How does liability of origin influence cross-border acquisition completion? Evidence from Chinese firms

Abstract

Purpose The environment of international business (IB) and the capabilities of emerging market multinational enterprises (EMNEs) as well as their home countries have changed significantly, leading to some new features of liability of origin (LOR). This paper aims to extend the LOR literature by particularly focusing on the LOR of Chinese multinational enterprises (MNEs) and by taking into account the heterogeneity among industries and across individual MNEs. Design/methodology/approach Based on the stereotype content model and organizational legitimacy perspective, this study explores how LOR influences Chinese MNEs’ cross-border acquisition completions. Several hypotheses were tested by using a binary logistic regression model with panel data techniques based on data of 780 Chinese MNEs’ acquisition deals between 2008 and 2018. Findings The results of this study show that when the competence dimension of China’s LOR is perceived as high in the host country, Chinese MNEs are less likely to complete cross-border acquisitions. Moreover, deals are less likely to be completed when the warmth dimension of China’s LOR is perceived to be low. Global experience and the foreign-listed status of individual Chinese MNEs can alter the relationship between the LOR and deal completions. Originality/value This study advances and enriches the LOR research. It shows that a high level of competence in the home country has led to LOR for Chinese MNEs rather than the low level of competence proposed by existing LOR studies; and the LOR for Chinese MNEs is also determined by the perceived low level of warmth in the home country resulting from the geopolitical conflicts between two countries. In addition, the LOR suffered by EMNEs could vary based on certain industry- and firm-level characteristics. The findings of this study provide important practical implications for emerging economy governments and for firms intending to go abroad.

Home country influence in cross-border mergers and acquisitions by emerging market firms: a systematic review

“…, 2012) because of the increased understanding of the host country’s business environment. Moreover, by increasing risk, distrust and information asymmetry, poor home-host political relations hinder the completion of Chinese CBMAs (Jiang et al. , 2022) and increase the transaction price paid by Chinese acquirers (Ding et al.…”

“…Leveraging the EMF context, in the post-M&A stage, it has been found that they tend to acquire firms in countries with close trade and economic ties (Anwar and Mughal, 2017;Buckley et al, 2012) because of the increased understanding of the host country's business environment. Moreover, by increasing risk, distrust and information asymmetry, poor home-host political relations hinder the completion of Chinese CBMAs (Jiang et al, 2022) and increase the transaction price paid by Chinese acquirers (Ding et al, 2022). However, the impact of international relations on ownership choice remains unclear.…”

Chinese Multinationals’ Internationalization Strategies: New Realities, New Pathways

“…Many Chinese firms suffer from being negatively stereotyped, adversely impacting their cross-border M&As and internationalization. 91 This effect might be exacerbated if China gets more involved in its strategic partnership with Russia. Private companies from a wider range of industries may be exposed to geopolitical fallout if the line between private firms and the state becomes more blurred in China.…”

Guest editorial: Institutions, corporate governance and entrepreneurship: a research agenda for Chinese world-class enterprises

“…Chinese firms are not unique in this regard; emerging economies are often synonymous with low-quality products and services because of their capacity deficits in technology, capital access and legal setup (Tan and Yang, 2021). The findings of Jiang et al (2022) in this special issue may be meaningful for those aiming to explore global markets and to be world-class businesses. Their research explores the liability of origin problem with the special attentions to the heterogeneity of countries, industries and firms.…”