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Cross-border acquisitions (CBAs) have increasingly become one of the most important international strategies for firms to enhance their performance by quickly acquiring strategic resources globally, for instance, advanced technology and huge overseas markets. However, research shows that the failure rate of cross-border mergers and acquisitions is high, and about 70% of companies have not been able to achieve 1+1>2 synergy value from CBAs.


 
How do acquirers’ home country institutions influence the post-acquisition performance of CBAs?PHBS Associate Professor Zhu Hong and co-authors addressed this question in their paper “Home Country Institutions behind Cross-Border Acquisition Performance” recently published in the Journal of Management. The researchers developed an institutional framework consisting of the informal institutions’ collectivism and humane orientation, as well as the formal institutions’ shareholder orientation and property rights protection.

 

Zhu and her coauthors retrieved CBM deals across 50 countries from the SDC Platinum database –the world’s most comprehensive database of mergers and acquisitions – annual financial data for acquirers and targets from Datastream, home and host countries’ collectivism and humane orientation from the GLOBE study, and other information from various sources. Further, they advanced multilevel modeling to analyze 12,021 CBAs, and findings showed that informal and formal institutions not only have important individual effects but also jointly affect their firms’ post-acquisition performance.
 
Results show that collectivism and humane orientation in home countries can exert positive influences on post-acquisition performance. Shaped by home country collectivism and with a high level of humane orientation, acquirers which have managers who view their acquired targets as highly interdependent within their organizations are more likely to involve acquired targets in decision making in the post-acquisition integration process. Accordingly, acquired targets are more willing to collaborate with the acquirers in achieving post-acquisition value creation. In addition, their study highlights the joint influence of informal and formal institutions: informal institution influence can be weakened by incompatible formal institutions that hamper post-acquisition collaborative efforts.
 
In addition to significant theoretical contributions to the research of institutions and CBAs, this study offers important practical and public policy implications by clearly demonstrating the importance of institutions in firm strategies and development. The study further reinforces the importance of institutions in the development of firms and economies in China and throughout the world. The remarkable and successful institutional reforms in China, such as the on-going development of the Greater Bay Area and the Belt and Road Initiative have been buttressing the rapid and impressive economic rise of China.



Hong Zhu
Associate Professor
Ph.D., Strategic Management, Texas A&M University
Fields:Strategic management, Mergers and Acquisitions (M&As), Strategic leadership (CEO, Top management team and boards of directors), Chinese firms’ M&As and strategic leadership


By Annie Jin