Viceroys or Emperors? An Institution‐Based Perspective on Merger and Acquisition Prevalence and Shareholder Value

We study how cross‐country variance in institutions that aim to address core agency problems influences consequential strategic decisions of firms around the world. Scholars frequently argue that the interests of minority shareholders are threatened by merger and acquisitions (M&As) due to principal‐agency problems. Rather than acting in shareholders’ best interests, managers potentially act as viceroys, using M&As to cushion themselves from risk and extract more pay. Yet equally salient is the issue of principal‐principal agency, where controlling shareholders can behave as emperors who use M&As to siphon off assets and profits, and appropriate wealth of shareholders with fewer control rights. Taking an institution‐based perspective on these ‘viceroy’ and ‘emperor’ problems, we conjecture that institutions aimed to address these agency problems can generate the desired outcome regarding M&A prevalence, but may also produce unintentional negative consequences for shareholder value as a side‐effect. Empirical evidence covering M&As from 73 countries supports our hypotheses.     

Wealth Effects of International Investments and Agency Problems for Korean Multinational Firms

This paper recognizes the recent surge in cross‐border investments by MNCs from newly industrialized countries and investigates the wealth effects of FDI announcements by Korean firms, which are the leading FDI providers in Asia. The empirical results indicate that for Korean MNCs: 1) cross‐border investments increase shareholder wealth; and 2) they do not obtain the firm‐specific technological advantages over international competitors. The paper also presents evidence that cross‐border investments do not increase shareholder wealth for the 30 largest chaebol‐affiliates, and that shareholder wealth losses are greater when corporate ownership is concentrated, as suggested by Shleifer and Vishny (1997) and La Porta et al. (1998, 2000) .     

Contracting Costs and Information Asymmetry Reduction in Cross‐Border M&A

This paper explores the contracting costs of conducting mergers and acquisitions (M&A), creates a theoretical model of the information asymmetry involved, and shows how buying firms employ several mechanisms to reduce such asymmetry. Extending prior literature, the paper examines these costs in both domestic and cross‐border settings using a sample of over 3000 M&A deals. I consider both the fees paid and the time required in the bargaining phase to be contracting costs, and model them simultaneously to help explicate their endogenous relationship. The results show that buyers in cross‐border deals are more likely to employ mechanisms to affect information asymmetry, while the employment of these mechanisms affects contracting costs. The results help to explain why cross‐border M&A are more costly yet more quickly executed. Finally, modelling the use and effects of the mechanisms is sufficient to explain the contracting cost differences between domestic and cross‐border M&A.     

The Economic Consequences of Increased Disclosure: Evidence from Cross-Listings of Chinese Firms

In this paper, we investigate the impact of cross‐listings on information asymmetry risk, the cost of capital and firm value of a group of cross‐listed Chinese companies. Our paper is the first to examine the effect of cross‐listing on information asymmetry risk. Because cross‐listed firms are subject to increased disclosure requirements, increased regulatory scrutiny and increased legal liability, we propose that Chinese cross‐listed firms have lower information asymmetry risk, lower cost of capital and higher firm value than their non‐cross‐listed counterparts. We find in both univariate and multivariate tests that cross‐listed firms enjoyed lower information asymmetry risk in the domestic market compared with the non‐cross‐listed firms. We also find that cross‐listed firms have lower cost of capital in the cross‐listing market than non‐cross‐listed firms in the domestic markets. Finally, we find that cross‐listed firms are associated with higher firm value as measured by Tobin's Q. These results have implications for international investors and companies seeking cross‐listing opportunities.     

Investor protection and value creation in cross‐border M&As by emerging economies

Previous research investigating cross‐border M&As (CBM&As) by emerging economies (EEs) provided contrasting evidence on the value enhancement role of investor protection rules. We conduct a new empirical study to address the issue with an accurate sample selection of bidders from more homogeneous developing countries and transactions on developed countries only. Our analysis over the 1997–2012 period on a sample of M&A deals by companies from Brazil, Russia, India, China, and South Africa (BRICS) does not provide evidence that better institutional standards in the destination country are rewarded by the local stock market. We find that foreign governance quality is not associated with positive excess stock returns around the announcement date. Rather, these returns are affected by firm‐specific and deal‐specific factors, such as the relative deal size, the listed status of the target company, and the acquirer size. Comparison with other studies on excess returns for emerging markets (including BRICs) suggests that the results could be driven at least partially by country choice.     

