What drives target status decision in emerging markets acquisitions?

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Target status

decision and

market

What drives target status decision

in emerging markets acquisitions?

Viet Anh Hoang

acquisition

Faculty of Banking, The University of Danang, Danang, Vietnam

203

Man Dang

Faculty of Finance, The University of Danang, Danang, Vietnam

Received 2 June 2020

Revised 4 November 2020

Accepted 25 November 2020

Ngoc Vu Nguyen

The University of Danang, Danang, Vietnam

Ngoc Thang Nguyen

Faculty of Finance, The University of Danang, Danang, Vietnam, and

Darren Henry

Department of Economics and Finance,

La Trobe Business School, La Trobe University, Australia

Abstract

Purpose – The purpose of this paper is to investigate the effects of cross-country characteristics on acquirers’

target status choice in cross-border mergers and acquisitions across 41 emerging markets.

Design/methodology/approach – The paper first reviews the existing literature and develops the related

hypotheses, in conjunction with the objectives of this paper. We then describe the data employed, variable

measurement and examine the effects of cross-country characteristics on the acquirers’ target status choice in

cross-border mergers and acquisitions while controlling for firm-level and deal-specific characteristics. The

paper continues to conduct the robustness check on cross-country determinants of target status choices using

the difference independent variables rather than target country-level variables only.

Findings – This research found that the likelihood of a public firm acquired relative to private one is

higher if the target firm is located in countries with stronger government quality, weaker economic

freedom, better financial market development and lower cultural distance between the host and home

countries. The results suggest that bidders actively assess cross-country characteristics as part of their

acquisition planning.

Originality/value – Rather than commonly analysed determinants in the previous research such as firm- and

deal-specific attributes, value creation and shareholder protection, this paper indicates that institutional

environments and economic conditions are closely associated with acquisition risks and benefits and have

direct influences on bidder firms’ acquisition bidding planning and target choice decision-making.

Keywords Country-level characteristics, Target status decision, Cross-border mergers and acquisitions,

Emerging markets, Imperfect factor markets

Paper type Research paper

Journal of Economics and Development. Published by Emerald Publishing Limited. This article is

published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce,

distribute, translate and create derivative works of this article (for both commercial and non-commercial

purposes), subject to full attribution to the original publication and authors. The full terms of this licence

may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Viet Anh Hoang, Man Dang, Ngoc Vu Nguyen, and Ngoc Thang Nguyen are senior lecturers at the

University of Danang (Vietnam). We thank the participants at the 2019VICIF Conference and seminars at

the University of Danang (Vietnam)and La Trobe BusinessSchool (Australia), for very fruitful comments

and suggestions. All remaining errors are our own. This research is funded by Funds for Science and

Technology Development of the University of Danang under project number B2018-ÐN04 –07.

Journal of Economics and

Development

Vol. 23 No. 2, 2021

pp. 203-218

Emerald Publishing Limited

e-ISSN: 2632-5330

p-ISSN: 1859-0020

DOI 10.1108/JED-05-2020-0059

1. Introduction

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23,2

Mergers and Acquisitions (M&As) are increasingly a large key mode of foreign direct

investment (FDI) since the late 1980s. Keeping pace with changes in the global environment,

the integration of local markets into the world economy, the liberalization and the

development of financial markets, cross-border M&A deals continue to be major forces for

the global economic growth. Bidders are increasingly looking to emerging markets for new

investment opportunities. The SDC database shows that on average 42.12% of targets

acquired are publicly listed. Since cross-border acquisitions to emerging markets continue

growing and the challenges posed by acquisitions in these markets are broad and diverse,

understanding of the motivation and strategic rationale of acquiring public targets versus

private targets is worth receiving more attention (Bae et al., 2013).

204

The existing literature shows that the bidding firms’ selection to acquire unlisted or listed

firms is determined by characters of firms. Shen and Reuer (2005) report that bidders are not

willing to acquire private targets when the deal is outside their core business and when

private firms have significant intangible resources or their value of assets is highly uncertain.

