Building and leveraging knowledge capabilities through cross-border acquisitions: The effect of the multinational corporation's capabilities and knowledge strategy on the degree of equity ownership

I develop a knowledge-based model of cross-border acquisitions. In this model I integrate the multinational corporation's (MNC) capabilities with its knowledge strategy for a specific focal acquisition to determine the structural outcome of the acquisition. I classify the MNC's capabilities into component and architectural capabilities (at the level of the business and of the location), and the knowledge strategies into exploration and exploitation. I suggest that both the capabilities and the strategy of the MNC, through direct and moderating effects, determine the structural form of the acquisition. Specifically, I focus on the share of equity acquired in a cross-border acquisition and propose that MNCs pursuing a knowledge exploration strategy are likely to acquire only a partial equity stake. In contrast, MNCs seeking to leverage their capabilities are more likely to acquire the totality of the target's equity. Interactive effects between strategies and between strategies and some capabilities are also examined.; The results of the empirical tests, using a logit regression model on a sample of 439 cross-border acquisitions by US MNCs, show some support for the impact of architectural capabilities, particularly the business-related architectural capabilities, and strong support for the effect of the knowledge strategy for the deal. In particular, I found that MNCs foreign acquisition experience (business-related architectural capability) is a good predictor of a less than full equity stake. MNCs extent of international experience may partly drive the equity stake but this effect is superseded once the MNCs develop some level of acquisition capability. I also found that the novelty of the business and location entered are negatively associated to the equity stake. MNCs pursuing exploration strategies in a certain deal will tend to acquire a lower share of the equity of the target firm. Moreover, there is partial empirical evidence for interactive effects between strategies and architectural capabilities, and for curvilinear effects of location knowledge exploration strategy. I suggest that managers may improve the outcome of cross-border acquisitions by better integrating the three components of capabilities, strategy and structure. Implications for theory and practice are advanced, as well as avenues for additional research.