Cross‐border acquisitions and the asymmetric effect of power distance value difference on long‐term post‐acquisition performance

Research summary : Inconclusive findings about the effect of national cultural differences on post‐acquisition performance may be created by the failure to distinguish among the different cultural dimensions and the asymmetry of cultural differences. To demonstrate a different approach, this study focuses on one dimension of national cultural values—power distance value (PDV) and develops a framework for the asymmetric effect of PDV differences in creating two types of conflicts. The analysis of 2,115 cross‐border acquisitions in the global information technology industry shows that PDV differences undermine the long‐term post‐acquisition performance of acquirers. This effect is stronger when acquirers are higher than targets in PDV than when the opposite is the case. This asymmetric effect of PDV difference depends on national status difference, business relatedness, and acquisition experience. Managerial summary: National cultural differences can create “cultural clashes” to undermine the value creation by cross‐border acquisitions. During integration, individuals react to the acquirer–target hierarchy according to their respective power distance value (PDV): the extent to which they value equality (low PDV) or hierarchy (high PDV). PDV divergence results in two types of conflicts, depending on whether acquirers are higher or lower than targets in PDV. The two types of conflicts vary in the magnitude of their harmful effect on post‐acquisition performance. Both types of conflicts are more detrimental when acquirers are higher than targets in country status and when individuals need to interact more intensely. Acquisition experience can both help and harm post‐acquisition performance. These findings offer important implications for managing cross‐border acquisitions. Copyright © 2016 John Wiley & Sons, Ltd.     

Productivity enhancement at home via cross‐border acquisitions: The roles of learning and contemporaneous domestic investments

We examine whether ex post domestic productivity gains accrue to firms making cross‐border acquisitions. We argue that cross‐border acquisitions can enhance the acquirers' productivity at home, and we posit that these domestic productivity gains will be greater when there are learning opportunities in the target's host country and when contemporaneous domestic productivity‐enhancing investments are made by the acquirer in conjunction with the acquisition. These predictions are supported by data drawn from a sample of French acquiring and nonacquiring firms. Our results indicate that cross‐border acquisitions and investing in productivity at home are complementary: each makes the other more beneficial to firm productivity. Copyright © 2014 John Wiley & Sons, Ltd.     

Corruption and market attractiveness influences on different types of FDI

Previous studies have proposed that a compensatory model predicts the level of foreign direct investment (FDI) in a country; FDI levels are a result of ‘trade‐offs’ between the positive effect of market attractiveness and the negative influence of corruption. In contrast, we hypothesize and find that the compensatory relationship only holds for market‐seeking investment; for resource‐seeking FDI the model appears to be noncompensatory. Greater market attractiveness mitigates the negative impact of corruption on market‐seeking investment, but the ability of market attractiveness to mitigate the negative impact of corruption on resource‐seeking FDI quickly disappears as corruption levels increase. Implications and future research directions are discussed. Copyright © 2008 John Wiley & Sons, Ltd.     

The double‐edged effect of knowledge acquisition: How contracts safeguard pre‐existing resources

Research summary : Acquiring knowledge on a partner's pre‐existing resources plays an important yet ambiguous role in collaborative relationships. We formally model how contracts trade off productive and destructive uses of knowledge in a buyer‐supplier relationship. We show that, when the buyer's pre‐existing resources are vulnerable to the revelation of sensitive knowledge, the supplier overinvests in knowledge acquisition as it expects to use the knowledge as a threat in price negotiations. A non‐renegotiable closed‐price contract prevents such overinvestment and reduces the supplier's ability to expropriate the buyer ex post. Our results extend to the cases of renegotiable closed‐price contracts, repeated interactions between a buyer and a supplier, and the use of nondisclosure policies. We draw theoretical, empirical, and managerial implications from our model. Managerial summary : This study yields new insights regarding the use of contract design in protecting pre‐existing, nonrelationship specific assets in buyer‐supplier arrangements. Anecdotal examples illustrate the “dark side” of these arrangements where opportunistic suppliers exploit knowledge of buyers' pre‐existing resources to seek rent and appropriate value. When a supplier is likely to act harmfully, a closed‐price contract that specifies the price of the supplier's component upfront may reduce the supplier's incentives to overinvest in acquiring and exploiting knowledge of the buyer's pre‐existing resources. As such, when a buyer's pre‐existing resources are highly valuable, and thus more vulnerable to use by the supplier outside of the arrangement, a non‐renegotiable closed‐price contract is more efficient. Additionally, limited disclosure policies and informal agreements based on repeated interactions complement indirect governance via price contracts. Copyright © 2015 John Wiley & Sons, Ltd.     

