The performance of cross-border acquisitions targeting African firms

Kashiramka

2023

RIBS

Purpose Emerging market multinational companies have been vigorous in pursuing inorganic growth through cross-border acquisitions (CBAs). The fundamental studies till now have portrayed that rapid internationalization through CBAs tends to create value for these emerging market firms (EMFs) in the short term. However, there is an ambiguity about whether these firms endure better performance in the long term. The purpose of this study is to assess the long-term (ex-post) financial and operating performance of EMFs involved in overseas acquisitions before the COVID-19 pandemic hit the world economy. Design/methodology/approach CBAs completed by Indian and Chinese companies constitute the sample of the study. The performance has been analysed during the pre-COVID period spanning 17 years from 2001 to 2017. A comprehensive set of 14 financial ratios has been used to represent change (improvement/decline) in enterprises’ post-acquisition operating performance; these ratios have been divided into four broad groups: profitability, efficiency, solvency and liquidity ratios. Findings The performance of Indian companies has deteriorated significantly after the acquisition. However, there has been no change (deterioration/improvement), subsequent to CBAs, in the profitability of Chinese firms. Practical implications The findings of the study support that firms from emerging economies exploit CBAs as a “springboard” to obtain strategic assets including intangible resources and brands rather than to achieve synergies through economies of scale and scope. Apparently, outbound acquisitions by emerging economy firms are not driven by cost-reduction or revenue-generation activities. Originality/value None of the studies, to the best knowledge of the authors, has carried out performance analysis using a comprehensive set of financial ratios. The comparative study of two emerging economies is another valuable addition to the existing literature. The study holds the potential to serve as the benchmark to assess the performance of CBAs executed after COVID-19.

Section: Determinants Of Acquisition Performancementioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Performance of cross-border acquirers from India and China: its sustainability in the long-run?

Kashiramka

2023

RIBS

“…It appears that the growth-enhancing effect of FDI is not automatic, but depends on several country-specific factors. The FDI growth relationship is often mediated by economic and institutional factors (Alfaro et al, 2006;Amiram, 2012;Chipalkatti et al, 2007;Francis et al, 2016;Nkiwane & Chipeta, 2019;Seyoum & Manyak, 2009). Brahim and Rachdi (2014) use a panel smooth transition regression (PSTR) model for 19 Middle East and North Africa (MENA) countries over the period 1984-2011 and find that only countries with good institutions have a positive effect of FDI on economic growth.…”

Section: Empirical Studies On Fdi and Growthmentioning

confidence: 99%

FDI inflows, economic growth, and governance quality trilogy in developing countries: A panel VAR analysis

Saidi

Ochi

Maktouf

2022

Bulletin of Econ Res

This study provides evidence of the triangular relationship between governance quality, foreign direct investment, and economic growth. Unlike previous studies in the governance-foreign direct investment-growth literature, this study employed the panel vector autoregressive model to examine the impact of governance quality and foreign direct investment on economic growth. Moreover, we used the impulse response function tool, which was developed in the same context, to better understand the reaction of the two main variables of interest, foreign direct investment, and economic growth, after shocks to the governance quality variable. Finally, the analysis was completed by the variance decomposition of all variables. These analyses were conducted for 102 developing countries from 1996 to 2014. Overall, the results show that inward foreign direct investment has a significant impact and can strongly encourage economic growth. These results indicate that the quality of governance in developing countries does not affect foreign direct investment and economic growth.

Transnational Corporations Review

“…There has been an increase in the foreign ownership of firms globally and this has mainly been driven by the movement of capital through foreign direct investment and the foreign acquisition of domestic or national firms. Similar to other developing regions, Sub-Saharan Africa (SSA) has also recorded its share of global increase in foreign direct investment and subsequently, foreign ownership of firms (Nkiwane and Chipeta, 2019;Amendolagine and Prota, 2021). Foreign firms have a choice between two types of entry into a host market.…”

Section: Introductionmentioning

confidence: 99%

Foreign ownership and firm performance in Sub-Saharan Africa

Webster

Okafor

Barrow

2022

Our study investigates the effects of foreign ownership on firm performance with respect to profitability, productivity, export intensity, and skills acquisition in Sub-Saharan African (SSA) countries. This is particularly important given that in the last 3 decades, stock of FDI has increased over 20,000% in SSA countries. To achieve the objectives of this paper, we employed firm-and country-level data from the World Bank Enterprise Surveys and the World Bank Development Indicators respectively. Results of the least squares dummy variable (LSDV) and propensity score matching (PSM) estimations showed that foreign ownership was positively associated with higher levels of financial profitability, productivity, exports, and skilled labour acquisition. Policy implications were deduced from the findings.