The Impact of Protectionism on the Completion and Duration of Cross-Border Acquisitions

<p>This study investigates the impact of protectionism in a host country on the completion likelihood of an announced cross-border acquisition and the time required to complete the acquisition. Adopting a legitimacy perspective, I identify and test boundary conditions at the firm and national levels to study the relationship between protectionism and cross-border acquisition completion and duration. I hypothesise that in host countries with a high level of protectionism, as reflected by the level of non-tariff barriers, cross-border acquisitions are less likely to be completed and the time taken to close the acquisition deal increases. I also propose that the relationships between protectionism and acquisition outcomes are moderated by critical target firm characteristics and the host country's economic condition. Specifically, these moderators include target firm size, target firm performance, the degree to which the target industry is sensitive to national security concerns, and the host country's GDP growth. I test these hypotheses using a sample of 675 cross-border acquisition attempts by firms in the manufacturing and services industries (excluding financial services) into the U.S. and Canada between 1995 and 2015. The results of the statistical analysis support the prediction that the higher the degree of protectionism, the lower likelihood of acquisition completion and the longer the duration is between acquisition announcement and completion. Findings also support the predicted moderating effects of the target firm size, performance and national security concern. However, the hypothesised moderating effect of the host country's GDP growth was not supported by the results. This finding suggests that host country protectionism impacts cross-border acquisition attempts, irrespective of the host country's economic development. These findings have significant implications for legitimacy-based explanations of cross-border acquisitions. In particular, the results of this study indicate that when protectionism is high, the host country is more likely to raise concerns around the legitimacy of foreign firms. In turn, these firms face adverse host country scrutiny which can result in a failed acquisition attempt, or an extended and therefore, costlier acquisition deal. The framework and findings of this study contribute to an institution-based view and, in particular, to a legitimacy-based perspective in the research on the internationalisation of firms.</p>

The Impact of Protectionism on the Completion and Duration of Cross-Border Acquisitions

<p>This study investigates the impact of protectionism in a host country on the completion likelihood of an announced cross-border acquisition and the time required to complete the acquisition. Adopting a legitimacy perspective, I identify and test boundary conditions at the firm and national levels to study the relationship between protectionism and cross-border acquisition completion and duration. I hypothesise that in host countries with a high level of protectionism, as reflected by the level of non-tariff barriers, cross-border acquisitions are less likely to be completed and the time taken to close the acquisition deal increases. I also propose that the relationships between protectionism and acquisition outcomes are moderated by critical target firm characteristics and the host country's economic condition. Specifically, these moderators include target firm size, target firm performance, the degree to which the target industry is sensitive to national security concerns, and the host country's GDP growth. I test these hypotheses using a sample of 675 cross-border acquisition attempts by firms in the manufacturing and services industries (excluding financial services) into the U.S. and Canada between 1995 and 2015. The results of the statistical analysis support the prediction that the higher the degree of protectionism, the lower likelihood of acquisition completion and the longer the duration is between acquisition announcement and completion. Findings also support the predicted moderating effects of the target firm size, performance and national security concern. However, the hypothesised moderating effect of the host country's GDP growth was not supported by the results. This finding suggests that host country protectionism impacts cross-border acquisition attempts, irrespective of the host country's economic development. These findings have significant implications for legitimacy-based explanations of cross-border acquisitions. In particular, the results of this study indicate that when protectionism is high, the host country is more likely to raise concerns around the legitimacy of foreign firms. In turn, these firms face adverse host country scrutiny which can result in a failed acquisition attempt, or an extended and therefore, costlier acquisition deal. The framework and findings of this study contribute to an institution-based view and, in particular, to a legitimacy-based perspective in the research on the internationalisation of firms.</p>

A Review of Hedge Fund Activism: Impact on Shareholders vs. Stakeholders

This chapter reviews the growing empirical literature on shareholder activism by hedge funds, summarizing the sources and nature of the activist data and examining the evidence on target firm outcomes. Target firms do not exist in a vacuum, however; they have industry competitors, suppliers, customers, debtholders, and employees. Hedge fund activists often demand a reformulation of the target firm’s product market strategy to enhance its ability to earn inframarginal profits. This positive strategic effect may be especially significant for target firms that are economically distressed and facing predatory moves from deep-pocketed rival firms to induce exit. The putative significant effects of hedge fund activism on targets should generate spillover effects on their stakeholders. The chapter considers these spillover effects in a number of well-defined categories: industry rivals, customers, suppliers, debtholders, and employees.