Mapping moral philosophies: strategic implications for multinational firms

Strategic managers appear increasingly under pressure from stakeholder concerns regarding social and ethical issues. Partially in response, the supply of ethical decision‐making models has grown rapidly. Business ethics scholars have broadened their scope to incorporate moral philosophies into their research endeavors. Despite these positive trends, the international focus of business ethics research has been slow to evolve. Yet, diverse moral philosophies, often most apparent across international borders, have important strategic implications for multinational firms. The ethical norms pursued by cross‐cultural alliance partners, distributors, suppliers, customers, financiers, and foreign government agencies can create public relations disasters, foster shareholder unrest, lead to consumer boycotts, and impact organizational outcomes. We seek to rectify the deficiency in international business ethics scholarship with two distinct contributions. First, we develop a new cross‐cultural, macro‐level model of societal ethics. Second, we map moral philosophies onto an established framework for assessing socioeconomic environments. These theoretical tools should assist managers of multinational organizations, international policy‐makers, and researchers to recognize and prepare for the ethical consequences of international strategic decisions. Copyright © 2003 John Wiley & Sons, Ltd.     

Do Industrial Relations Institutions Influence Foreign Direct Investment? Evidence from OECD Nations

The potential impact of industrial relations institutions on economic outcomes has been a key element in analyzing the governing of the global workplace. We present case information and analysis that show that there are trade‐offs between higher levels of economic outcomes and greater equity and employee voice associated with more and deeper labor market institutions. The estimates from the model show the impact of industrial relations system policies within a nation on a country's foreign direct investment (FDI) from other nations for the period 1985 through 2000 using data from nations that are members of the Organisation for Economic Co‐operation and Development (OECD). Examples of the impact of major transformations in national industrial relations systems on FDI for UK and New Zealand also are presented. Our results show that higher levels of industrial relations institutions from the firms’ perspective are usually associated with lower levels of FDI.     

Problem‐formulation and problem‐solving in self‐organized communities: How modes of communication shape project behaviors in the free open‐source software community

Research summary: Building on the problem‐solving perspective, we study behaviors related to projects and the communication‐based antecedents of such behaviors in the free open‐source software (FOSS) community. We examine two kinds of problem/project‐behaviors: Individuals can set up projects around the formulation of new problems or join existing projects and define and/or work on subproblems within an existing problem. The choice between these two behaviors is influenced by the mode of communication. A communication mode with little a priori structure is the best mode for communicating about new problems (i.e., formulating a problem); empirically, it is associated with project launching behaviors. In contrast, more structured communication fits subproblems better and is related to project joining behaviors. Our hypotheses derive support from data from the FOSS community. Managerial summary: We study how the way in which individuals communicate influence the project‐behaviors they engage in. We find that relatively unstructured communication is associated with the setting up new projects, while communication that is structured around an artifact is associated with joining projects. Our findings hold implications for understanding how management may influence project behaviors and problem‐solving: Firms that need to concentrate on more incremental problem‐solving efforts (e.g., because a sufficient number of attractive problems have already been defined) should create environments in which interaction is undertaken mainly via artifacts. On the other hand, if firms seek to generate new problems (e.g., new strategic opportunities), they should create environments in which open‐ended, verbal conversation is relatively more important than artifact‐based communication. Copyright © 2015 John Wiley & Sons, Ltd.     