The role of human resource management in cross-border mergers and acquisitions

Cross-border mergers and acquisitions (M&As) have become the dominant mode of growth for firms seeking competitive advantage in an increasingly complex and global business economy. Although human resource management (HRM) can play a value-adding role in the merger process, existing research and evidence does not clearly demonstrate how it can do so. This paper addresses the neglected human side of M&As by providing a strategic fit framework to assess the link between M&A strategy and HRM strategy. Because cross-border M&As are of an order of magnitude more complex than domestic mergers, we examine contingencies in national contexts that influence outcomes in the merger process. We draw on recent empirical evidence to highlight HRM roles in terms of resources, processes and values that reflect the influence of both strategic fit and national context in the integration stage of cross-border M&A.     

跳板理论视角下跨国并购对双元创新的影响机制与未来展望

跳板理论为双元领域的研究提供了国际化的视角与思路。基于跳板理论的核心内容，本文探讨跨国并购对双元创新的影响机制。跳板理论视角下，双元创新研究突破以往组织内部双元的局限性，拓展至内外双元与跨模式双元，进而推动跨越组织边界与国际边界的跨国并购这一跳板行为对探索式创新、利用式创新以及双元创新平衡的影响研究。基于双向知识转移的并购整合是跨国并购对双元创新影响过程的核心作用机理，且创新网络嵌入、技术距离以及制度距离在上述影响关系中发挥着重要的调节作用。在此基础上，本文提出该领域后续值得深入研究的问题，旨在推动跳板理论在双元创新领域的繁衍，丰富跨国并购领域的研究成果，同时为企业国际化战略决策与实施提供重要的理论参考。     

Financial Distress Prediction in an International Context: A Review and Empirical Analysis of Altman's Z‐Score Model

This paper assesses the classification performance of the Z‐Score model in predicting bankruptcy and other types of firm distress, with the goal of examining the model's usefulness for all parties, especially banks that operate internationally and need to assess the failure risk of firms. We analyze the performance of the Z‐Score model for firms from 31 European and three non‐European countries using different modifications of the original model. This study is the first to offer such a comprehensive international analysis. Except for the United States and China, the firms in the sample are primarily private, and include non‐financial companies across all industrial sectors. We use the original Z′′‐Score model developed by Altman, Corporate Financial Distress: A Complete Guide to Predicting, Avoiding, and Dealing with Bankruptcy (1983) for private and public manufacturing and non‐manufacturing firms. While there is some evidence that Z‐Score models of bankruptcy prediction have been outperformed by competing market‐based or hazard models, in other studies, Z‐Score models perform very well. Without a comprehensive international comparison, however, the results of competing models are difficult to generalize. This study offers evidence that the general Z‐Score model works reasonably well for most countries (the prediction accuracy is approximately 0.75) and classification accuracy can be improved further (above 0.90) by using country‐specific estimation that incorporates additional variables.     

The Multijurisdictional Disclosure System and Value of Equity Offerings

The Canada and US multijurisdictional disclosure system (MJDS) implemented in 1991 lowered the indirect barriers for investors and issuers by easing reporting and disclosure requirements for cross‐border issues. This paper examines the impact of the MJDS and related regulatory changes on Canada–US equity market segmentation using a sample of Canadian seasoned equity offerings in the 1991–1998 period. We find that the number of cross‐border issues by Canadian firms increased, and the typical negative stock price reaction that accompanies seasoned equity issues declined over time, supporting increased integration between the two markets after the MJDS. We also document that cross‐border issues experience about 1.4 per cent lower negative stock price reaction compared with domestic issues, consistent with Canada–US market segmentation. We find mixed support for Merton's (1987) investor recognition hypothesis. While Canadian firms cross‐listed in the US experience a less adverse price reaction to their cross‐border offerings compared with their non‐US‐listed peers, there is no significant difference between the two groups in the case of purely domestic issues.     

Riding the tides of mergers and acquisitions by building a resilient workforce: A framework for studying the role of human resource management

Mergers and acquisitions (M&As) have been a popular strategy for firms to increase their competitive advantage. Existing research has revealed a wide range of implications for the workforce and human resource management (HRM) stemming from M&As. However, insufficient attention has been paid to issues related to employee resilience. We argue that employee resilience, a concept that is still to gain widespread attention in HRM research, is crucial to organizations wishing to manage their M&As successfully, especially in the post-M&A integration. We develop a set of complementary propositions, present a research framework, and indicate directions for future studies.     

