Distance and the completion of Chinese cross-border mergers and acquisitions

Abstract

The purpose of this study is to draw attention to the significant lower completion rate of mergers and acquisitions (M&As) by firms from emerging economies (China in particular) compared with firms from advanced economies, and to identify the country-and industry-level factors that affect the completion of cross-border M&As by Chinese firms. Design/methodology/approach-This study explores the effects of economic, cultural, and institutional distances and target firms in technology-and knowledge-intensive industries on the completion of cross-border M&As by Chinese firms. It also examines the interplay between distance factors and technology-and knowledge-intensive industries on cross-border M&A completion. This study adopts a quantitative approach and is based on a sample of 768 announced cross-border M&A deals by firms in China between 2000 and 2015. Findings-The results indicate that economic distance increases the likelihood of the completion of cross-border M&As when the target is in a more developed economy than China, but decreases when the target is in a less developed economy. Cultural and institutional distances have a significant, negative impact on the completion of cross-border M&As. In addition, target technology-intensive industries have a significant direct negative effect on cross-border M&A completion and moderate the relationship between the distance factors and the likelihood of cross-border M&A completion. Research limitations/Implications-The results reveal factors that affect the completion of cross-border M&As by emerging market firms (EMFs). Further research, however, is needed to discover how distance factors affect how EMFs find, evaluate, and negotiate international bids. To broaden the scope of the research, data for firms from other emerging economies would also be required. Originality/Value-The study expands the literature that considers the effects of major distances on cross-border M&A completion. In addition, the importance of defining and measuring distances in the context of cross-border M&As is highlighted. Finally, the study expands knowledge on how cross-border M&As affect the internationalization strategies of EMFs by conceptualising and testing how target industries affect cross-border M&A completion.

Experiential learning for Chinese companies to complete cross-border acquisitions: the case of Chinese acquirers

“…This research stream normally relates to the precompletion stage occurring between the deal announcement and completion (e.g. Chakrabarti and Mitchell, 2016;Dikova et al, 2010;Doan et al, 2018;Dong et al, 2019;Muehlfeld et al, 2012;Zhou et al, 2016).…”

“…Emerging market (EM) companies undertaking outward CBAs often fail because of various external hurdles (Zhou et al, 2016), such as adverse political sentiments in the host country or adverse rulings by regulatory agencies, especially for opaque state-owned enterprises (SOEs) (Li et al, 2019), or for internal factors, such as the lack of global expansion experience (Dong et al, 2019;Zhou et al, 2016) or learning inhibition based on the previous failures (Ermolaeva, 2019). Consequently, EM companies often have insufficient acquisition capabilities for overcoming institutional differences (Dikova et al, 2010), and in that context previous CBA experience becomes a salient factor at the firm level (Ouyang and Li, 2019).…”

“…Cultural distances often prevent organizations from transferring experience (Dong et al, 2019;Nadolska and Barkema, 2014). For example, top managers of Chinese companies often lack confidence because they regularly encounter the liabilities of foreignness (Alkire and Meschi, 2018).…”

“…First, we respond to calls for specific analysis of determinants influencing whether announced deals are completed, especially CBAs attempted by EM acquirers, because they have relatively high failure rates and suffer substantial direct or indirect costs when announced deals fail (e.g. Chakrabarti and Mitchell, 2016;Dong et al, 2019;Zhou et al, 2016). We primarily adopt an experiential learning perspective to examine the effects of foreign and domestic acquisition experience.…”

International ambidexterity in firms' innovation of multinational enterprises from emerging economies: an investigation of TMT attributes

“…In view of the tremendous global integration speed of emerging market multinational enterprises (EM MNEs) and the strategic significance of internationalization to EM MNEs' innovation and catch-up (Wu et al , 2017; Dong et al , 2019), researchers have paid great attention to explaining the distinct motivation and antecedents of EM MNEs and testing the performance implication of different entry modes (Luo and Zhang, 2016; Li et al , 2017), but ignored to uncover how well companies will succeed when investing and operating overseas (Luo and Rui, 2009). Existing theoretical perspectives on EM MNEs' international operations have undergone a transformation from exploration, exploitation to ambidexterity.…”