Revisiting the firm,industry, and country effects on profitability under recessionary and expansion periods: A multilevel analysis

Research summary: Despite voluminous past research, the relevance of firm, industry, and country effects on profitability, particularly under adverse contexts, is still unclear. We reconcile institutional theory with the resource‐based view and industrial organization economics to investigate the effects of economic adversity, such as the 2008 global economic crisis. Using a three‐level random coefficient model, we examine 15,008 firms across 10 emerging and 10 developed countries for the 2005–2011 period. We find that firm effects become stronger under adversity, whereas industry effects become weaker, as well as country main and interaction effects, particularly among the emerging economies. These findings confirm our assumptions that the firm's own fate is, to a great extent, self‐determined; a reality that is even more pronounced during periods of extreme economic hardship. Managerial summary: In this research, we examine how generalized economic adversity affects the balance across the firm‐, industry‐, and country‐specific factors determining firm profitability. We specifically examine 15,008 firms from 10 emerging and 10 developed countries during the 2005–2011 period to investigate the effects of the 2008 global economic crisis on firm performance. We find that in such adverse conditions, the role of the industry and the country are reduced and the firm's own resources and capabilities become more pertinent for firm performance. This phenomenon is more pronounced across emerging markets. We conclude that the firm's own fate is, to a great extent, self‐determined, a reality that is markedly more evident during periods of extreme economic hardship. Copyright © 2015 John Wiley & Sons, Ltd.     

Response pattern analysis: Assuring data integrity in extreme research settings

Research summary : Strategy scholars increasingly conduct research in nontraditional contexts. Such efforts often require the assistance of third‐party intermediaries who understand local culture, norms, and language. This reliance on intermediation in primary or secondary data collection can elicit agency breakdowns that call into question the reliability, analyzability, and interpretability of responses. Herein, we investigate the causes and consequences of intermediary bias in the form of faked data and we offer Response Pattern Analysis as a statistical solution for identifying and removing such problematic data. By explicating the effect, illustrating how we detected it, and performing a controlled field experiment in a developing country to test the effectiveness of our methodological solution, we encourage researchers to continue to seek data and build theory from unique and understudied settings. Managerial summary : Any form of survey research contains the risk of interviewers faking data. This risk is particularly difficult to mitigate in Base‐of‐Pyramid or developing country contexts where researchers have to rely on intermediaries and forms of control are limited. We provide a statistical technique to identify a faking interviewer's ex post data collection, and remove the associated data prior to analysis. Using a field experiment where we instruct interviewers to fake the data, we demonstrate that the algorithm we employ achieves a 90 percent accuracy in terms of differentiating faking from nonfaking interviewers. Copyright © 2016 John Wiley & Sons, Ltd.     

Telecommunications in the developing world : Investment decision and performance monitoring

The contention that there is significant underinvestment in telecommunications services in developing nations is supported by cross country data. The accepted approach to determining whether investment should take place involves: identifying unsatisfied demand; determining the least cost solution; and assessing whether benefits will exceed costs. The author draws upon the experience of World Bank involvement in telecommunications projects in developing nations and concludes that the trend in some developing countries toward increased investment in the sector will continue, furthering the goals of increased economic efficiency and improved social equity.     

Cross‐border acquisitions by state‐owned firms: How do legitimacy concerns affect the completion and duration of their acquisitions?

