The Role of Emotions in Cross-Border Mergers & Acquisitions: A Systematic Review of the Inter-Disciplinary Literature and Future Research Agenda

Cross-border mergers and acquisitions (M&As) are highly emotional events for the employees of involved organizations. The strength and directionality of emotional reactions can result in positive or negative employee outcomes contributing to success or failure of cross-border M&As. Existing studies on emotions and cross-border M&As have identified various underlying mechanisms and factors that influence employee emotions in cross-border M&A activities, leading to a fragmentation of current research on this topic. In this article, we systematically review the interdisciplinary literature on the role played by emotions in cross-border M&As by analyzing a sample of 78 articles published between 2000 and 2021. We contribute to the current literature by (1) providing a holistic and deeper understanding of the role played by emotions in cross-border M&As; (2) mapping the current state of the interdisciplinary literature on emotions and cross-border M&As; and (3) developing a multi-level framework, and identifying key theories and emerging themes to be examined in future studies.     

Cross-border M&As: The impact of cultural friction and CEO change on the performance of acquired companies

This study analyzes the impact of cross-border mergers and acquisitions (M&As) on the performance of target firms. Based on institutional theory, we hypothesize that performance deteriorates because of a lack of legitimacy, particularly when there is friction between the two national cultures and a higher risk of clashes between organizational cultures. We test our assumptions using an original dataset to compare the performance of Italian firms involved in inward cross-border M&As with that of continuing local firms that have a similar ex-ante likelihood of being merged or acquired. We apply coarsened exact matching (CEM) to establish the control group and a difference-in-differences (DID) approach to account for the possibility that target companies produce superior results simply because foreign investors “cherry-pick” the best-performing firms. Contrary to predictions, we find that foreign ownership does not deteriorate growth but enhances the profitability of target firms compared to purely domestic companies. In addition, we illustrate that the latter result remains applicable when cultural frictions between national cultures are high and when the CEO of the target company is replaced or joined by a new CEO after the deal.     

Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future

Cross-border mergers and acquisitions (M&As) have gained in popularity over the last decade. However, research on this type of diversification strategy has not kept pace with this trend. While there is considerable research in the area, it is unfortunately fragmented, leaving gaps that need to be addressed. Herein, we examine the theoretical perspectives and research findings on cross-border M&As from three perspectives: cross-border M&As as a (1) mode of entry in a foreign market, (2) dynamic learning process from a foreign culture, and (3) value-creating strategy. Current empirical research on this topic is also tabulated and grouped by theoretical stream to indicate major findings. Most importantly, we identify gaps in the literature and highlight five important research issues that provide directions for future research.     

Genetic distance,international experience and the performance of cross-border R&D for EMNEs

Cross-border R&D can contribute to the enhancement of independent innovation capabilities of emerging markets multinational enterprises (EMNEs) by benefiting from knowledge management. However, scant research exists examining the location impact of cross-border R&D for EMNEs on performance implications. This paper fills this important theoretical gap by building upon the literature of genetic distance in connection with knowledge management. We use a panel data of Chinese high-tech listed companies to empirically examine the impact of genetic distance on the performance of cross-border R&D and the role played by international experience. Our results reveal a positive relationship between genetic distance and the performance of cross-border R&D. Importantly, we highlight the motivation for cross-border R&D of EMNEs to acquire technical knowledge magnifies the positive effects of genetic distance and performance. Furthermore, our analysis indicates that international experience significantly enhanced the positive effect of genetic distance on cross-border R&D performance. We conclude this paper by discussing theoretical contributions to genetic distance, international management and knowledge management, as well as practical implications for cross-border R&D of EMNEs.     

Lessons from the flipside: How do acquirers learn from divestitures to complete acquisitions?

We examine whether experience from prior divestitures is associated with higher completion likelihood in subsequent acquisitions. We argue that through divestitures, firms could extract meaningful knowledge that is helpful for completing their acquisitions, such as a general understanding of acquisition deal-making stages, and the stories and aims of the target in an M&A transaction. In addition, viewing divestitures as the flipside of acquisitions, we conjecture that the selling firm can observe how the divested component of their business is acquired, and vicariously learn from these observations. We also investigate the relative importance of learning from divestiture vis-à-vis acquisition experience in determining acquisition deal completion. Finally, we contend that the effect of learning from divestitures on acquisition deal completion depends on acquisition experience and deal value. We find evidence supporting our conjectures in a sample of 2164 M&A transactions from the worldwide computer and printing industries between 1991 and 2010.     