Diasporas and Domestic Entrepreneurs: Evidence from the Indian Software Industry

This study explores the importance of cross‐border social networks for entrepreneurs in developing countries by examining ties between the Indian expatriate community and local entrepreneurs in India's software industry. We find that local entrepreneurs who have previously lived outside India rely significantly more on diaspora networks for business leads and financing. This is especially true for entrepreneurs who are based outside software hubs—where getting leads to new businesses and accessing finance is more difficult. Our results provide micro‐evidence consistent with a view that cross‐border social networks play an important role in helping entrepreneurs to circumvent the barriers arising from imperfect domestic institutions in developing countries.     

Effects of Industry‐ and Region‐Specific Acquisition Experience on Value Creation in Cross‐Border Acquisitions: The Moderating Role of Cultural Similarity

Based on a sample of 222 cross‐border acquisitions by US firms in the service sector, our study examines the effects of acquiring firms' prior cross‐border acquisition experience in the same industry and geographic region as the acquired firm on shareholder value creation. Using the BHAR (buy‐and‐hold abnormal returns) methodology, we find that higher levels of industry‐specific and region‐specific acquisition experience translate into greater shareholder value creation for acquiring firms in subsequent acquisitions. In addition, our results indicate that the effects of industry‐specific acquisition experience on acquisition performance are contingent on the level of cultural similarity between the acquiring and acquired firm countries, with the benefits of prior experience being greater in acquisitions undertaken in culturally similar countries. We also find that the moderating effects of cultural similarity on the relationship between industry‐specific acquisition experience and value creation are contingent on the level of prior region‐specific acquisition experience possessed by the acquiring firm.     

Varieties of National Metonymy in Media Accounts of International Mergers and Acquisitions

International mergers and acquisitions (M&As) often invoke national identification and national cultural differences. We argue that metonymy is a central linguistic resource through which national cultural identities and differences are reproduced in media accounts of international M&As. In this paper, we focus on two revealing cases: the acquisition of American IBM Personal Computer Division (PCD) by the Chinese company Lenovo and the acquisition of American Anheuser‐Busch (A‐B) by the Belgian–Brazilian company InBev. First, we identify the forms, functions, and frequencies of national metonymy in media accounts of these cases. We present a typology that classifies varieties of national metonymy in international M&As. Second, we demonstrate how these metonyms combine with metaphor to generate evocative imagery, engaging wit, and subversive irony. Our findings show that national metonymy contributes to the construction of emotive frames, stereotypes, ideological differences, and threats. Combinations of national metonymy with metaphor also provide powerful means to construct cultural differences. However, combinations of metonymy with wit and irony enable the play on meanings that overturns and resists national and cultural stereotypes. This is the first study to unpack the deployment of metonymy in accounts of international M&As. In doing so, it also opens up new avenues for research into international management and the analysis of tropes in management and organization.     

Social Structure and Intermediation: Market‐making Strategies in International Exchange*

ABSTRACT Information gaps between markets create opportunities for international trade intermediaries to negotiate cross‐border exchanges. Faced with the prospect of eventually being eliminated from these exchanges, intermediaries must continually search for new opportunities to mediate international exchange. In this paper an original explanation is derived from the core principles of structural hole theory to explain how these market‐making firms operate in the tension found between the inevitable decay of existing exchange relationships and the uncertainty of finding replacement sources of income.     

Forms of cross‐border mobility and social capital in multinational enterprises

This paper discusses how different forms of cross‐border employee mobility all contribute to establishing social ties across different units of multinational enterprises (MNEs). Despite the growing recognition of the significance of employees' cross‐unit social ties in MNEs for both individuals and the organisation, the mechanisms for creating such ties remain underspecified. We contribute to closing this gap by identifying the role that an array of forms of international mobility can play in promoting employees' (cross‐unit) social ties inside MNEs. We draw upon empirical accounts of the job‐related international mobility experiences of 72 high‐skilled employees in three leading MNEs in the mobile telecommunications sector. Guided by a framework that utilizes some of the key concepts of the debate on social ties and social capital, we discuss traditional expatriation, short‐term assignments, localised transfers and business travel in terms of the structure and strength of the cross‐unit ties they engender, as well as their accessibility. We find (1) that it is not only traditional long‐term assignments in the form of expatriation that enable individuals to create cross‐unit social ties; and, (2) that different forms of international mobility promote cross‐unit social ties in variable ways and to different extents.     