Research summary: Cross‐border acquisitions may raise legitimacy concerns by host‐country stakeholders, affecting the acquisition outcomes of foreign firms. We propose that theorization by local regulatory agencies is a key mechanism that links legitimacy concerns with acquisition outcomes. Given that theorization is time consuming and its outcome is uncertain, we argue that state‐owned foreign firms experience a lower likelihood of acquisition completion and a longer duration for completing a deal than other foreign firms. Moreover, we introduce a set of firm characteristics (target public status, target R&D alliances, and acquirer acquisition and alliance experiences) that may affect the threshold level of legitimacy, thereby altering the proposed relationships. Our framework and findings provide useful implications for institutional theory on its core concept of legitimacy. Managerial summary: Cross‐border acquisitions by state‐owned foreign firms may lead to national security concerns and thus debates and discussions among local regulatory agencies. We argue that such institutional processes may reduce the likelihood of acquisition completion and prolong the duration of acquisition completion. Using cross‐border acquisitions in the United States, we find that acquisitions by state‐owned foreign firms are not less likely to be completed than acquisitions by other foreign firms, but they take more time to be completed. Moreover, state‐owned foreign firms are less likely to complete an acquisition when the target firm has more R&D alliances. However, their acquisition experience and alliance experience in the host country increase the likelihood of acquisition completion, whereas their alliance experience alone shortens the acquisition duration. Copyright © 2016 John Wiley & Sons, Ltd.     

Host country executives' assessments of international joint ventures and divestitures: An experimental approach

A large body of research examines the modes by which multinational firms enter foreign markets, yet little work has considered how host country executives evaluate alternative modes of accepting inward foreign direct investment (FDI). This study adopts the host country firm's perspective to investigate the factors that affect Chinese executives' assessments of international joint ventures (IJVs) and divestitures as different modes for engaging inward FDI opportunities. We use an experimental approach to test our argument that executives' preferences for IJVs versus divestitures are driven by multinational firms' resources as well as potential transaction hazards and available remedial mechanisms. This study complements extant research on firms' entry mode choice by offering a direct test of comparative economic organization by explicitly comparing the attractiveness of alternative modes. Copyright © 2013 John Wiley & Sons, Ltd.     

Cross‐border mergers and acquisitions: The role of private equity firms

Research summary: We show that private equity ownership (“PE backing”) of the acquirer is a signal of deal quality in cross‐border takeovers. As such, PE‐backed acquirers experience higher announcement returns in cross‐border takeovers, but only if targets are in poor information environments. We show that PE backing is a positive market signal because of PE firms' experience and networks that result from prior deals in target countries. We document that the market correctly anticipates that operating performance of PE‐backed acquirers increases as a result of cross‐border mergers and acquisitions (M&A). Managerial summary: We study cross‐border acquisitions by acquirers that are partially owned by private equity firms (“PE backing”). Cross‐border acquisitions are challenging as acquirers often have little information about targets. We document that investors react positively to cross‐border deals of PE‐backed acquirers—their stock prices increase upon deal announcements. However, this is only the case if targets are in countries with poor information environments. This is because PE backing allows acquirers to access PE firms' deal experience and networks. This makes it easier to identify and evaluate good targets, making it more (less) likely that a deal eventually creates (destroys) value. Consistent with this, we find that earnings of PE‐backed acquirers increase after buying targets in poor information environments. Copyright © 2016 John Wiley & Sons, Ltd.     

FDI distribution within China: An integrative conceptual framework for analyzing intra-country FDI variations

The literature on foreign direct investment (FDI) has evolved in separate theoretical silos and a holistic conceptualization is yet to emerge. Research has focused mostly on inter-country differences and not much on explaining intra-country FDI variations. Traditionally FDI locations have been evaluated through country-level FDI determinants even though provinces differ widely in infrastructure and other attributes. Further, neither is the varying importance of FDI determinants to different industries factored in, nor are the differing FDI incentives from national and provincial governments integrated into a single framework. To address these gaps this study synthesizes insights from three streams of FDI research and develops an integrative conceptual framework that can comprehensively analyze intra-country FDI inflows. We demonstrate the usefulness of the framework by empirically analyzing FDI trends within China’s 31 provinces. The study thus makes a substantive contribution by offering scholars, policy-makers, and practitioners a holistic conceptual and methodological approach for understanding FDI trends within a country.     

