Mergers and acquisitions by Chinese firms: A review and comparison with other mergers and acquisitions research in the leading journals

In recent years, an increasing number of Chinese firms have been engaged in acquisitions both inside and outside of China. Nevertheless, our understanding of Chinese merger and acquisition (M&A) activity is limited because a majority of M&As in the past 100 years have been performed by firms from developed countries and it is those M&As that have been the focus of prior research. Thus this paper aims to address the following research questions: What are the new insights gained from Chinese M&A research? What are the emerging future directions of Chinese M&A research? To address those questions, this article provides a thorough literature review of the most recent M&A research in top journals and studies of M&As both inside and outside of China. Consequently, we identify both new insights from Chinese M&A research and the research gaps that Chinese M&A research needs to fulfill compared with general M&A research in top journals. We further highlight the important and unique characteristics of Chinese M&As and call for future research.     

Mergers,acquisitions, and the pruning of managerial deadwood

This research investigates the role that mergers and acquisitions may play in the disciplining of entrenched and inefficient managers. The relationship between a company's performance history and its subsequent top management turnover is assessed for a sample of target companies, their parents, and a control group of companies not involved in merger and acquisition activity. The results reveal that target company top management turnover is higher than ‘normal’ in the 2 years immediately following a merger or acquisition, but there is no relationship between previous target company performance and its subsequent top management turnover. Further analyses indicate that first-year target company turnover rates are associated with a history of relatively poor parent company performance, while second-year turnover rates are associated with a history of relatively good parent company performance.     

Capital subsidies,profit maximization,and acquisitions by partially privatized telecommunications carriers

A recent phenomenon in competition policy is the acquisition of a private firm by an enterprise that is either wholly owned by government or in the midst of privatization. Such an acquisition poses the question of how public ownership may alter the incentives of a firm to engage in anticompetitive conduct. It also prompts one to examine the process by which such altered incentives revert, as the level of government ownership declines, to the same incentives that face purely private firms. Using Deutsche Telekom's acquisition of VoiceStream Wireless as a case study, this article presents the economic questions relevant to evaluating the competitive consequences of acquisitions by partially privatized firms. It predicts gains or losses to various constituencies of producer groups. It then analyzes bond ratings and weighted-average costs of capital to determine whether such data are consistent with the hypothesis, advanced by parties opposed to such foreign investment, that partially privatized acquirers benefited from the government subsidization of their credit.     

Mergers and synergy: Lessons from contemporary telecommunications history

Using contemporary historical data, the analysis reported in this article has evaluated the impact of the various mergers of the local exchange companies that took place between 1988 and 2001 on financial performance. Performance was measured using an important metric normally used to measure synergies of firms undergoing mergers. The analysis has revealed that the relative cash flow variable for firms worsened after mergers. If the synergy motive had been primary in influencing merger decisions, and also approvals, then the past mergers approved led to decreased performance levels and corresponding welfare losses for American consumers; thus, the mergers of communications common carriers were not in the interest of the public, the shareholders and customers. On the other hand, given the negative outcomes, views that the quiet life, hubris or a quest for possible market power motivated the mergers could be discarded. The lessons of such contemporary historical analysis have suggested that antitrust oppositions to contemporary telecommunications sector mergers may have basis in fact and salient evidence.     

The multinationalisation of South African telecommunications firms into Africa

The study investigates the main factors considered by telecommunications firms when making a decision to undertake Foreign Direct Investment (FDI) into Sub-Saharan Africa (SSA). This encompasses the reasons for investing, the methods of entry into the identified market and the factors influencing their decision. The methodology employs a survey questionnaire which was sent to telecommunication firms representing 80% of the revenue generated by this sector in SSA. The research reveals that market size, regulatory environment and government policy are the three most important factors influencing the decision to undertake FDI. Furthermore, the main reasons for deciding to enter SSA are for market and profit growth due to saturation in their existing markets, as well as for diversification of risk. They demonstrate the key competencies that South Africa Multinational Enterprises (MNEs) have in navigating the complexities of doing business in institutional voids. The liability of being from the relatively small emerging market of South Africa and operating in a country of institutional uncertainty has allowed South African companies to internationalise into markets that other MNEs will not venture into and thus turn a liability into an advantage.     

Geographic distance and corporate acquisitions: signals from IPO firms

This paper examines acquisitions of firms after they have undergone initial public offerings (IPOs). Combining insights from information economics with recent research on geographic distance in various market settings, the analysis investigates whether the presence or absence of different signals on IPO firms has an impact on the geographic proximity of acquirers. The central proposition we develop and test is that specific characteristics of IPOs—venture capitalist backing, investment bank reputation, and underpricing of issued shares—convey signals on these firms, which can facilitate acquisitions by more remote acquirers who are more likely to face the risk of adverse selection. Copyright © 2011 John Wiley & Sons, Ltd.     

