Responses to Institutional Voids and Cross-Border Acquisitions: Evidence from China
Mr. Yinuo TANG
PhD Candidate in Strategy
Joseph M. Katz Graduate School of Business
University of Pittsburgh
Limited attention has been paid to how emerging market firms (EMFs)’ responses to institutional voids affect their international expansion strategy. This study investigates non-market and market-based responses to institutional voids – political connections and cross-listing, respectively – and their differential impact on EMFs’ performance in cross-border acquisitions. Although both responses serve the purpose of overcoming institutional voids, we propose that politically connected EMFs will experience lower performance in cross-border acquisitions, especially in high technology industries. In contrast, cross-listed EMFs will experience higher performance, especially in national strategic industries. The moderating effects of industry show that for cross-border acquirers, the impact of employing nonmarket/market strategy is contingent on the institutional difference between home and host country. After accounting for endogeneity, a dataset of 466 Chinese firms’ cross-border acquisitions during the 2003-2013 time period supported our hypotheses. We contribute to understanding how nonmarket and market responses to domestic institutional voids influence EMFs’ returns in cross-border acquisitions and exemplifies how heterogeneity of institutional environment affects the value of strategy.