The Role of Information Technologies in Enhancing R&D–Marketing Integration: An Empirical Investigation

The effective integration of research and development (R&D) and marketing contributes to the development of successful new products. Barriers such as physical separation of R&D and marketing, goal incongruity, and cultural differences hamper the cross‐functional cooperation. However, it may not be either possible or desirable to eliminate the cross‐functional integration barriers in practice. Previous research findings suggest that information technology (IT) can be used to reduce the negative impact of the barriers. This paper examines the moderating role of communication technologies (ITc) and decision‐aiding technologies (ITd) in improving the R&D–marketing integration in new product development. The empirical findings from analyzing data on 171 new product development projects suggest that both IT systems can be used to reduce the negative impact of physical separation, goal incongruity, and cultural differences on R&D–marketing integration. However, effectiveness of the two types of IT differs. While IT_c appears to be more effective than IT_d in overcoming the constraint of physical separation, IT_d is more effective than IT_c in reducing the negative impact of goal incongruity and cultural differences. IT_c is found to have the strongest effect on reducing the negative relationship of physical separation and integration, a less strong effect on cultural differences, and a weak effect on goal incongruity. Conversely, IT_d is found to have a strong effect on goal incongruity. These empirical findings provide guidelines for project managers using a specific IT to address a specific integration barrier. If the major barrier is physical separation, IT_c is the best solution. On the other hand, if the major barrier is goal incongruity, IT_d is the best solution. In addition, it is important for management to note that IT requires more than simply installing computer hardware and software. In addition to investing in those “hard” improvements, project managers should strive to create a supportive “soft” environment by consistently improving members' IT experiences and familiarity. In the process of the continuous development of IT, state‐of‐the‐art technologies should be introduced in a timely manner and be made accessible to all team members. Finally, project managers should frequently observe their industry peers' IT usage to keep up with advances.     

MNC foreign investment and industrial disasters: The moderating role of technological,safety management,and philanthropic capabilities

Research Summary: We investigate how industrial disasters can discourage FDI and how MNCs' technological, safety management, and philanthropic capabilities can moderate these effects. Using two unique panel data sets of entry and expansion of U.S. wholly‐owned manufacturing subsidiaries overseas, we found that industrial disasters are associated with reduced foreign entry of wholly‐owned subsidiaries in the disaster industry, but not for all firms in the host country experiencing the disaster. We also found that MNCs' technological, safety management, and philanthropic capabilities can, in some cases, positively moderate the negative relationships between industrial disasters and the foreign entry and expansion of wholly‐owned subsidiaries. Additionally, three‐way interactions with government stability suggest that technological and safety management capabilities substitute government stability in managing industrial disasters, while philanthropic capability complements government stability. Managerial Summary: How can MNCs' technological, safety management, and philanthropic capabilities overcome the effects of industrial disasters such as chemical spills and explosions in host countries? Our results show that industrial disasters are associated with reduced foreign entry of wholly‐owned subsidiaries in the industry in which the industrial disaster occurs, but not for other firms operating in the country experiencing the disaster. However, an MNC's technological capability can, in general, lower the negative consequences of industrial disasters in both the entry and expansion of its wholly‐owned subsidiaries. Regarding the institutional quality of a host country, the results imply that MNCs should develop philanthropic capability when the government stability of the host country is strong, and develop technological and safety management capabilities when the government stability is weak.     

