Institutions and Cross-border Mergers and Acquisitions (M&A) Value Creation

Cross-border Merger and Acquisitions (M&As) are an increasingly important strategy adopted by firms in order to create value in fiercely competitive global markets. Cross-border M&A value creation, that is, wealth creation for shareholders from cross-border M&As, is therefore of considerable theoretical and practical importance. However, our understanding of the sources of cross-border M&A value creation remains limited. Researchers have found that the most commonly researched variables have little effect on cross-border M&A value creation. We therefore still do not understand the processes behind cross-border M&As. In this is dissertation I examine the main effects of host country regulatory, economic and physical infrastructure institutions on cross-border M&A value creation. I further examine the moderating effects of host country political institutions on the relationship between host country regulatory institutions and cross-border M&A value creation. Moreover, I investigate the effects of institutional distance between host and home country on cross-border M&A value creation. I argue that the effects of institutional distance (regulatory and economic distance) on cross-border M&A value creation are not symmetric, but rather the effects are contingent upon the direction of the distance. My hypotheses are tested on a sample of 6141 cross-border M&As between 1995 and 2003. Results of this analysis show that acquirers are more likely to create value by acquiring targets in countries with less advanced regulatory institutions. Further, my results indicate that host country political institutions positively moderate the relationship between host country regulatory institutions and cross-border M&A value creation. Host country economic institutions have an inverted U-shaped relationship with cross-border M&A value creation, and host country physical infrastructure institutions have a positive relationship with cross-border M&A value creation. Additionally, results show that there is an inverted U-shaped relationship between institutional distance and cross-border M&A value creation. The findings suggest that the effects of regulatory and economic institutional distance on cross-border M&A value creation are not symmetric. The effects are contingent upon the direction of the distance. That is whether the level of host country institutions is higher or lower than that of home country institutions. Implications for management and public policy are discussed.