Overcoming the liability of foreignness: The effect of identity decoupling on acquirer’s post-acquisition performance

Foreign identity is a fundamental source of liability of foreignness, which brings great challenges for acquirers in achieving legitimacy in host markets. De-globalization and decoupling of national economies will likely exacerbate these problems. We propose that identity decoupling by acquiring firms is a key strategic response to alleviate legitimacy deficits, and consequently enhances post-acquisition performance. Moreover, we argue that identity labels of the target and organizational status of the acquirer form boundary conditions to the proposed relationship between identity decoupling and post-acquisition performance. Our findings based on a sample of global cross-border acquisitions show that identity decoupling is positively associated with the acquirer’s post-acquisition performance. We also find that if the target is a high-tech firm (as an indicator of identity label) the positive effect of identity decoupling is strengthened. In contrast, both the size and age of the acquirers (as indicators of organizational status) weaken the positive effect.