Once bitten twice shy? Experience managing violent conflict risk and MNC subsidiary‐level investment and expansion

Research summary : Researchers have increasingly emphasized the need to better understand how context affects the value of experiential learning. We address this gap by investigating when corporate‐level experience can be leveraged across borders and when experience needs to be country‐specific to be valuable. We test our hypotheses using a unique multi‐source panel dataset of 379 large MNCs from 29 home countries and their subsidiaries in 117 host countries over a 10‐year period, 1999–2008. In contrast to prior research, we find that the ability of a firm to leverage its experience with political risk across borders is limited by the type of risk involved. Experience with nonstate violent conflicts may be transferrable, but only country‐specific experience appears to yield measureable benefits for conflicts involving the host country government . Managerial summary : Violent conflicts not only increase social unrest but also impose added costs of doing business. For managers who find themselves in the midst of violent conflicts or who wish to survive and potentially gain a competitive advantage in operating in such challenging environments, is it possible to learn to manage such a seemingly “unmanageable” problem? In contrast to studies that have examined other types of political risk, we find that the ability of a firm to leverage its experience with violent conflict risk across borders is limited. Specifically, only country‐specific experiential knowledge about how the host government prepares and manages such conflict risks yields measureable economic benefits for MNCs and their subsidiaries operating in countries during conflict . Copyright © 2016 John Wiley & Sons, Ltd.     

Presumptive adaptation and the effectiveness of knowledge transfer

Adaptation almost invariably accompanies the cross‐border transfer of firm‐specific practices. The existing literature contains two conflicting approaches to adaptation. The first, more traditional approach, following institutional, motivational, and pragmatic efficiency considerations, presumes that a modified practice can be fine tuned, stabilized, and institutionalized without consulting a working example and that practices should thus be adapted as quickly as possible to create fit with the local environment. The second approach argues, instead, for the need to maintain the diagnostic value of the original practice by adapting cautiously and gradually. In this paper, we report an in‐depth field investigation of the relationship between presumptive adaptation, adaptation that removes the diagnostic value of the original practice, and transfer effectiveness. The setting is the transfer of franchising knowledge across borders. We investigate how adherence to recommended practices affects the rate of network growth in the host country. We find that presumptive adaptation stalls network growth while a conservative approach to adaptation, which basically entails close adherence to the original practice, results in remarkably rapid network growth. We conclude that presumptive adaptation of knowledge assets could be detrimental to performance. Copyright © 2006 John Wiley & Sons, Ltd.     

When is cash good or bad for firm performance?

Research summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. We synthesize arguments from the behavioral theory of the firm, economic perspectives like agency theory, and the value‐creation versus value‐appropriation literatures to argue that the implications of cash for firm performance are context‐specific. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Managerial summary: Cash can create shareholder value when used for adaptation to unfolding contingencies, but can also reduce value when appropriated by other stakeholders. While cash‐rich firms have higher performance on average, with those in the 75th percentile having a market‐to‐book value 15 percent higher than those in the 25th percentile, we find that the performance benefits of cash depend on the context. Cash is more beneficial for firms operating in highly competitive, research‐intensive, or growth‐focused industries that are typical of contexts requiring adaptation in the face of uncertainties. Conversely, cash is more detrimental to performance in firms that are poorly governed, diversified, or opaque, as are typical of contexts where stakeholder conflicts, information asymmetries, or power imbalances can encourage value appropriation by other stakeholders. Copyright © 2015 John Wiley & Sons, Ltd.     

Strategic factor markets,scale free resources,and economic performance: The impact of product market rivalry

This paper analyzes how scale free resources, which can be acquired by multiple firms simultaneously and deployed against one another in product market competition, will be priced in strategic factor markets, and what the consequences are for the acquiring firms' performance. Based on a game‐theoretic model, it shows how the impact of strategic factor markets on economic profits is influenced by product market rivalry, preexisting competitive (dis)advantages, and the interaction of acquired resources with those preexisting asymmetries. New insights include the result that resource suppliers will aim at (and largely succeed in) setting resource prices so that the acquiring firms earn negative strategic factor market profits—sacrificing some of their preexisting market power rents—by acquiring resources that they know to be overpriced. Copyright © 2014 John Wiley & Sons, Ltd.