    Article  Google Scholar 

  • Dewenter, K. L. (1995). Does the market react differently to domestic and foreign takeover announcements? evidence from the U.S. chemical and retail industries. Journal of Financial Economics, 37(3), 421–441.

    Article  Google Scholar 

  • Doukas, J., & Travlos, N. G. (1988). The effect of corporate multinationalism on shareholders’ wealth: evidence from international acquisitions. Journal of Finance, 43(5), 1161–1175.

    Article  Google Scholar 

  • Dunning, J. H. (1988). The eclectic paradigm of international production: a restatement and some possible extensions. Journal of International Business Studies, 19(1), 1–31.

    Article  Google Scholar 

  • Erramilli, M. K. (1996). Nationality and subsidiary ownership patterns in multinational corporations. Journal of International Business Studies, 27(2), 225–248.

    Article  Google Scholar 

  • Erramilli, M. K., Agarwal, S., & Kim, S. S. (1997). Are firm-specific advantages location-specific too? Journal of International Business Studies, 28(4), 735–757.

    Article  Google Scholar 

  • Erramilli, M. K., & Rao, C. P. (1993). Service firms international entry-mode choice: a modified transaction-cost analysis approach. Journal of Marketing, 57(3), 19–38.

    Article  Google Scholar 

  • European Commission (2005) Cross-border consolidation in the EU financial sector. Commission Staff Working Document, SEC.

  • European Commission (2007). Report on the implementation of the directive on takeover bids. Commission Staff Working Document.

  • Faccio, M., & Lang, L. (2002). The ultimate ownership of Western European corporations. Journal of Financial Economics, 65, 365–395.

    Article  Google Scholar 

  • Faccio, M., & Masulis, R. W. (2005). The choice of payment method in European mergers and acquisitions. Journal of Finance, 60(3), 1345–1388.

    Article  Google Scholar 

  • Farjoun, M. (1994). Beyond industry boundaries: human expertise, diversification and resource-related industry groups. Organization Science, 5(2), 185–199.

    Article  Google Scholar 

  • Feinberg, S. E., & Gupta, A. K. (2009). MNC subsidiaries and country risk: internalization as a safeguard against weak external institutions. Academy of Management Journal, 52(2), 381–399.

    Article  Google Scholar 

  • Froot, K. A., & Stein, J. C. (1991). Exchange rates and foreign direct investment: an imperfect capital-markets approach. Quarterly Journal of Economics, 106(4), 1191–1217.

    Article  Google Scholar 

  • García-Canal, E., & Guillén, M. F. (2008). Risk and the strategy of foreign location choice in regulated industries. Strategic Management Journal, 29(10), 1097–1115.

    Article  Google Scholar 

  • Gatignon, H., & Anderson, E. (1988). The multinational corporation’s degree of control over foreign subsidiaries: an empirical test of a transaction cost explanation. Journal of Law Economics and Organization, 4(2), 305–336.

    Google Scholar 

  • Gomez-Mejia, L. R., & Palich, L. E. (1997). Cultural diversity and the performance of multinational firms. Journal of International Business Studies, 28(2), 309–335.

    Article  Google Scholar 

  • Green, W. H. (1997). Econometric analysis. Upper Saddle River: Prentice Hall.

    Google Scholar 

  • Grosse, R., & Goldberg, L. G. (1991). Foreign bank activity in the United States: an analysis by country of origin. Journal of Banking & Finance, 15(6), 1093–1112.

    Article  Google Scholar 

  • Henisz, W. J. (2000). The institutional environment for economic growth. Economics and Politics, 12(1), 1–31.

    Article  Google Scholar 

  • Henisz, W. J. (2002). The Institutional environment for infrastructure investment. Industrial and Corporate Change, 11(2), 355–389.

  • Henisz, W. J., & Delios, A. (2001). Uncertainty, imitation, and plant location: Japanese multinational corporations, 1990–1996. Administrative Science Quarterly, 46(3), 443–475.

    Article  Google Scholar 

  • Henisz, W. J., & Williamson, O. E. (1999). Comparative economic organization: within and between countries. Business & Politics, 1(3), 261–277.

    Article  Google Scholar 

  • Henisz, W., & Zelner, B. (2005). Legitimacy, interest group pressures and change in emergent institutions: the case of foreign investors and host country governments. Academy of Management Review, 30(2), 361–382.

  • Hennart, J.-F. (1988). A transaction cost theory of equity joint ventures. Strategic Management Journal, 9(4), 361–374.

    Article  Google Scholar 

  • Hennart, J.-F., & Larimo, J. (1998). The impact of culture on the strategy of multinational enterprises: does national origin affect ownership decisions? Journal of International Business Studies, 29(3), 515–538.