Co‐determination and strategic integration in German firms

Looking at the economic development and importance of German companies in Europe, one might expect that an important aspect of a good economic performance is a well‐functioning HR system. Although a number of scholars claim this, the empirical evidence seems to point to the opposite. Several comparative studies have found that HRM in German companies is less strategically integrated and proactive than that of comparable firms in other countries. This article argues that the empirical results reported fail to grasp the essence of HRM in German firms. This lacuna is partly due to the co‐determination structure. HRM in large German firms has to be evaluated within the co‐determination structure, with the Betriebsrat (works council) being an important actor. For German firms co‐determination might even be a strategic resource. By examining this issue within such a framework, a more favourable picture of HR integration in German firms emerges.     

On Testing Conditional Sigma – Convergence*

In a cross‐section where the initial distribution of observations differs from the steady‐state distribution and initial values matter, convergence is best measured in terms of σ‐convergence over a fixed time period. For this setting, we propose a new simple Wald test for conditional σ‐convergence. According to our Monte Carlo simulations, this test performs well and its power is comparable with the available tests of unconditional convergence. We apply two versions of the test to conditional convergence in the size of European manufacturing firms. The null hypothesis of no convergence is rejected for all country groups, most single economies, and for younger firms of our sample of 49,646 firms.     

International takeover laws and corporate cash holdings

We examine the impact on corporate cash holdings of international merger and acquisition (M&A) laws, which facilitate corporate takeovers. We use the staggered enactment of M&A laws from 1992 to 2005 and a sample spanning 34 jurisdictions, and find that levels of corporate cash holdings increase after passage of M&A laws. We also find that firms with better operating performance, higher earnings volatility, higher P/E ratio, and in jurisdictions with high M&A intensity hoard more cash after the enactment of M&A laws. These firms decrease dividends and capital expenditure and increase cash-based acquisitions in the post-M&A law period. Additional analysis shows that the effect is manifested in the subsample of firms in jurisdictions with better institutional environments. Lastly, we find that investor valuations of cash holdings decrease after the enactment of M&A laws. Collectively, our results suggest that managers hoard cash to finance M&A activities after the enactment of M&A laws, driven by the motive of empire-building, and that cash hoarding behaviors are viewed by investors as value-decreasing.     

Influence of acquirer boards on M&A value creation: Evidence from Continental Europe

We examine how the size and the composition of acquirer boards are associated with shareholder abnormal returns for 2,230 M&As made by listed firms in Continental Europe. Although board size proves insignificant, our findings do offer some evidence as to a beneficial effect of board diversity on M&A value creation. Gender diversity appears marginally positively associated with acquirer shareholder abnormal returns. The fraction of foreign directors is in general not significantly positive, unless the rule of law in the acquirer country is weak. Nonetheless, nationality diversity in the board turns out harmful in purely domestic takeovers. The influence of age diversity is marginally positive, yet only in domestic and horizontal takeovers. Next, the fraction of independent directors has a robust positive effect on the acquirer CAR, while directors with multiple board appointments prove valuable especially through preventing firms from pursuing poor takeovers. Finally, CEO duality is detrimental only in industry‐diversifying deals initiated by acquirers that are not controlled by an individual or a family shareholder. Any negative CEO‐duality effect is mitigated when the acquirer‐country rule of law is strong.     

The Foundations of International Business: Cross‐Border Investment Activity and the Balance between Market‐Power and Efficiency Effects

The foundational international business (IB) scholarship grappled with whether multinational enterprises (MNEs) are largely efficiency‐enhancing or market‐power inducing institutions. Contemporary scholarship, however, often associates foreign direct investment (FDI) with efficiency‐enhancing properties and thus neglects the market‐power interpretation of the MNE. Such an imbalance is problematic given that the theoretical and empirical justifications behind the field's embrace of the efficiency interpretation are not fully evident. Instead, both efficiency and market‐power effects are seemingly present in cross‐border investment activity. Based on a comprehensive sample of up to 4,361 cross‐border investments materializing between 1986 and 2010, we present theoretically‐grounded hypotheses with regard to when market‐power effects will tend to dominate efficiency effects. We find that cross‐border investments undertaken by emerging‐market MNEs in both developed and emerging markets tend to involve substantial efficiency effects and minimal market‐power effects when compared with the cross‐border investments undertaken by developed‐country MNEs in both developed and emerging markets.