Does vertical diversification create superior value? Evidence from the construction industry

The discussion of diversification discounts is one of the most controversial in corporate finance and strategic management. We are eager to reexamine this issue from the standpoint of vertical versus lateral diversification, and horizontal growth through construction industry M&A. We build on previous evidence of positive acquirer abnormal returns for vertical M&A, and we add new insight into stock return risk. Considering the high idiosyncratic risk levels of builders, we expect to find considerable informational content in systematic risk (beta) behavior, which has been neglected to date. In fact, we find that vertical M&A experience a negative asset beta shift, lateral M&A experience an increase in systematic risk, and only horizontal M&A exhibit no risk changes. Hence, our evidence on risk and previous evidence on return-induced wealth creation through vertical M&A shows that related industrial diversification is superior to unrelated—at least in the construction industry.     

Looking into the ‘black box’ – unlocking the effect of integration on acquisition performance

Extending research on the performance of Mergers and Acquisitions (M&As), this paper seeks to explain how the post-acquisition integration phase affects acquisition performance. Despite extensive research efforts, there remains a scant understanding of how acquisition implementation, particularly in the post-acquisition integration phase, impacts the performance of M&As. Based on an extensive study of eight acquisitions, in this paper, a grounded model detailing the mechanisms by which the post-acquisition integration phase affects acquisition performance is developed. The model posits that integration-related factors do not bear directly upon acquisition performance. Instead, their effect is mediated by functional organizations in both firms. When focusing into these functional mediating dynamics, we observe that integration-related processual, behavioral and cultural factors affect the identified functional mediators in different ways. Going forward, we echo calls for integrated perspectives to the study of M&A and M&A performance in particular.     

Curvilinear relationship between cultural distance and equity participation: An empirical analysis of cross-border acquisitions

We examine the relationship between national cultural distance and equity participation using an analysis of a sample of more than 100,000 cross-border acquisitions from 1976 to 2008. We find that cultural distance has a curvilinear (U shaped) relationship with equity participation: Acquiring firms make large equity acquisitions at both low and high cultural distances and small equity acquisitions at moderate cultural distances. In addition, we find that industry relatedness of acquisitions positively moderates the relationship between cultural distance and equity participation: Acquiring firms take a higher equity stake for a given cultural distance if the acquisitions are in a related industry. Our findings offer important insights into firms' market entry behavior and provide guidelines for managers about entry strategies.     

Understanding knowledge transfer in M&As: An integration of resource orchestration and social capital theories and evidence from UK acquiring firms

Whileknowledge transfer is one of the key components in determining Mergers and Acquisitions (M&A) success, the current M&A literature has produced inconsistent findings regarding its antecedents and consequences. To address this research gap, this study explores the roles of functional integration and shared goals in facilitating knowledge transfer, which will in turn determine M&A success. To provide a more nuanced understanding of knowledge transfer, this study examines bilateral knowledge flows (e.g., knowledge transfer to a target firm from the UK acquiring firm and knowledge transfer from a target firm to the UK acquiring firm). Our research framework is built upon two different theoretical perspectives, namely resource orchestration and social capital theories. Our propositions were tested empirically across a sample of 131 UK cross-border M&A firms. Our results reveal that the affirmative roles of functional integration and shared goals in increasing knowledge transfer both to and from a target firm are confirmed and that knowledge transfer to the target firm is deemed decisive for M&A success. Based on the findings, we discuss theoretical and practical implications, followed by limitations and future study consideration.     

Effects of Firm-specific and Country-specific Advantages on Relative Acquisition Size in Service Sector Cross-Border Acquisitions: An Empirical Examination

Using a sample of 348 service sector cross-border acquisitions by U.S. firms in 44 countries during 1990–2006, our study seeks to identify factors that influence relative acquisition size (acquisition transaction value as a percentage of acquiring firm's asset value). Our findings indicate that firm-specific advantages (FSAs) in the form of available financial slack and target industry knowledge were positively associated with relative acquisition size. However, contrary to expectations, we observed a negative relationship between cross-border acquisition experience and relative acquisition size. In addition, our results suggest that country-specific advantages (CSAs) associated with higher market potential, lower political risk, and greater cultural similarity contributed to increased relative acquisition size in service industry cross-border acquisitions. Finally, our analysis reveals that the relationship between available financial slack and relative acquisition size is contingent on cultural similarity with the relationship being more pronounced when cultural similarity is high.     