They also indicate that assessing a target’s value can meet significant challenges for

acquirers in the case of small and private targets, therefore, when such valuation problems

are apparent, bidders are more likely to pursue public targets, for which these difficulties are

comparatively less severe. The second stream of literature examines the target status

selection decision in association with information asymmetry and suggested that information

asymmetry may have a significant impact on the strategy and performance implications of

acquisitions. The explanation is that information asymmetry has a certain association with

firm and deal characteristics and, thus, affecting target status selection (for instance, Capron

and Shen, 2007).

There is also another strand of literature paying attention to country-level factors as the

determinants of target selection and acquirer returns. Bae et al. (2013) find country-level

transparency as a determinant of target firm selection in cross-border acquisitions.

Specifically, they indicate that it is more likely for bidders to buy private targets in

lower-transparency countries (higher information asymmetry environment) to yield higher

price discount associated with private firms. Feito-Ruiz et al. (2014) indicate that the acquiring

firms located in countries with less protection to shareholders and minority shareholders are

more likely to acquire listed firms; whereas the higher level of information asymmetry and the

less developed the capital market in the acquired firm country, the more likelihood of

acquisitions of unlisted firms. Focusing on the relationship between the country-level

determinants of target selection and acquirer returns in cross-border acquisitions, John et al.

(2010) find that when target countries have a strong protection of minority shareholders,

announcement returns of bidders are significantly negative resulting from acquisitions of

public target companies and positive in acquisitions of private target companies. Similarly, a

number of existing studies find the effects of political risk, geographic and cultural distance

on the bidders’ returns in association with target status (see Tao et al., 2017).

Drawing from the existing literature, we believe that the relevance of all firm-attributes

and of information-based deal attributes may depend on the characteristics of countries,

particularly the legal and institutional environment. Our paper makes a great effort in the

examination on the decision-making of bidders in cross-border acquisitions across 41

emerging markets over the period from 2000–2015. Specifically, we focus on cross-country

determinants of acquirers’ target status choice and how this might be affected not only by

involved firm and deal attributes but also by the institutional attributes of the host-home

countries as well as differences in these institutional characteristics across those countries.

Accordingly, we have taken a different approach based on the transaction-nature of cross-

border acquisitions, which involves bidders and target countries from different countries and

considers differences in country-level attributes and their association with bidders’ planning

and decision-making. Prior studies focus on the role of country-level characteristics in

explaining the acquirer return effects associated with the acquisitions of private targets

relative to those of public targets. In our study, we expect country-specific factors to be

directly associated with target choice decision for bidding firms. As such, our key proposition

is that, in the cross-border target selection decision-making, it is a great deal of importance for

bidding companies to perform a thorough analysis of the target firm’s local regulatory and

country institutional environments in order to identify possible gaps in the markets and

determine how the acquired firm can play a mediating role, providing access to networks to

reduce information asymmetry and afford the acquirer a comfortable position in that

environment. If bidding companies are reasonably accurate in their assessment of acquisition

risks and benefits, then we subsequently expect country-specific institutional factors to be

directly associated with target choice decision for bidding firms. Dang et al. (2018) have

provided the similar conclusions for the cross-country determinants of bidder ownership

choices. They find that the target country-level characteristics and differences in the

institutional attributes between bidder and target countries are informative of bidder

acquisition decisions. Their study also suggests that bidders tend to consider cross-country

characteristics as part of their acquisition planning. Also examining the role of cross-country

factors and the bidder acquisition decision-making, our paper differentiates from Dang et al.

(2018)’s study by putting more attention to target country-level attributes as the determinants

of target status selection.