    Article  Google Scholar 

  • Hill, C. W., Hwang, P., & Kim, W. C. (1990). An eclectic theory of the choice of international entry mode. Strategic Management Journal, 11(2), 117–128.

    Article  Google Scholar 

  • Hofstede, G. (1980). Culture’s consequences: international differences in work-related values. Beverly Hills: Sage.

    Google Scholar 

  • Holburn, G. L. F., & Zelner, B. A. (2010). Political capabilities, policy risk, and international investment strategy: evidence from the global electric power generation industry. Strategic Management Journal, 31(12), 1290–1315.

    Article  Google Scholar 

  • Kim, W. C., & Hwang, P. (1992). Global strategy and multinationals’ entry mode choice. Journal of International Business Studies, 23(1), 29–53.

    Article  Google Scholar 

  • Kish, R. J., & Vasconcellos, G. M. (1993). An empirical analysis of factors affecting cross-border acquisitions: U.S.–Japan. Management International Review, 33(3), 227–245.

    Google Scholar 

  • Klein, M. W., & Rosengreen, E. (1994). The real exchange rate and foreign direct-investment in the United States: relative wealth vs relative wage effects. Journal of International Economics, 36(3–4), 373–389.

    Article  Google Scholar 

  • Kobrin, S. (1979). Political risk: a review and reconsideration. Journal of International Business Studies, 10(1), 67–80.

    Article  Google Scholar 

  • Kobrin, S. (1982). Managing political risk assessment: organizational response to environmental change. Berkeley: University of California Press.

    Google Scholar 

  • Kogut, B., & Singh, H. (1988). The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19(3), 411–432.

    Article  Google Scholar 

  • Kogut, B., Walker, G., & Anand, J. (2002). Agency and institutions: national divergences in diversification behaviour. Organization Science, 13(2), 162–178.

    Article  Google Scholar 

  • Kostova, T., Roth, K., & Dacin, M. (2008). Institutional theory in the study of multinational corporations: a critique and new directions. Academy of Management Review, 33(4), 994–1006.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1997). Legal determinants of external finance. Journal of Finance, 52(3), 1131–1150.

    Article  Google Scholar 

  • Lahiri, N. (2010). Geographic distribution of R&D activity: how does it affect innovation quality? Academy of Management Journal, 53(5), 1194–1209.

    Article  Google Scholar 

  • Leung, K., Bhagat, R. S., Buchan, N. R., Erez, M., & Gibson, C. B. (2005). Culture and international business: recent advances and their implications for future research. Journal of International Business Studies, 36(4), 357–378.

    Article  Google Scholar 

  • Makino, S., Isobe, T., & Chan, C. M. (2004). Does country matter? Strategic Management Journal, 25(10), 1027–1043.

    Article  Google Scholar 

  • Martin, K. J. (1996). The method of payment in corporate acquisitions, investment opportunities, and management ownership. Journal of Finance, 51(4), 1227–1246.

    Article  Google Scholar 

  • Martin, C., & Velazquez, F. J. (1997). Determining factors of foreign direct investment in Spain and the rest of the OECD: lessons for the CEECS. CEPR Discussion paper no. 1637.

  • Meyer, K. E., Mudambi, R., & Narula, R. (2011). Multinational enterprises and local contexts: the opportunities and challenges of multiple embeddedness. Journal of Management Studies, 48(2), 235–252.

    Google Scholar 

  • Murtha, T. P., & Lenway, S. A. (1994). Country capabilities and the strategic state: how national political institutions affect multinational corporations’ strategies. Strategic Management Journal, 15(S2), 113–129.

    Article  Google Scholar 

  • Neter, J., & Wasserman, W. (1985). Applied linear statistical models. McGraw-Hill. ISBN 0256024472

  • North, D. (1990). Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Rivoli, P., & Salorio, E. (1996). Foreign direct investment under uncertainty. Journal of International Business Studies, 27(2), 335–357.

    Article  Google Scholar 

  • Robock, S. H. (1971). Political risk: identification and assessment. Columbia Journal of World Business, 6(4), 6–20.

    Google Scholar 

  • Schwens, C., Eiche, J., & Kabst, R. (2011). The moderating impact of informal institutional distance and formal institutional risk on SME entry mode choice. Journal of Management Studies, 48(2), 330–351.

    Google Scholar 

  • Seth, A., Song, K. P., & Pettit, R. (2000). Value creation and destruction in cross-border acquisitions: an empirical analysis of foreign acquisitions of U.S. firms. Strategic Management Journal, 23(10), 921–940.

