How Country Reputation Differentials Influence Market Reaction to International Acquisitions

Abstract

This study investigates the influence of country reputation differentials on market reaction to international acquisitions. Building on social identity theory, we argue that market reactions are more positive when the reputation of the acquirer’s country is better than that of the target’s, since a country’s reputation imprints on its firms due to social categorization. Thus, firms from countries with better reputations are perceived as having superior skills/capabilities and the reputation difference suggests that the acquirer is able to identify/exploit undervalued targets and leverage synergies. The influence of country reputation should be weaker when additional information on the merging firms is present, through news media reporting and analyst coverage of the merging firms as well as the acquirer’s prior acquisition track record, since market investors will rely less on country reputation. We find support for our hypotheses for a sample of 4,792 international acquisitions across 48 countries from 2009 to 2017.

Learning from inbound foreign acquisitions for outbound expansion by emerging market MNEs

“…Moreover, we controlled for cumulative abnormal return (CAR) around public announcement because the market reaction to the announced deal may influence deal completion and decision-making (Kumar, Dixit, & Francis, 2015;Luo, 2005). We relied on event analysis (Brown & Warner, 1985) to calculate CAR around announcement by the sum of abnormal returns over the (-1, 1) event window around the announcement date (Li, Shenkar, Newburry, & Tang, 2021). The estimated coefficients from the market model were obtained for a given firm by regressing the At the firm level, following earlier research, we controlled for acquirer size (the logarithm of total assets in millions of dollars) (Moeller et al, 2007), acquirer leverage (the ratio of long-term debt to equity) (Harford, Klasa, & Walcott, 2009), and acquirer performance (net income on assets) (Lee & Caves, 1998) because these firm characteristics may influence a firm's ability to complete a CBA deal.…”

MNEs’ corporate governance disclosure: a strategic response to corrupt environments

“…the liability of illegitimacy or legitimacy advantages). A halo effect informs these inferences by using the available information about the country of origin to develop beliefs about the MNEs (Han, 1989; Kang and Yang, 2010; Li et al , 2021; Newburry, 2012). Next, we will discuss how corruption at home markets relates to legitimacy stereotypes of MNEs by various stakeholders (e.g.…”

“…Extant research states that corruption levels differ across developing and developed countries and that developing countries are perceived to be more corrupt than developed ones (Bahoo et al , 2020; Brody et al , 2020; Cheung et al , 2021; Jiang and Lu, 2021; Lourenço et al , 2018; Luiz and Stewart, 2014; Peyton and Belasen, 2012). Following the categorization of firms based on their countries of origin (Li et al , 2021), we argue that MNEs are stereotyped as more or less corrupt depending on their countries of origin.…”

“…As suggested above, its pervasiveness or control underlays some common stereotypes stakeholders may have about MNEs (Popli et al , 2021). Given the salience of the country of origin in triggering stereotyped judgments by stakeholders (Czinkota et al , 2021; Peltokorpi and Pudelko, 2021), we expect that home country corruption to be a source of liability of illegitimacy or legitimacy advantages for MNEs abroad (Li et al , 2021; Li and Reuer, 2022; Marano et al , 2017; Stevens and Newenham-Kahindi, 2017).…”

How I Speak Defines What I Do: Effects of the Functional Language Proficiency of Host Country Employees on Their Unethical Pro-organizational Behavior

“…According to Tajfel et al (1979), one's social identity is formed through a three-stage process-social categorization, social identification, and social comparison. The social categorization stage is mainly the "what people have" stage, in which individuals create social groups based on what people have (e.g., gender, skills, or nationality) and categorize people into different groups, the core idea of which is that these different attributions dominate in various groups (Li et al, 2021). The identification stage then focuses on "who people are" or "who people want to be."…”