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acquisition

205

Following the existing literature, country-level characteristics regarding (1) government

quality, (2) economic freedom, (3) financial development and (4) cultural distance are

suggested as key cross-country determinants of investment motives and acquisition sources

of value for foreign bidders and, thus, play a vital role in acquirers’ takeover decision-making

across emerging market economies. Therefore, if country-specific attributes or variations

across such countries provide potential acquisition motives, then it is reasonable to expect

that they should also be correlated with the bidders’ decision-making.

This paper broadens the existing literature on acquisitions with three significant

contributions. Firstly, our paper focuses on the country-specific determinants on bidders’

behaviour generally and target status selection in particular, and cross-country differences,

which are better reflections of perceived acquisition risks and benefits. Acquirers may

confront certain challenges and risks when adapting to a different institution and operating

in a new country. Investing in the emerging markets may carry more risks than those

associated with investing in the developed markets, typically and substantially political risks

and social risks. Emerging countries have been going through the institutional

transformation and have experienced certain market imperfections. However, as any two-

faced implication, for those with a taste for risk, emerging economies can provide great

promises. Secondly, previous studies have focused on either firm-level and deal-specific

determinants for examining the target status choice decision in the correlation with the

shareholder returns or firm valuation. Our analysis fills in the gap of the literature when

concentrating on the target status selection decision-making of bidding companies

specifically by examining cross-country determinants and particularly target country

characteristics. Our attention is on whether target country-level factors including

government quality, economic freedom, financial development and cultural distance play

the pivotal role in the acquisition decision of private targets or public targets and whether the

variations in institutional environment characteristics between bidder and target companies

are also related to bidders’ target status choices.

Thirdly, this paper contributes to the current emerging market literature (Deng and

Yang, 2015; Lebedev et al., 2015) by looking into the emerging market targets and

extending at a large-scale level across 41 emerging markets. Developed economies have

experienced a stagnant growth, especially after the 2007–2008 global financial crisis, thus,

investors have looked elsewhere to reap the gains that Western markets used to offer.

Besides the faster growth rate of emerging markets, the improvement in liquidity, capital

raising and larger labour force also make the emerging markets more attractive than their

developed counterparts. Yet, investing in the emerging markets may carry more risks

than those in the established markets when the emerging countries have been going

through the institutional transformation and have experienced certain market

imperfections. However, for those with a taste for risk, emerging economies can provide

great promises. As cross-border acquisitions into emerging markets continue to grow,

understanding of the motivation and strategic rationale of these foreign acquisitions is

deserving more attention.

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206

The remainder of the paper is organized as follows. In the next section, we review the

existing literature and develop the related hypotheses, in conjunction with the objectives of

this paper. Section 3 describes the data employed and variable measurement, while the

empirical results are presented and discussed in Section 4. Section 5 concludes our study.

2. Hypothesis development

Existing literature indicates that variation in government quality significantly affects the

flow of FDI to developing and emerging countries (Buchanan et al., 2012). Alexandridis et al.

(2011) find that target countries with better quality of laws and regulations tend to experience

more cross-border acquisitions. Dang et al. (2018) examine the importance of the target

countries’ government quality for the acquirers’ ownership decisions and find that bidders

tend to acquire higher ownership of target firms operating in countries with better

government quality. The target countries with lower levels of government quality might have

weaker and unclear law and regulation environment, less information transparency, more

uncertainty and political risks to business activities. In such an opaque information

environment, local information on public targets would not be reliable or useful and might not

be much different from information on private targets; therefore, the motivation to buy a

public target will be weakened, and it would not be worth paying an extra premium for public

targets in this case (Capron and Shen, 2007). Motivated by the above discussion with respect

to the role of target government quality, it can be hypothesized that:

H1. The higher the target country government quality, the greater probability of

acquiring a public target firm relative to a private target firm.

