Government Effectiveness, Institutional Distance, and Equity Ownership in Cross-Border Acquisitions by Emerging Economies: A Comparative Analysis

Our study enhances comprehension regarding the motivations behind cross-border acquisitions (CBMA) by Emerging Market Multinationals (EMNEs). This research explores the impact of both formal and informal institutional distance on equity ownership in emerging markets. Additionally, we posit that these direct correlations are more pronounced for EMNEs compared to Multinational Enterprises (MNEs). To validate these hypotheses, we compare the CBMA of firms based in developing countries with those in developed countries. Motivated by the need to better understand a prominent group of foreign acquirers, we examine acquisitions initiated by EMNEs over a 12-year period. We observe that acquirers from developing countries tend to hold greater equity share in targets located in more economically advanced nations, sharing cultural proximity. Our study’s empirical findings highlight the differential impact of economic distance on the equity share sought by acquirers based in emerging markets, contingent upon the level of government efficiency. Specifically, we note that this relationship shifts from a linear correlation in instances of low government efficiency to a curvilinear association in situations of high government efficiency. While the cultural distance seems to have a greater adverse effect on the degree of ownership taken in acquisitions for EMNEs compared to Emerging Market Multinationals (DMNEs). It lends support to the position that the context of institutions, and institutional theory, matter.