    Article  Google Scholar 

  • Shan, W. (1991). Environmental risks and joint venture sharing arrangements. Journal of International Business Studies, 22(4), 555–578.

    Article  Google Scholar 

  • Shane, S. (1994). The effect of national culture on the choice between licensing and direct foreign investment. Strategic Management Journal, 15(8), 627–642.

    Article  Google Scholar 

  • Shenkar, O. (2001). Cultural distance revisited: towards a more rigorous conceptualization and measurement of cultural differences. Journal of International Business Studies, 32(3), 519–535.

    Article  Google Scholar 

  • Slangen, A. H. L., & Beugelsdijk, S. (2010). The impact of institutional hazards on foreign multinational activity: a contingency perspective. Journal of International Business Studies, 41(6), 980–995.

    Article  Google Scholar 

  • Srivastava, R. K., & Green, R. T. (1986). Determinants of bilateral trade flows. Journal of Business, 59(4), 623–640.

    Article  Google Scholar 

  • Stulz, R. M. (1988). Managerial control of voting rights: financing policies and the market for corporate control. Journal of Financial Economics, 20(1/2), 25–54.

    Article  Google Scholar 

  • Sudarsanam, S. (2003). Creating value from mergers and acquisitions. Upper Saddle River: Prentice Hall.

    Google Scholar 

  • Tihanyi, L., Griffith, D. A., & Russell, C. J. (2005). The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis. Journal of International Business Studies, 36(3), 270–283.

    Article  Google Scholar 

  • Tsang, E. W. K., & Yip, P. S. L. (2007). Economic distance and the survival of foreign direct investments. Academy of Management Journal, 50(5), 1156–1168.

    Article  Google Scholar 

  • Uhlenbruck, K. (2004). Developing acquired foreign subsidiaries: the experience of MNEs in transition economies. Journal of International Business Studies, 35(2), 109–123.

    Article  Google Scholar 

  • Uhlenbruck, K., & De Castro, J. O. (2000). Foreign acquisitions in Central and Eastern Europe: outcomes of privatization in transitional economies. Academy of Management Journal, 43(3), 381–402.

    Article  Google Scholar 

  • Uhlenbruck, K., Rodriguez, P., Doh, J., & Eden, L. (2006). The impact of corruption on entry strategy: evidence from telecommunication projects in emerging economies. Organization Science, 17(3), 402–414.

    Article  Google Scholar 

  • Vaara, E. (2000). Constructions of cultural differences in post-merger change processes: a sensemaking perspective on Finnish-Swedish cases. Management, 3(3), 81–110.

    Google Scholar 

  • Vaara, E. (2002). On the discursive construction of success/failure in narratives of post-merger integration. Organization Studies, 23(2), 211–248.

    Article  Google Scholar 

  • Vaara, E., Tienari, J., & Säntti, R. (2003). The international match: metaphors as vehicles of social identity-building in cross-border mergers. Human Relations, 56(4), 419–451.

    Article  Google Scholar 

  • Venaik, S., & Brewer, P. (2010). Avoiding uncertainty avoidance in Hofstede and GLOBE. Journal of International Business Studies, 41(8), 1294–1315.

    Article  Google Scholar 

  • Walkling, R., & Long, M. (1984). Agency theory, managerial welfare, and takeover bid rescue. RAND Journal of Economics, 15(1), 54–68.

    Article  Google Scholar 

  • Weston, V. F., & Sorge, B. W. (1972). International management finance. Homewood: Richard D. Irwin.

    Google Scholar 

  • Williamson, O. E. (1991). Strategizing, economizing, and economic organization. Strategic Management Journal, 12(Special Issue), 75–94.

  • Williamson, O. E. (1996). The mechanisms of governance. New York: Oxford University Press.

    Google Scholar 

  • Yiu, D., & Makino, S. (2002). The choice between joint venture and wholly owned subsidiary: an institutional perspective. Organization Science, 13(6), 667–683.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Instituto de Empresa Business School, Madrid, Spain

    Caterina Moschieri

  2. ESADE Business School, Ramon Llull University, Barcelona, Spain

    Roberto Ragozzino

  3. IESE Business School, Madrid, Spain

    Jose Manuel Campa

Authors
  1. Caterina Moschieri
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Roberto Ragozzino
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Jose Manuel Campa
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Caterina Moschieri.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Moschieri, C., Ragozzino, R. & Campa, J.M. Does Regional Integration Change the Effects of Country-Level Institutional Barriers on M&A? The Case of the European Union. Manag Int Rev 54, 853–877 (2014). https://doi.org/10.1007/s11575-014-0206-7

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11575-014-0206-7

Keywords

Search

Navigation