Equity Ownership in Cross‐border Mergers and Acquisitions by British Firms: An Analysis of Real Options and Transaction Cost Factors

Abstract

The authors investigate the factors influencing the share of equity ownership sought in cross‐border mergers and acquisitions (CBM&As). Drawing on real options theory and transaction cost economics (TCE), they address and hypothesize key factors linked to commitment under exogenous uncertainty and the separation of desired and non‐desired assets’ influence on share of equity sought by acquiring firms in CBM&As. Empirical analysis based on 1872 CBM&As undertaken by British firms in both developed and emerging economies shows that British MNEs are more likely to pursue a partial acquisition in a target foreign firm when those foreign firms are from culturally distant countries. Further, findings support the view that the high cost of separating desired assets from non‐desired assets motivates firms to make a partial acquisition rather than acquire the target completely. This is one of the first studies to use real options theory to address the cost of commitment under exogenous uncertainty, as well as TCE logic to address the separation of desired and non‐desired assets in the target firm while analysing equity ownership sought in CBM&As. Empirically, this paper contributes by examining CBM&As by British firms in both developed and emerging markets.

Board size and acquisition outcome: The moderating role of home country formal institutional development

“…Also, under public scrutiny, members are more accountable for their views and actions so that they will be perceived as assets to fellow group members (Pinter et al, 2007;Van Kleef, Steinel, Van Knippenberg, Hogg, & Svensson, 2007) and would, therefore, generally perform well (Kou & Stewart, 2018;Mero, Guidice, & Werner, 2014 (Demirbag, Glaister, & Tatoglu, 2007;Faccio, McConnell, & Stolin, 2006) and sought at least 15% of the target shares in the focal transaction (Bradley, Desai, & Kim, 1983;Kale, Kini, & Ryan, 2003;Shenoy, 2012). Afterwards, I retained the deals for which the transaction value was available to estimate target size (Ahammad, Leone, Tarba, Glaister, & Arslan, 2017). Also the data were restricted to home and host countries that were covered by the World Bank's Worldwide Governance Indicators (WGI).…”

“…that took the value of 1 for abandoned deals and 0 for completed deals(Dikova et al, 2010;Kim & Song, 2017;Li et al, 2019) Independent variable of primary interestBoard size Natural logarithm of the number of board members of the acquirer 1 year prior to the deal announcement, that is, year 2017 (Katti & Raithatha, 2018, Su et al, 2019) Moderating variable Home country formal institutional development (variable identifier: home institutions) Average of the home country's governance score along six dimensions of WGI over the period 2015-2017 (Chen et al, 2017; Fuentelsaz et al, 2019; Li, Zahra, & Lan, 2017; Orcos et alindependent directors on board (Su et al, 2019)International experience Natural logarithm of one plus the number of completed cross-border investments made by the acquirer prior to the focal acquisition(Reuer et al, 2012) ToeholdThe percentage of acquirer's ownership in the target prior to the focal transaction(Hukkanen & Keloharju, 2019) Acquirer size Natural logarithm of the acquirer's sales 1 year prior to the deal announcement, that is, year 2017(Fuad & Gaur, 2019) Target size The transaction value divided by the proportion of equity sought in the focal transaction(Ahammad et al, 2017) …”

Does changing contexts affect linkages throughout the mergers and acquisition process? A multiphasic investigation of motives, pre‐ and post‐acquisition and performance

“…For that reason, there have been many calls for studies that use perceptual data from outside the United States (Andonova et al, ; Cartwright & Schoenberg, ; Haleblian et al, ). Other major settings for M&A activity include the UK which has also been heavily researched (e.g., Ahammad, Leone, Tarba, Glaister, & Arslan, ; Angwin & Meadows, ; Schoenberg, ) and the stronger European economies such as Germany (e.g., Bauer & Matzler, ; Strobl, Bauer, & Matzler, forthcoming), France (e.g., Meschi & Métais, ), and the Nordic countries (e.g., Teerikangas & Thanos, ). However, the weaker European economies from the southeastern European context where M&As on any scale are a more recent phenomena, have received very little attention indeed.…”

R&D capabilities, intellectual property strength and choice of equity ownership in cross‐border acquisitions: evidence from BRICS acquirers in Europe

“…Despite the topical as well as academic importance of this issue, ownership decision in CBAs is relatively under‐researched in comparison to other issues of mergers and acquisitions (M&As) such as knowledge transfer (e.g., Junni et al, ; Ahammad et al, ) post‐acquisition integration dynamics (e.g., Gomes et al, ), M&A and innovation (e.g., Bauer et al, ) and post‐acquisition performance (e.g., Weber et al, ; Weber and Tarba, ; Bauer and Matzler, ; Zhang et al, ). Only a few studies have explored the circumstances surrounding MNEs’ preferences for partial or full acquisitions.…”

“…Malhotra et al () by comparing U.S. multinationals with Latin American firms find that the latter group demonstrate a greater propensity to opt for full ownership as cross‐national uncertainty increases. A very recent study also finds that high cultural distance between host and target economies manifested through differences in individual‐collectivism and uncertainty avoidance drives British acquirers to opt for partial acquisitions in both developed and emerging economies (Ahammad et al, ).…”