Patterns in the redefinition of the institutional environment caused by globalization: the case of cross-border mergers and acquisitions
Kennedy, Kevin Hugh
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This study addresses how the institutional environment affects or shapes cross border strategy followed by firms. The key theoretical question that I address is how companies craft their international strategy given changes in their environment. This is the first study that looks at the institutional environments of over two hundred countries throughout the world and how this shapes the pattern of cross border strategy over time. The form of strategy that I use to look at this is announced cross border mergers or acquisitions and their likelihood of completion. Thus, I am primarily looking at conditions that affect strategic choice by using the case of mergers and acquisitions. Empirical research within mainstream management literature associated with mergers and acquisitions as a cross border strategy is very sparse. The works noted in the mainstream management literature are: Brouthers and Brouthers (2000); Bresman, Birkinshaw and Nobel (1999); Dewenter (1995); Hisey and Caves (1985); Hitt, Hoskisson and Kim (1997); Krug and Hegarty (1997); Lee and Caves (1998); Markides and Ittner (1994); Morosini, Shane and Singh (1998); and Hitt, Hoskisson and Kim (1997). Bringing the institutional environment into the research model can enhance this literature by addressing the role or affect that the macro-environment plays in the completion of announced cross border strategy. Traditionally, explanations for cross border mergers and acquisitions have resided at the level of individual firm behavior or the industry. The role of institutional forces that shape firm behavior have not received similar attention (e.g., Brouthers and Brouthers, 2000; Dewenter, 1995; Hisey and Caves, 1985). However, as in other fields of activity, institutional forces play a large role in the cross border merger and acquisition behavior of companies, and patterns of international activity should be understood in terms of these forces. When we look at the goodness of fit of the respective seven models, it is quite evident the role that the institutional environment and geographic distance play in the completion rate of announced cross border mergers and acquisitions. They play a much more central role in the completion than the target nation's FDI levels or incentives to promote FDI, or the role of similarity of national culture between the acquirer and target.