Regarding economic freedom, the impacts of economic freedom in cross-border mergers and

acquisitions, particularly for acquirers’ acquisition decisions have been clearly surveyed in

the current literature (Li et al., 2018). According to Bhagat et al. (2011), the higher degree of

economic freedom means better legal structure and security of property rights, capital raising

and capital control with greater international trade openness, which is believed to decrease

the risks and uncertainty in the likelihood of investing in the target countries. A less

restrictive international trade policy and the increased participation in trade openness of

target countries create greater opportunities to welcome foreign capital flows from new

markets and boost potential acquisition benefits. Hence, acquiring target companies which

are located in countries with better economic openness and less restrictive international trade

policy are expected to create more value when the target firms are unlisted. Accordingly, the

following research hypothesis is proposed:

H2. The higher the target country degree of economic freedom, the lower probability of

acquiring a public target firm relative to a private target firm.

Previous studies have investigated the influence of financial development on target status

selection in cross-border acquisitions (Capron and Shen, 2007; Feito-Ruiz et al., 2014).

According to Feito-Ruiz et al. (2014), underdeveloped financial markets in target countries

make unlisted targets encounter more difficulties and more costly in obtaining external

financing and less available liquidity. As a result, unlisted firms are more likely to be offered a

discount in the offer price, which, in turn, boosts the probability of unlisted firms acquired by

cross-border bidders. The current literature reaches a conclusion that the less developed the

capital market in the target country, the greater the probability unlisted firms get acquired.

Bae et al. (2013) find that well-developed financial systems provide an active market for

shares of public firms and, hence, bidding firms are willing to acquire public targets located in

a country with better financial market development in order to potentially get premium

benefits from its shares in the readily available stock market with lower acquisition risks.

Therefore, we posit that:

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decision and

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acquisition

207

H3. The higher the target country level of financial development, the greater probability

of acquiring a public target firm.

Prior studies have also focused on the influence of cultural distance on cross-border

acquisition performance and process (Weber et al., 1996; Morosini et al., 1998), but the results

are mixed. National and organizational cultural barriers can be major obstacles to achieve

benefits for post-combination integration process. A high level of cultural distance between

firms is likely to cause cultural ambiguity and process loss when different cultures collide

during the post-acquisition process, whereas international acquisitions may be particularly

difficult to integrate because they require “double layered acculturation”, whereby not only

corporate cultures but also different national cultures have to be combined. Empirically,

however, Morosini et al. (1998) find that acquisitions perform better if there is a larger degree

of national cultural distance between the two involved firms. Although there is no consensus

on the exact impact of cultural distance on cross-border acquisition performance, the existing

literature agrees that high cultural distance increases the level of uncertainty and risks,

especially in the case of cross-border deals when acquirers enter into a foreign market with

different language, legal and governance systems as well as national cultural barriers (Kang

and Jiang, 2012). Accordingly, we suggest the final hypothesis as follows.

H4. The higher the level of cultural distance between the bidder and target country, the

lower probability of acquiring a public target firm relative to a private firm.

3. Data and sample description

3.1 Data and sample selection

A comprehensive sample of completed cross-border acquisitions involving target firms over

the period between January 2000 and December 2015, across 41 emerging markets, was taken

from the Thomson Reuters SDC Platinum database. An initial set of 53,987 completed cross-

border acquisition announcements in these emerging countries was obtained. These

countries were selected based on the emerging markets-related new classification introduced

by BBVA Research (2014).

Following the literature, we require companies to acquire a stake in target companies no

less than 5% and do not hold less than 5% after the deal is completed. Also, in order to

address sample selection bias, we exclude observations in which multiple firms acquire the

same company on the same day. For an acquisition to remain in the sample, we require that

the transaction value to be at least US$1.0 million and that financial data for the acquirers and

target firms be available on Datastream, Thomson Reuters Worldscope or Bureau van Dijk’s

Mint Global databases, though there are still missing values across different variables.

Finally, we have removed transactions where the target’s listing status was something other

than public or private. After screening criteria and deleting acquisition observations with

missing values, the final sample consisted of 16,806 cross-border acquisition transactions

involving 41 different target countries in emerging markets.

