Institutional Distance And Cross-border Acquisitions

With the continuous development of the global economy,cross-border acquisition has become an important way for enterprises to enhance market competitiveness,expand overseas markets,increase market share,obtain strategic resources and disperse business risks.According to the perspective of the three pillars of strategy,the influencing factors of enterprises’ formulation and implementation of internationalization strategy mainly involve three levels:country,industry and enterprise.Based on institutional theory,this paper takes the cross-border acquisition transactions of Chinese A-share listed companies from 2004 to 2019 as the research sample,and empirically studies the impact of formal institutional distance and informal institutional distance on the success or failure and performance of cross-border acquisition at the macro level.Formal institutional distance includes political institutional distance and economic institutional distance,informal institutional distance refers to cultural distance.Firstly,this paper uses logit model to test the impact of institutional distance on the success or failure of acquisition.The results show that the higher the quality of the political system of the host country relative to the home country,the better it can protect the interests of the acquirer and reduce the transaction cost,so as to promote the completion of the acquisition.Therefore,when choosing acquisition targets,enterprises should take the quality of the political system of the target country into consideration.Secondly,this paper uses the least square method(OLS)to carry out multiple linear regression to test the impact of institutional distance on post-acquisition performance.The results show that the greater the difference between the political systems of the two countries,there is more the liability of foreignness of the acquirer,which has a negative impact on the post-acquisition performance.The cost increase brought by the liability of foreignness is mainly reflected in two aspects:unfamiliar cost and discrimination cost.Therefore,after the acquisition,the acquirer should understand and comply with local laws and policies through training and hiring professionals,meet the expectations of the government and avoid the risks caused by the unfamiliarity with the local institutional environment.In addition,enterprises can also release positive signals to the local market through brand marketing,obtaining third-party certification etc.to reduce the negative impact of discrimination or stereotype on performance.Secondly,the results of this study found that the higher the policy freedom of the host country relative to the home country in the fields of investment,finance and trade,the acquirer will have a higher post-acquisition performance.Therefore,when choosing acquisition targets,enterprises should also consider the openness and freedom of the host country’s policies in the economic field.