Whether, how and why home country environments influence emerging market firm acquisition behavior

Abstract

PurposeAccording to the 2019 World Investment Report, recent events in deglobalization have made many countries, especially developed markets, resist inward foreign direct investment (FDI) as ceding control to foreign countries. At the same time, many emerging market firms (EMFs) have been increasing their acquisitions in developed markets. The authors elaborate three unconventional motives that justify such acquisitions, and test whether conditions in home countries related to these motives predict the pursuit of greater or lesser equity control. Understanding how home country conditions may spur seeking greater equity control can help policymakers and business firm decision-makers improve these dynamics.Design/methodology/approachExamining data covering the period 2006–2018, the authors test hypotheses using a sample of 4,130 acquisitions by EMFs into developed markets, and test hypotheses to investigate “How does the institutional and resource environment of an EMF's home country relate to the respective EMF acquisition behavior of seeking equity control?”FindingsThe authors found that higher institutional quality, poorer factor market development, and higher capital market quality in the home country are related to higher equity positions sought.Practical implicationsAcquiring and target firm managers, along with other stakeholders, can gain insights on how to respond to acquisition opportunities by recognizing how home country conditions influence emerging market internationalizing behaviors into developed markets.Originality/valueThe compilation of this data uniquely covers 48 different emerging markets and further concentrates on the relatively less understood pre-deal phase for EMNEs entering developed markets.

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

“…, 2021). However, Reddy et al. (2023) suggested an opposite dynamic where increased ownership is an outcome of home institutional quality enhancement that drives EMFs to seek deeper learning from CBMA targets.…”

“…This forms their motivation for conducting CBMAs and increasing ownership (Chari and Acikgoz, 2016;Deng, 2009;Li et al, 2021). However, Reddy et al (2023) suggested an opposite dynamic where increased ownership is an outcome of home institutional quality enhancement that drives EMFs to seek deeper learning from CBMA targets. Underdeveloped home institutions also affect EMFs' risk preference in ownership sought, such that Latin American acquirers are less negatively affected by host country risk in their ownership, given their adaptability to home high-risk environments (Krug and Falaster, 2023).…”

“…Other studies shed light on distinct macroeconomic configurations in emerging markets, identifying the effects of rapid economic development, large and increasingly developed markets and scarce but growing knowledge resources at home. In the pre-M&A stage, large markets, developed capital markets and scarcity of human capital at home induce EMFs to seek increased ownership in advanced market targets to obtain strategic assets that increase domestic competitiveness (Liou et al, 2017b;Liou et al, 2016;Reddy et al, 2023). Increasingly sophisticated markets and sufficient knowledge-based resources at home facilitate EMFs' CBMAs in advanced markets by enhancing their capabilities (Elia and Santangelo, 2017), especially in unrelated industries (Rabbiosi et al, 2012).…”

Country of origin institutional factors and internationalization of multinational companies in emerging markets: a review and future research agenda

“…However, the literature is less comprehensive in analyzing how companies are sensitive to institutional differences in home and host countries (De Beule & Zhang, 2022). Therefore, despite the reported importance of the institutional environment, it is necessary to analyze which institutional factors drive the internationalization of MNCs and how these factors influence the strategies adopted by these companies in the international market (Ferreira & Falcao, 2019;Elango & Pangarkar, 2021;Reddy et al, 2022;Zhu et al, 2022).…”

M&A performance in emerging markets: do they behave in unison or otherwise?

“…Traditionally dominated by the developed markets, the contemporary figures validate the increasingly prominent role of emerging market firms (EMF) in the global economy (Caiazza and Volpe, 2015;Reddy et al, 2022). Cross-border M&As constitute the majority of the foreign direct investments from emerging market nations.…”