Interorganizational imitation and payment mode decisions in cross‐border acquisitions

Abstract

Acquiring firm imitates the payment method decisions made by prior foreign acquirers targeting the same host country in cross-border acquisitions. Information asymmetry and bounded rationality induces acquirers to imitate the decisions of other foreign firms in the similar context.Mimetic behavior of the firms is more salient when the acquiring firm belongs to a country with high uncertainty avoidance cultural attribute and when institutional uncertainty is high in host country. The hypotheses are tested using binary logistic regression on a dataset of 1,136 crossborder acquisitions done by a group of seven countries during 2000-2010.

The Medium of Exchange in Mergers and Acquisitions: The Cases of Travel Agencies and Tour Operators

“…However, in the case of the transactions paid in cash, the shareholders of the target firm are immediately subject to a tax. Payments in cash provide a positive signal (Ross 1977) implying confidence of the acquirer on achieving post-acquisition performances (Chhabra and Popli 2018). In line with these results, findings suggest stock payments may be beneficial in cross-border deals whenever the target is located in a weak institutional environment and when cultural distance is significant (Cho and Ahn 2017).…”

“…Previous studies on mergers and acquisitions demonstrated the importance of cash in both domestic and cross-border mergers and acquisitions (Sankar and Leepsa 2018;Xie et al 2017;Chhabra and Popli 2018). This means of exchange offers the advantage of maintaining the ownership structures unchanged.…”

“…Acquirers can make use of the means of exchange to solve information asymmetries related to the target or, alternatively, they can adopt an opportunistic behavior, to take advantage of the information weaknesses associated with less informed targets (Shleifer and Vishny 2003;Zhang et al 2020). Another theoretical explanation is derived from the mimetic behavior of the acquirer in the choice of the means of exchange: acquirers imitate payment decisions in the target country in presence of strong uncertainties (Chhabra and Popli 2018).…”

Measurement of synergy in merger & acquisitions: A panel data approach using composite variable (principal component analysis)

“…In cash deals, targets are underpriced in actual terms (i.e., according to fundamentals), but they are underpriced in stock acquisitions as compared to buyers (Yook, 2003). Cash-financed deals in "M&As" deliver abnormal returns which are positive, while stockfinanced deals produce negative returns (Chhabra & Popli, 2018;de Bodt et al, 2018;Faccio & Masulis, 2005;Güven, 2020;Mann & Kohli, 2009;Smith & Kim, 1994).…”

Impact of top management team sociodemographic faultlines on speed of foreign direct investment expansion: An emerging market perspective

“…Foreign entry by a firm involves most or all of the TMT members (Barkema & Shvyrkov, 2007;Hambrick, Cho, & Chen, 1996). To mitigate the risk due to information asymmetry, managers often imitate the decisions of the prior international acquirers (Chhabra & Popli, 2018;Malhotra, Morgan, & Zhu, 2018). Though the extant literature focuses on the impact of CEO characteristics (Herrmann & Datta, 2002, 2006 on firm internationalization, however, studies examining the impact of TMT composition on internationalization remain scant (Nielsen & Nielsen, 2011).…”