Institutional determinants of ownership positions of foreign acquirers in Africa

Abstract

Research summary Using unique features of the African context and blending institutional, hostage, and transaction cost theories, we address gaps in our understanding of institutional determinants of ownership position in cross‐border acquisitions (CBAs) in emerging countries. We focus on two traditional institutional determinants: Informal and formal institutional distances between the two firms’ home countries and two determinants that are particularly acute in the African context: the colonial ties between and fractionalization of the two firms’ home countries. We find colonial ties and uncertainty avoidance distance, an indicator of informal institutional distance, are negatively related to ownership position. Conversely, we show that formal institutional distance and the host country's fractionalization positively influence ownership levels, but the latter effect is weakened when acquirers come from more fractionalized home countries. Managerial summary We examine the effects of four institutional factors that influence organizational decision‐making in the African context: (a) its colonial history, (b) differences in informal cultural norms, (c) differences in formal regulatory structures, and (d) ethnic and linguistic diversity within a country on the percentage of equity ownership that foreign acquirers hold in African target firms. Results indicate that this equity position is lower when colonial ties and greater differences in uncertainty avoidance exist between the acquirer's home country and the target African country. Conversely, foreign acquirers’ equity ownership positions are higher when there are greater formal regulatory differences between the two countries and the host country is more ethnically and linguistically diverse, though the latter effect is reduced when the acquirer is from a home country that is also diverse.

The boundaries of the firm in global strategy

“…Thus, starting in the hierarchies, we have the analysis by Minbaeva and Santangelo (2018) of how multinationals manage knowledge transfer across borders and the role that boundary spanners play. We then move to two analyses of cross-border mergers and acquisitions: the study by Xia, Ma, Tong, and Li (2018) on how the experience gained via the network of relationships of the firm supports its cross-border mergers and acquisition; and the study by Ellis, Lamont, Holmes, Ro, Faifman, DeGhetto, and Parola (2018) on the role that distances in informal and formal institutions between home and host play on mergers and acquisitions. We then jump to the study of cross-border alliances with the analysis by Pesch and Bouncken (2018) on international alliances and how cultural intelligence facilitates them.…”

Chinese cross‐border mergers and acquisitions in the developing world: Is Africa unique?

“…137–140). For African countries, their colonial history and ethno‐linguistic fractionalization related sociopolitical instability create unique institutional contexts, which make them distinctive from most other emerging markets (Ellis et al, 2018). In this regard, based on the widespread perception that Africa is structurally and institutionally different from the rest of the developing world and also confirmed by several studies that there is a differential impact of FDI in Africa (Asiedu, 2006), we argue that African economies will have a distinct effect on the level of Chinese CBMAs.…”

Determinants of Equity Ownership Stake in Foreign Entry Decisions: A Systematic Review and Research Agenda

“…For instance, foreign firms from a country having colonial ties with African countries might trigger a negative response from the target firm in Africa, and thus opt for a lower equity ownership stake (Ellis et al. 2018).…”