The micro-foundations of industrial diversification through foreign acquisitions: The multifaceted role of CEO experience

This paper examines the micro-foundations of cross-border industrial diversification strategies. We study the impact of observable CEO experience attributes on the propensity to acquire foreign target firms in unrelated (versus related) industries. Our findings, based on a sample of UK-based firms that engaged in cross-border acquisitions between 2010 and 2016, support an inverted U-shaped relationship between life experience of the CEO and the likelihood of engaging in unrelated foreign acquisitions. Further, we find that CEOs' broad-based work experience, across countries or industries, is associated with a higher propensity to engage in unrelated foreign acquisitions. Finally, CEOs’ education experience in MBA-type qualifications is associated with a preference for related foreign acquisitions. We discuss the theoretical implications of these findings and outline directions for future research in the context of micro-foundations in international business, strategic leadership, and upper echelons theory.     

Greenfield or M&A? An institutional and learning perspective on the establishment mode choice of Chinese outward investments

We develop and test a model of Chinese greenfield investments using institutional and learning theories. Both the host country institutional context and the firm's international characteristics affect the establishment mode. Using 152 Chinese emerging market multinationals (EMNEs) with 401 subsidiaries distributed in 26 countries from 2003 to 2013, we build a database of 284 pairs of host country/Chinese firms to test two hypotheses. We find that, first, governance environment affects the establishment mode: greenfield investments are preferred over acquisitions in relation-based host markets, and M&As are preferred in rule-based countries. Second, the depth of Chinese EMNEs' international experience (i.e. the amount of previous investments in the same host market) moderates the effect of the governance environment on the establishment mode. Firms with greater international depth use more M&As in relation-based markets and more greenfield investments in rule-based markets, suggesting that previous investments in the same host country provide a type of learning that reduces acquisition uncertainty in the former case and increases the self-confidence of Chinese EMNEs in the latter.     

来源国劣势与合法化战略——新兴经济企业跨国并购的案例研究

新兴经济体企业在跨国并购中如何根据不同类型来源国劣势来做出合法化战略选择?通过对吉利和万向六次跨国并购的多案例分析,本文打破现有文献关于"来自相同国家的企业面临相似来源国劣势"这一"同质化假定",把来源国劣势构念化为制度维和产品维。通过归纳式案例研究,本文发现,对于产品维的来源国劣势,新兴经济体企业倾向于通过组织制度设计、资源协同和声誉重构等合法性修复战略进行应对。对于制度维的来源国劣势,新兴经济体企业倾向于采用制度遵从、组织制度设计、资源协同等合法性获取战略来应对。当面临产品维和制度维双重劣势时,新兴经济体企业综合运用制度遵从、组织制度设计、资源协同、声誉重构等合法性获取和合法性修复战略,重点强调沟通协调这一合法性维持战略来应对。这些发现贡献于新兴经济体企业在跨国并购,乃至于更广意义国际化的文献,并对中国企业跨国并购过程有一定的启示意义。     

The effect of board size on shareholder value: Evidence from bank mergers and acquisitions

This study examines the effect of board size on the economic impact of bank mergers and acquisitions (M&A) in the US. Using a hand-collected dataset of 508 M&A between 2012 and 2018, we find that board size is negatively related to acquirer excess returns. In an additional analysis, we show that large boards have positive value implications for banks that combine the CEO and chairman roles as well as for large banks. Our findings indicate that a “one-size-fits-all” approach to board size is not necessarily in the interests of shareholders; instead, a more flexible and proactive formulation is needed.     

Mergers and acquisitions research — A bibliometric analysis

Mergers and acquisitions (M&A) remain a popular vehicle for organizational development to ensure future competitiveness. However, despite the extensive body of research in recent decades, significant gaps can be observed between the understanding of the phenomenon M&A in the literature and the importance of M&A activities in practice. Heterogeneous perspectives from different schools of thought, contradictory findings and controversies, and changing economic environments make M&A research a complex endeavor and highlight the need for integrative approaches and holistic perspectives. This paper takes a holistic view of M&A research to map interrelationships among key documents, authors, institutions, and countries; trace the evolution of M&A research over time; and suggest avenues for future research to expand the boundaries of M&A scholarship. For this purpose, a sample of 580 articles from 9 leading management science journals was examined bibliometrically, including 42,630 citations and 18,734 unique references for the years 1963–2019.     

