Do Institutional Distances Influence South-South Cross-Border Acquisitions?

Abstract

Different countries have different institutional environments. In this way, multinational companies must deal with the difficulties imposed by the differences between their home environment and that of the country where they are inserted. In this article, we analyze the effects of institutional distance on South-South acquisitions. Specifically, we analyze the effect of institutional distance on the amount of participation chosen in Latin American international acquisitions in Brazil. More specifically, the effect of institutional distance is analyzed through the percentage of shares acquired in international acquisitions. Our results contribute to the theory in international business because it explains why Latin American companies prefer to make total acquisitions even in situations of high institutional distances.

Does institutional distance affect cross-border acquisitions of China’s multinational companies?

“…The same results were also obtained from research (Pinto et al, 2017) which stated that companies that make cross-border acquisitions prefer full acquisitions when the institutional distance to the host country is large. This is also supported by research from (Moura et al, 2019) which stated that administrative distance has a significant and positive effect on the level of equity ownership.…”

“…Previous research (Gaffney et al, 2016) stated that economic distance affects company decisions on the level of equity ownership. This is supported by research (Moura et al, 2019;Pinto et al, 2017) which stated that economic distance affects higher equity ownership. Meanwhile, (Dikova et al, 2017;Mueller et al, 2017) found that economic distance significantly and negatively affects the level of equity ownership.…”

“…This decision will determine the parent company's control over the target company and the postacquisition economic benefits (Contractor et al, 2014). Previous studies have examined the effect of institutional distance on equity ownership, such as studies (Ferreira et al, 2017;Lee et al, 2014;Moura et al, 2019) that analyzed CBA transactions and mergers with institutional distance (administrative distance, cultural distance, economic distance, political distance, financial distance, global connectedness distance, et cetera). Some researchers show different results when assessing the level of equity ownership.…”

“…This study uses control variables, i.e., market size and industry relatedness, to obtain unbiased research results and to determine whether these variables should be neutralized, eliminated, or maintained. This study follows the previous research model by (Moura et al, 2019), with the object of this research being cross-border acquisition transactions by Chinese MNCs targeting companies in the Southeast Asian Region. This paper is organized as follows: the first part is an introduction; the second part is a literature review with theoretical and empirical studies that shed a light on linkage between theory and practice.…”

The interplay between home and host institutions on CBA ownership decision

“…The institutional environment strongly affects how companies perform foreign investments (Dikova & Van Witteloostuijn, 2007; Moura, Krug, Falaster, & dos Santos Parisotto, 2019). Especially, ownership choices are key decisions for companies operating CBAs and reflect how the company perceives risks and the need for control abroad (Brouthers, 2002; Chen & Hennart, 2004; Lahiri, Elango, & Kundu, 2014; Malhotra, Lin, & Farrell, 2016).…”