Based on the concepts of North's (1990) political economy of national institutions and economic behavior, we investigate how formal and informal institutional features influence the likelihood that a cross-border acquisition deal will be completed, as well as the time taken for its completion after announcement. Additionally, we study how past experience with completed acquisition deals moderates the effects of institutional differences. We focus on a relatively new context – the pre-completion stage of acquisition processes. We test our hypotheses using data from 2389 announced cross-border acquisition deals in the international business service industry (1981–2001). We find that differences in national formal and informal institutions explain part of the variation in the likelihood that an announced cross-border acquisition deal will be completed, as well as the duration of the deal-making. In addition, organizational learning moderates the effects of institutional distance: past experience with completed cross-border acquisition deals increases the likelihood of a subsequent deal completion in institutionally closer environments, but shortens the deal duration in institutionally distant environments.
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We concede to Reuer, Shenkar, and Ragozzino (2004), who argue that there are two streams of literature on international acquisitions: one falls within the field of entry mode research, presenting acquisitions as alternatives to greenfield and alliance establishments, and the other looks at the value-creation potential of acquisitions. The former literature addresses strategic decisions made before the deal announcement; the latter literature examines the period after the completion of the deal. Since neither of the two research streams examines deal developments in the period between initial announcement and completion, we refrain from an extensive review of this past literature on international acquisitions (for this, see Reuer et al., 2004).
This description of M&A announcement strategies at the firm level is taken, by way of illustration, from Eastbury Partnership, Internal communications during mergers & acquisitions: a checklist, accessed at http://www.eastbury.co.uk/internalcomms.html on 4 July 2007.
In robustness tests, we included abandonment experience and unrelated (industry) experience. Their inclusion did not change the estimated coefficients of our institutional distance variables. Abandonment experience turned out to be insignificant. The inclusion of unrelated (industry) experience resulted in somewhat weaker (smaller) effects for related (industry) experience, suggesting that some amount of learning also occurs from unrelated contexts. Given the support in past literature (both theoretical and empirical) on the value of learning from related contexts over unrelated contexts, and the marginal evidence on omitted variable bias, we have chosen to present the results from the specification with accumulated experience in related contexts only. This result is corroborated by literature on the limited value of learning from failure and unrelated experience (Hayward, 2002).
We also estimated the model with controls for the acquiring firm's country, but decided not to present these results since the estimated coefficients of the acquirer country dummies were insignificant and the estimated coefficients of the other variables remained unchanged.
Estimates were obtained using xtlogit and xtreg in Stata version 10.
To check our findings against past literature on the similarity of past acquisitions, we calculated a measure capturing the similarity of past acquisitions to one another, as in Hayward (2002). We included it as a regressor in addition to overall experience (unrelated and related aggregated together), as estimated by Hayward (2002), and found that both overall experience and the Hayward measure are insignificant, suggesting that aggregating experience across different contexts might result in a measure of experience that is too agglomerated to be informative.
We estimate a negative binomial model to study the number of cross-border acquisitions within country pairs.
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We thank Professor Robert E Hoskisson and three anonymous reviewers for their insightful comments.
Accepted by editor, Robert Hoskisson, Consulting Editor, 24 October 2008. This paper has been with the authors for three revisions.
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Dikova, D., Sahib, P. & van Witteloostuijn, A. Cross-border acquisition abandonment and completion: The effect of institutional differences and organizational learning in the international business service industry, 1981–2001. J Int Bus Stud 41, 223–245 (2010). https://doi.org/10.1057/jibs.2009.10
- organizational learning
- cultural distance
- institutional environment
- international regulations
- international acquisitions