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3.2 Model, variables, and measures

Our model is given as follows [1]:

Pubtarget_i;t¼ β₀þ β₁IE_j;t−1þ β₂CONTROLS_t−1þ γ_sþ δ_tþ Ω_gþ ζ_i;t

(1)

208

where,

3.2.1 Dependent variable (Pubtarget). The dependent variable (Pubtarget) is acquirers’

target status choice in cross-border acquisitions, taking the value of one if the target is

publicly listed and zero otherwise.

3.2.2 Institutional environment variables (IE). The first explanatory variable is quality of

government (GovQuality) derived from Kaufmann et al. (2009) and from the World Bank’s six

Governance Indicators. The second key variable studied refers to the degree of economic

freedom (EcoFreedom). This study uses the index published by the Fraser Institute, which

measures the country’s level of economic freedom. The next key explanatory variable is

financial development(FinDevelop). We follow Gries et al. (2009 )and Dang et al. (2018 )toemploy

the principal component analysis method to create a wide-ranging index of financial

development constructed from the four widely used financial development indicators, covering

M2, liquid liabilities, total domestic credit and domestic credit to the private sector. The last key

explanatory variable, cultural distance (CulDistance), captures the difference in the national

culture between acquiring firm country and target firm country. This index is computed using

Kogut and Singh (1988)’s method from Hofstede’s six cultural dimensions (Hofstede, 1994).

3.2.3 Control variables (CONTROL). A number of control variables that could possibly

affect acquirers’ target status choices are incorporated in our multivariate setting,

representing (1) the characteristics of acquisition deals: Relatedness (Capron and Shen,

2007), Toehold (Kim, 2012) and Cash (Fuller et al., 2002); (2) firm-level variables: Size (Kim,

2012), RelSize (Andriosopoulos and Yang, 2015), Public bidder (Capron and Shen, 2007) and

Emerging bidder (Dang et al., 2018). Moreover, carrying out a cross-country study of

acquisitions considerably depends on economic conditions across countries; therefore, it is

expected that bidders are more probable to acquire a public target firm if the target is located

in countries with stronger economic eminence and prosperity, which can be proxied by GDP

per capita (GDP per capita) and GDP growth (GDP Growth) variables.

In order to control for year, industry and geographic effects, we respectively include year

(δ_t), industry (γ_s), and host country geographic location (U_g) in all model specifications.

3.3 Characteristics of the sample

Table 1 reports the summary statistics on the characteristics of acquisition deals in rank

order by total number of deals [2]. As shown in Table 1, the percentage of public targets varies

from 0% (i.e. Algeria, Qatar, and Uzbekistan) to 100% (i.e. Brazil, Russia, and Turkey). On

average, 42.12% of targets acquired are publicly listed. Also, target firms in large emerging

market countries (India, China and Mexico) and new emerging markets (Malaysia and

Indonesia) are more attractive to cross-border bidders than those located in the other markets.

Moreover, cross-border bidders tend to prefer noncash deals and outside-core-business

(nonrelated) acquisitions. Interestingly, the number of hostile deals is found to be startlingly

rare, which represents 0% in the most of hostile deals in emerging market acquisitions. There

is a big difference in the proportion of toehold-related deals across target countries. For

example, only about 3.57% of foreign bidders hold the target firms’ shares at the time of

acquisitions in Indonesia, while the rate for Colombia is up to 48.84%.

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209

Table 1.

Data on completed

cross-border mergers

and acquisitions by

top-20 countries

ranked by number

of deals

Table 2 reports the industry distribution of bidders and targets. It can clearly be seen that

there is a diversification across target and acquirer industries, though financial services make

up for the largest proportion. Foreign bidders operate in financial services as the most,

followed by manufacturing and consumer products industries. In addition, they prefer target

firms involved in the same areas of operations, which indicate that acquirers tend to avoid

targets outside of their core business.