Mergers when firms compete by choosing both price and promotion

We analyze the bias from predicting merger effects using structural models of price competition when firms actually compete using both price and promotion. We extend the standard merger simulation framework to allow for competition over both price and promotion and ask what happens if we ignore promotional competition. This model is applied to the super-premium ice cream industry, where a merger between Nestlé and Dreyer's was challenged by the Federal Trade Commission. We find that ignoring promotional competition significantly biases the predicted price effects of a merger to monopoly (5% instead of 12%). About three-fourths of the difference can be attributed to estimation bias (estimated demand is too elastic), with the remainder due to extrapolation bias from assuming post-merger promotional activity stays constant (instead it declines by 31%).     

The impact of FDI through mergers and acquisitions on innovation in target firms

This paper analyzes the effects of cross-border mergers and acquisitions on innovation activities in target firms. The empirical analysis is based on survey and ownership data for a large sample of small- and medium-sized German firms. After controlling for endogeneity and selection bias, we find that foreign acquisitions have a large negative impact on the propensity to perform innovation activities and a negative impact on average R&D expenditures in innovative firms. Furthermore, innovation output, measured as product and process innovations, and the share of sales from product innovations, is not significantly affected by a foreign acquisition for a given amount of innovation efforts. Hence, the estimation results do not provide any evidence of significant technology transfer through foreign acquisitions in form of a higher innovation success.     

Environmental capabilities and corporate strategy: exploring acquisitions among US manufacturing firms

In this article, we investigate whether environmental capabilities influence firms' corporate strategies, a topic that has received little attention to date. We hypothesize that firms are more likely to acquire facilities when ownership facilitates the transfer of capabilities either to or from the facility. Using a panel from the U.S. government's Toxics Release Inventory Program, we find firms with superior environmental capabilities are significantly more likely to acquire physically proximate facilities with inferior environmental capabilities and vice versa. Our results extend theories of both corporate and environmental strategy. Copyright © 2012 John Wiley & Sons, Ltd.     

Technological acquisitions and the innovation performance of acquiring firms: a longitudinal study

This paper examines the impact of acquisitions on the subsequent innovation performance of acquiring firms in the chemicals industry. We distinguish between technological acquisitions, acquisitions in which technology is a component of the acquired firm's assets, and nontechnological acquisitions: acquisitions that do not involve a technological component. We develop a framework relating acquisitions to firm innovation performance and develop a set of measures for quantifying the technological inputs a firm obtains through acquisitions. We find that within technological acquisitions absolute size of the acquired knowledge base enhances innovation performance, while relative size of the acquired knowledge base reduces innovation output. The relatedness of acquired and acquiring knowledge bases has a nonlinear impact on innovation output. Nontechnological acquisitions do not have a significant effect on subsequent innovation output. Copyright © 2001 John Wiley & Sons, Ltd.     

Value creation and destruction in cross‐border acquisitions: an empirical analysis of foreign acquisitions of U.S. firms

We conduct an investigation of the sources of gains and losses in cross‐border acquisitions in light of different motives for undertaking these transactions: synergy‐seeking, managerialism and hubris. We find that the data are consistent with the expectation that multiple sources of value creation exist in synergistic cross‐border acquisitions: asset sharing, reverse internalization of valuable intangible assets, and financial diversification. Gains accrue to bidder firm shareholders only for the least fungible of these sources of gains, i.e., reverse internalization. For value‐destroying acquisitions that are expected to be driven by managerialism, we find that the data are consistent with only one of the sources of value destruction that we examine, i.e., risk reduction. In these acquisitions, the evidence also suggests that the relative size of the target to the bidder mitigates the negative effects of risk reduction. Our results underscore the importance of considering the implications of alternative behavioral assumptions in empirical strategy content research. Copyright © 2002 John Wiley & Sons, Ltd.     

Resource redeployment following horizontal acquisitions in Europe and North America, 1988–1992

This paper studies redeployment of resources between target and acquiring businesses following horizontal acquisitions. The analysis draws from perspectives that emphasize the strategic importance of resources that are subject to market failure. We define a five-part typology of R&D, manufacturing, marketing, managerial, and financial resources. We show that targets and acquirers frequently redeploy resources following horizontal acquisitions, especially resources that frequently face market failure. We then show that the magnitude of redeployment of each type of resource increases with the asymmetry of the merging businesses' relative strength on the resource dimension. The research stresses evolutionary perspectives on business organizations that emphasize the importance of organizational differences in competitive markets. The central premise of our research is that the market for businesses is often more robust than the market for resources. © 1998 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.     

