Thesis
Cross-border mergers and acquisitions : political relationship, constraints and prior experience
- Creator
- Rights statement
- Awarding institution
- University of Strathclyde
- Date of award
- 2023
- Thesis identifier
- T16533
- Person Identifier (Local)
- 201659495
- Qualification Level
- Qualification Name
- Department, School or Faculty
- Abstract
- Cross-border mergers and acquisitions (CBAs) are critical investment decisions of firms. Theoretically, in a perfect world, with no cross-country institutional differences, no information asymmetry and no agency-related frictions, CBAs should help managers channel corporate assets toward their best possible use. However, in the real world, amidst institutional differences, information and agency-related frictions, this is not always the case; many CBA bids either fail to get initiated, fail to get completed, are delayed or fail to create value, which entails costs to various stakeholders. It is, therefore, crucial to examine the factors that affect this strategic activity and its outcomes. This thesis, in three separate but interconnected empirical chapters, examines whether factors from the political environment and acquirers’ prior experience that have received little to no attention contribute in explaining, at least in part, CBA bid activities, the success/failure of their completion after their announcement, including value creation/destruction during the announcement period. The first empirical chapter (Chapter 3) investigates whether country-pair political relations (CPR) contribute in explaining, at least in part, the variation in CBA bid activities and their related outcomes for 45 countries, for the period 1992 to 2018. Findings robust to alternative specifications underline a positive relationship between CPR and the number and volume of bilateral CBA bids. CPR, in this case, is the net of the time-varying media based country-pair political events, where higher levels demonstrate co-operative relations and lower levels indicate adversarial relations between country-dyads. The results, therefore, suggest that co-operative relations enhance, and adversarial relations deter bilateral CBA activity. These results are consistent with the preposition that co-operative relations amplify economic opportunities for potential country-dyad investors, and adversarial relations create deadweight costs. Reiterating this, investigation on bids after their announcement reveal that higher levels of CPR enhance the likelihood of the deal completion and reduce the deal completion duration. Investigation on the announcement period returns underscore that acquirers’ and targets’ shareholders gain in the face of higher levels of CPR. Further investigation on the distinct effect of country-pair conflicts and co-operations (rather than their net effect) suggest an asymmetrical impact between these two events on the outcomes of CBAs. Finally, investigation on the effect of the two types of conflict events (military and non-military conflict events) reveal that military conflict events, in many instances, exhibit a stronger role in explaining the deterring impact of conflict on CBA activity and its related outcomes. The second empirical chapter (Chapter 4) examines whether political constraints (PCs) in policy-making at targets’ and acquirers’ domiciles explain, at least in part, the variations in CBA bid activities and their related outcomes. This is examined for the same sample of 45 countries as the first empirical chapter, for the period 1992 to 2017. Results robust to alternative specifications suggest that higher levels of PCs at the targets’ domiciles increase inbound CBA bids. The bilateral country-pair investigation reiterate these results and additionally underscore that lower levels of PCs at the acquirers’ domiciles motivate outbound CBA bids. Investigation on bids after their announcement reveal that higher levels of PCs at the target and acquiring firms’ domiciles increase the likelihood of the deal completion. The investigation also underscore that higher levels of PCs at the targets’ domiciles reduce the deal completion duration. Investigation on the announcement period returns underline that while higher levels of PCs at the targets’ domiciles are positively associated with higher returns for the target firms’ shareholders, acquiring firms’ shareholders benefit from higher returns with lower levels of PCs at their domicile. The chapter also insinuates that higher levels of other institutional quality and the common law legal origin of the target’s domicile compensate its lower levels of PCs. Finally, results reveal that emerging markets benefit the most with regard to outbound acquisitions in the face of lower levels of PC at their domicile and in attracting inbound CBAs upon improving PCs. Finally, the third empirical chapter (Chapter 5) quantifies the effect of acquirers’ experience and embeddedness at the target’s domicile before the bid (i.e., acquirers’ pre-bid host country experience) on their subsequent acquisitions in the same domicile. This is examined for acquiring firms based in 6 countries for the period 2005 to 2018. Results robust to alternative specifications suggest that acquirers’ pre-bid host-country experience matter. Particularly, investigation on bids after their announcement reveal that acquirers with pre bid host-country experience, compared to other acquirers, benefit from a higher likelihood of deal completion, face lower deal completion duration, pay a lower premium, and their shareholders enjoy significant announcement period gains. Finally, results reveal that targets’ announcement period returns are negatively related to acquirers’ pre-bid host country experience, suggesting that targets loose when acquirers are versed with the target’s environment. The findings of all three empirical chapters, taken as a whole, support the notion that country-pair political relations, country-specific political constraints on policy-making and acquirers’ pre-bid host-country experience contribute in explaining at least in part, the direction of the bid activities, the success/failure, including the duration of deal completion after the bid announcement. The three chapters also contribute in explaining the value creation/destruction during the announcement of the bids. The findings of this thesis carry important implications for investors, managers, employees, lenders and policymakers for decision-making and allocating capital efficiently.
- Advisor / supervisor
- Marshal, Andrew
- Paudyal, Krishna
- Resource Type
- DOI
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