Investor activism strategies of private equity firms: evidence from continental Europe

Purpose This paper aims to deal with the issue of shareholder activism of private equity investors in public companies. The study identifies characteristics of target firms and investors related to the likelihood of private equity activism. The research also examines whether shareholder activism strategy of private equity investors is associated with the better performance in future and value creation of target firms. Design/methodology/approach The paper applies econometric modeling to hand-collected data on private equity investments in listed companies, in the form of private investment in public equity and open-market share purchases, from eight Continental Europe’s countries for the period 2005–2014. Findings The findings indicate that the probability of shareholder activism is higher if the target firm’s industry corresponds to the private equity investor’s industry specialization, if the private equity firm is older, if the target is larger and the average ownership share purchased by the investor is higher. Conversely, the probability of shareholder activism is lower where a private equity firm invests in the target for the first time. A target firm with an activist investor has poorer operational performance results one year following the investment compared to a target firm with a passive private equity investor. Research limitations/implications Results from the analysis of transactions in Continental Europe countries with French and German legal origin may be not generalizable to other markets with the different legal tradition and institutional environment. Originality/value This research provides new empirical evidence on private equity activism in listed companies of Continental Europe. By distinguishing between active and passive investments, testing rarely considered characteristics to provide valuable insights and analyzing the effect of activism on the target firm’s performance, the study contributes variously to the still-limited body of literature on private equity activism in public companies with a governance structure based on concentrated ownership. The findings emphasize the relationship between shareholder activism and both target and investor’s characteristics from perspective of mitigating agency problem and value creation in target firms. By simultaneously investigating investments in public companies from several European markets, the study complements empirical evidence mostly obtained from studies of a single national market.

The Effect of Tax System Characteristics on Cross-Border Mergers and Acquisitions

Although determinants of cross-border merger and acquisitions (M&As) have been given substantial attention in the literature, research examining the effect of tax system characteristics on cross-border M&As is more limited. Cross-border M&As have substantial tax implications for both the acquiring firm and the target firm. Because firms evaluate investments based on expected after-tax returns, I expect that managers consider potential tax savings or costs in making investment decisions across tax jurisdictions. In this study, I use hand-collected country-year-level tax system characteristics to examine tax determinants of the volume and direction of cross-border M&As. I find that tax system characteristics such as controlled foreign corporation provisions, thin capitalization provisions, and the presence of a worldwide versus territorial regime have a significant effect on cross-border M&A activity.

Linking ownership acquired in Chinese firms to post-acquisition innovation performance: role of institutional distance

Purpose The primary purpose of this study is to explore the impact of acquired ownership in Chinese target firm on the innovation performance of developed economies (DE) acquiring firms. Furthermore, the study aims to empirically investigate the moderating influence of institutional distance between two parties’ home countries. Design/methodology/approach For the empirical investigation of the hypotheses, the authors identified cross-border technological acquisitions from the Securities Data Company between 1995 and 2015. A hierarchical negative binomial regression technique was used to analyze 177 technological acquisitions completed by DE acquiring firms in China. Findings Analysis of technological acquisition deals confirmed that acquired ownership undertaken in the Chinese target firms increases the DE acquiring firms’ post-acquisition innovation performance. The authors found that DE acquiring firms underperform in innovation in institutionally distant host countries. Originality/value This study contributes to the international business literature by explaining the importance of acquired ownership undertaken in the Chinese target firms for the DE acquiring firm’s innovation performance. Second, institutional theory defines how institutional uncertainty in terms of distance modifies the positive impact of acquired ownership on acquiring firm’s innovation performance.

Enablers of postacquisition joint knowledge creation: evidence from joint patenting in high-tech mergers and acquisitions

Purpose This study aims to investigate three organizational-level factors (geographical proximity, technological similarity and organizational identity integration) that influence the likelihood of post-mergers and acquisition (M&A) joint knowledge creation between inventors from the target and acquiring firms. Design/methodology/approach Analyzing post-M&A joint patent filing activities from 136 M&A deals in high-tech industries, the authors conduct a zero-inflated negative binomial regression analysis to estimate the likelihood of joint knowledge creation. Findings The results indicate that close geographical proximity and technological similarity are positively associated, whereas the integration of organizational identity is negatively associated with post-M&A joint knowledge creation. Practical implications Managers searching for an ideal acquisition target firm for joint production of new technologies or products should consider factors such as location, prior knowledge base and post-acquisition integration strategies. Originality/value The proposed model is a comprehensive framework that considers physical, cognitive and identity dimensions as antecedents of post-M&A joint knowledge creation. This study analyzes joint patenting activities to measure post-M&A joint knowledge creation between target and acquiring firm inventors.