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Table 3 describes summary statistics on characteristics of country-level variables

according to target status over the 2000–2015 period. The results indicate that bidders tend to

seek publicly held target firms operated in countries with better control of corruption,

stronger economic freedom, bigger restrictions on international trade, higher financial

market development, greater GDP growth,and less organized and ordered society. Regarding

the variation in country-level characteristics between bidder and target countries, bidders

prefer publicly held target firms when listed target firms’ countries have worse government

quality, weaker economic freedom, less-developed financial market and higher cultural

distance between bidders and targets.

210

4. Regression results

4.1 Cross-country determinants of target status choices

This section firstly examines the influences of the cross-country characteristics on target

status choices by undertaking binominal logistic regressions of the target selection on the

country-level variables and controlling for firm-level and deal-specific variables. The results

of five logit models are presented in Table 4. As seen from column (1), we find strong evidence

supporting Hypothesis H1. The coefficient on the Target GovQuality variable is positive and

statistically significant suggesting higher likelihood of acquiring publicly held target firms

located in countries with stronger government quality. One of the key merits of acquiring a

public target firm is that the acquirer can access public financial information of its target firm

and the local information would be reliable when target country has a strong government

quality (Capron and Shen, 2007). Therefore, if bidders are reasonably accurate in their

assessment of acquisition by reliable and useful information on public targets, they will

prefer public target firms to avoid the overpayment as for private target firms.

The result from column (2) shows the negative and statistically significant coefficient on the

Target EcoFreedom, which is in line with Hypothesis H2. The finding suggests that the

probability of a public target acquiring deal is negatively correlated with the degree of economic

freedom in the target country and that the higher the economic freedom, the lower the probability

of acquiring publicly held firms. It is proposed that fewer frictions and market imperfections in

acquisitions of targets from countries with strong economic freedom, which is associated with

Bidder industry

(%)

Target industry

Deals

SIC codes

%

Deals

%

0000–999

Food products

191

1961

2588

2766

1782

1122

3025

2361

1010

1.61

11.61

15.46

16.48

10.63

6.61

18.14

13.90

5.55

231

1294

1805

2062

1126

644

7883

1432

669

1.35

7.55

10.53

12.03

6.57

1,000–1999

2000–2999

3000–3999

4000–4999

5000–5999

6000–6999

7,000–7,999

8000–8999

Mining and construction

Consumer products

Manufacturing

Utilities and transportation

Wholesale, retail, and some services

Financial services

Table 2.

3.76

Industry distribution

of completed cross-

border mergers and

acquisitions

45.98

8.35

3.90

Personal and business services

Miscellaneous

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acquisition

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Table 3.

Country-level

characteristics and

target status

preferences

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212

Table 4.

Cross-country

determinants of target

status choices in cross-

border acquisitions

more efficient markets and stronger economic growth, leading to the target countries’ lower cost

of capital and agency costs. Therefore, if foreign bidders realize lower cost of capital and agency

costs with less investment risks in high economic freedom target countries, they prefer private

firms to public firms in order to experience the acquisition discount, benefits from greater

announcement wealth effects and other higher growth potentials.

Target status

decision and

market

acquisition

Our results reported in Column (3) also support Hypothesis H3. Column (3) indicates the

significantly positive coefficient on the Target FinDevelop, which means that the probability

of acquiring publicly-held firms is higher in target countries with more-developed financial

markets. This finding is consistent with Bae et al. (2013) that well-developed financial

systems provide an active market for shares of public firms, thus bidding firms are willing to

acquire a public target located in a country with financial market development in order to

potentially get premium benefits from its shares in the readily available stock market with

lower acquisition risk.

213

In column (4), the influence of the difference in the national culture between home and host

countries on acquirers’ target status selection is examined. The significantly negative

coefficient for the CulDistance variable suggests that the higher the cultural distance, the lower

likelihood of acquiring a publicly listed firm, and, therefore, it is in line with Hypothesis H4.