When are acquisitions a viable catch-up strategy? Some empirical evidence from China

How emerging-market firms can catch up with forerunners from advanced economies is a key issue in the economic and technology literature. Research has suggested that acquisitions are a viable tool for firms in emerging markets to reduce the productivity gap with global leaders, but the empirical evidence on this matter is still far from conclusive. Contributing to this debate, this paper examines the impact of cross-border vs. domestic acquisitions on the labor productivity of firms across different sectoral environments. Studying the acquisitions pursued by Chinese listed firms over one decade, we find that cross-border acquisitions are positively associated with firms' labor productivity and that this effect is particularly strong in high-tech sectors and among leading firms. We also find that domestic acquisitions are positively associated with firms’ labor productivity and that this effect is particularly strong in low-tech sectors and among laggards. We further investigate the mechanisms underlying the acquisition–productivity link and contend that “technological innovation” is the primary mechanism by which acquisitions enhance firm productivity in high-tech sectors, whereas “enhancing operating efficiency” is the primary mechanism by which acquisitions enhance firm productivity in low-tech sectors.     

Experiential learning,M&A performance,and post-acquisition integration strategy: A meta-analysis

While research on mergers and acquisitions (M&A) capabilities is accelerating, our understanding of their antecedents and performance implications still remains rather fragmented. Previous research has outlined the importance of learning for building M&A capabilities, but no work has attempted to summarize previous empirical findings regarding different learning mechanisms and their impacts on M&A performance. Mainly drawing upon organizational learning theory and the dynamic capabilities perspective, this study consolidates research on the relationship between different learning mechanisms, post-acquisition integration strategies, and M&A performance. Using meta-analytical techniques, our study shows that the capability-building mechanism relying on deliberate investments in learning tends to be more effective than the capability mechanism based on mere experience accumulation. In addition, our findings indicate that a higher degree of integration is associated with enhanced M&A performance among firms with more developed experiential learning, highlighting the need to explore mediating effects of integration strategy choices on the experiential learning-performance relationship.     

基于知识结构的顾客知识共享激励机制研究

文章从知识结构的视角构建了基于委托——代理理论的顾客知识共享激励机制模型,创新性地分析了在信息对称和信息不对称情况下,共享知识中显性知识和隐性知识比例的变化对顾客知识共享努力水平及收益分配系数的影响,并运用MATLAB软件对该模型进行了仿真分析。研究结果表明（1）顾客的努力水平与共享知识的组成结构有关,且当显性知识和隐性知识比例均为0.5时努力水平达到最大值;（2）当知识组成结构相同时,信息不对称情况下的努力水平低于信息对称情况下的努力水平;（3）收益分配系数与共享知识的组成结构有关,且当隐性知识比例为1时收益分配系数达到最大值;（4）收益共享比例与风险规避程度成反比。基于此,提出了企业应制定基于共享知识结构的顾客知识共享评价机制和利益分配机制,并根据顾客的风险规避程度对收益分配系数进行调整,为企业知识共享激励机制的制定与实施提供了理论指导。     

Family firms and high technology Mergers & Acquisitions

We examine whether family firms undertake value creating high technology M&A. We also examine whether level of ownership, diversification, agency issues and CEO type matter. Our sample consists of high-technology M&A undertaken by Canadian firms over the period 1997–2006. Canada offers a setting with many family firms and the use of control enhancing mechanisms such as dual class shares and pyramid structures. We find a positive relationship between family ownership and announcement period abnormal returns. This relationship, however, starts to decrease at higher levels of ownership but remains overall positive. We also show that the agency conflict between shareholders and professional managers has a detrimental impact on announcement period abnormal returns whereas the conflict between controlling and minority shareholders via control enhancing mechanisms does not. Finally, we document that founder CEO undertake better high tech M&A than descendant or hired CEO.     

Psychic distance and ownership in acquisitions: Direction matters

Recent research has begun to explore the impact of country-of-origin and direction on internationalization decisions in response to controversy over the use of symmetrical and absolute values of distance. In this paper we contribute to this stream of research by studying the moderating influence of direction on the distance–ownership relationship as it relates to cross-border acquisitions. We ground our arguments in transaction cost economics and supplement this lens using institutional theory to contextualize the home-host country relationship through moderating effects. Through our study of 25,440 full and partial acquisitions (9577 MNEs, 25 countries, 15 years), we demonstrate that the distance–ownership relationship is moderated by direction. We further find that acquisition ownership decisions made by emerging country MNEs differ significantly from those made by developed country MNEs. Our findings demonstrate that future research on the impact of distance should consider the differences between MNEs from emerging versus developed economies, in addition to host country characteristics.