The diffusion of an organizational innovation: International data telecommunications and multinational industrial firms

The paper analyses the structural and technological determinants of the diffusion of international data network as a major technological and organizational innovation in a sample of 40 U.S. and European multinational firms in the period 1963–1980. According to the results faster adopters appeared to be large U.S. firms, exposed to worldwide competition, with inhouse telecommunication skills. Smaller European firms adopted the technology later, often pushed by the provision of ad hoc technical solutions by service and hardware marketing firms. Smaller latecomers with centralized management structures were, however, quicker in the diffusion process. Both in the interfirm and intrafirm diffusion ‘implicit knowledge’ was a more effective factor than R–D intensity.     

Regional aid for telecommunications in Europe: A force for economic development

This article reviews research work on telecommunications and economic development which can be applied to the problems faced in the less favoured regions of Europe. The authors draw on work carried out under the auspices of the Commission of the European Communities into the disadvantages these regions face in telecommunications supply and use, and the benefits which would accrue from investment. The priorities for regional aid and recommended actions for a European programme are also discussed. The authors conclude that the emphasis should be on the provision of advanced business services and the stimulation of demand for those services, in order to encourage economic growth. General network infrastructure digitalization should be left to PTTs to undertake as part of their normal investment programme.     

Types of synergy and economic value: The impact of acquisitions on merging and rival firms

Acquisitions, in general, have been demonstrated to create economic value. The intuitive reason underlying this value creation stems either from an ability to reduce costs of the combined entity, an ability to charge higher prices, or both. Current research in the area attributes these abilities to an opportunity to utilize a specialized resource. Our focus in this study is to compare three broad classes of resources that contribute to the creation of value. Following the conventional wisdom, these resources are classified as cost of capital related (resulting in financial synergy), cost of production related (resulting in operational synergy), and price related (resulting in collusive synergy). Given the limitations of our sample and research design, we find that collusive synergy is, on average, associated with the highest value. Further, the resources behind financial synergy tend to create more value than the resources behind operational synergy.     

Sources and management of tension in co-opetition case evidence from telecommunications satellites manufacturing in Europe

Co-opetition is filled with tension due to inherent contradictory and opposing forces. In this research, we develop a multi-level conceptual framework that helps to understand key drivers of tension in co-opetition and key approaches to managing the tension. We combine literature-based conceptual arguments and insights from in-depth study of one exemplar case of co-opetition between Astrium (EADS group) and Thales Alenia Space (Thales group) within the sector of telecommunications satellites manufacturing in Europe. Our findings highlight multiple sources of co-opetitive tension at different levels. Further, our research shows that a mixed organization based on both separation and integration of competition and cooperation is helpful to understand and effectively manage tension in co-opetition. This paper offers case-based rich insights on the sources and management of tension and has important implications for the design and conduct of future empirical research.     

Regulation and investment behaviour in the telecommunications sector: policies and patterns in US and Europe

This paper reports the results of the quantitative analysis of international experience of the relationship between infrastructure investment in the deployment of capacity that can carry large volumes of voice and data traffic and regulatory policy changes in the telecommunications sectors. It looks at the relationship between infrastructure investment for these infrastructure assets and the access pricing régimes for local exchange carriers in the United States and Europe. It then looks at the relationship between various aspects of regulatory and institutional policy changes in Europe and how they affect access prices.The paper finds that a lower access price promotes greater deployment of digital technology among US incumbent local exchange carriers (ILECs). Based on this finding, it suggests that it is in the ILECs interest to have access to their networks encouraged.The European data for interconnection are recent and far reaching conclusions are not feasible, but the findings, however, suggest that competition has worked by facilitating new entry through decreasing interconnection prices, although path dependencies, of existing and traditional concepts, in the mindsets of operators as well as regulators, may account for these findings.     

R&D capabilities,intellectual property strength and choice of equity ownership in cross-border acquisitions: evidence from BRICS acquirers in Europe

The aim of the study is to investigate two relatively underexplored factors, namely, the R&D (research and development) capabilities of target firms and the strength of intellectual property (IP) institutions in target economies, that influences the choice of equity ownership in cross border acquisitions (CBAs) undertaken by multinational enterprises (MNEs) from BRICS (Brazil, Russia, India, China and South Africa) economies. They developed the key hypothesis on foreign market entry through CBAs by incorporating insights from transaction costs economics, the resource-based view and institutional theory to investigate the determinants of full versus partial equity ownership. Using logistic regression estimation methods to a sample of 111 CBA deals of BRICS MNEs in 22 European countries, it was found that BRICS MNEs were likely to pursue full rather than partial acquisition mode when target firms have high R&D capabilities. However, the greater the degree of strength of IP institutions in target economies and higher the target firms’ R&D capabilities, the more likely it is for BRICS MNEs to undertake partial, rather than, full acquisition mode. They provided interesting theoretical insights and managerial implications that might underlie some of the key findings on CBAs by emerging market MNEs.