Accordingly, the higher level of cultural distance means more differences in the political

institutions, economic and social institutions between bidder and target country. This leads to

greater risks, more obstacles to business activities and higher information asymmetry in the

target country, which are considered as potential compensated factors for greater gains by

acquiring a private firm. Therefore, acquirers are less likely of acquiring public target firms

when there is a larger cultural difference between the host and home countries.

After each key explanatory variable is examined separately, all of the variables are

combined together in a full model in column (5). The results are generally consistent with the

findings above except for the financial market development variable (the coefficient is still

positive but statistically insignificant).

4.2 Robustness test

We continue to conduct the robustness check on cross-country determinants of target status

choices using the difference independent variables rather than target country-level variables

only. Accordingly, the main test variables include the difference in the quality of government

(ΔGovQuality); difference in the quality of economic freedom (ΔEcoFreedom); difference in the

development of financial markets (ΔFinDevelop) and difference in the uncertainty avoidance

index (ΔUAI) [3]. Δ(GDP Growth) and Δlog(GDP per capita) are proxies for the difference in

macroeconomic conditions between the two countries. We report our results in Table 5.

As reported in column (1) of Table 5, the significantly positive coefficient for the

ΔGovQuality variable proposes that the larger the government quality gap between the target

and bidder countries, the greater the probability of acquiring public target firms relative to

private firms. In column (2), the significantly positive coefficient for ΔEcoFreedom variable

supports our idea that the likelihood of acquiring public target firms is higher when target

countries have the lower degree of economic freedom relative to bidder countries. Column (3)

shows the negative and statistically significant coefficient for the ΔFinDevelop variable. This

result supports our hypothesis and identifies that if target firms are located in countries with

stronger financial market development relative to the bidder countries, there is a greater

probability of acquiring public target firms. Column (4) examines if cultural distance between

the two countries are associated with acquirers’ target status selection. The significant

negative coefficient for the ΔUAI variable indicates that if the target and bidder countries

share similar social standards and then there is lower cultural distance between two

countries, the bidders are more willing to acquire the public firm targets. The result again

supports our prior findings.

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Table 5.

Robustness on cross-

country determinants

of target status choices

using the difference

independent variables

5. Conclusion

Target status

decision and

market

This study has examined major factors that determine the target status choice of public listed

firms versus private firms by bidding firms in cross-border mergers and acquisitions across

41 emerging markets. After controlling for firm-level and deal-specific characteristics, we find

that target country-level characteristics and differences in cross-country factors between the

home and host countries are associated with acquirers’ target status selection.

The findings of the paper contribute two important implications. Regarding theoretical

implications, this study emphasizes the literature on the acquisitions with the importance of

cross-country characteristics for acquirers’ acquisition decision-making generally and target

status selection particularly. Rather than commonly analysed determinants in the previous

research such as firm- and deal-specific attributes, value creation and shareholder protection,

this paper indicates that institutional environments and economic conditions are closely

associated with acquisition risks and benefits and have direct influences on bidder firms’

acquisition bidding planning and target choice decision-making.

acquisition

215

In terms of practical implications, while previous studies are primarily devoted to only some

large emerging host economies, we examine the decision on target selection by considering a

comprehensive sample consisting of 41 emerging markets, which allows us to generalize the

statistical results and conclusions to the entire emerging markets context. The findings shed

light on benefits being facilitated by mechanisms such as economic openness, international

trade capabilities and well-functional financial market, together with the perception of cultural

distance as informative sources of bidder acquisition decisions. Accordingly, the study

proposes that foreign acquirers actively assess and analyse cross-country institutions as part

of their acquisition planning, while domestic target firms identify advantages and

disadvantages of their position in the environment for negotiations in the acquisition deals.

It is potentially that managerial opportunism and differences in information availability

on private relative to public firms influence both the acquirer’s choice of target as well as its

performance. We leave this possibility for future research.

Notes

1. Also see Table A1 for the definition of variables.

2. Also see Table A2 for the correlation matrix.

3. More details about this UAI index, see Table A1.

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