Economic Institutional Class and Caliber: The Influence of Country-Level Differences on Multinational Strategic Conduct
Keywords:
business, economics, economic institutions, multinational strategy, internationalization, cross-border acquisitionsAbstract
The relationship between institutions and multinationals is important to research and practice. In this paper, we examine the country-level effects of economic institutional class and caliber differences on the internationalization of a specific class of multinationals, those from emerging markets, specific to cross-border equity acquisition decisions. Through structural equations modeling and examining 973 cross-border acquisitions, we find that economic institutional variance related to class and caliber seems to matter. All four hypothesized relationships were found to be significant and in the predicted direction. As such, this study contributes to the broader institutions and internationalization literature regarding theory and practice.
References
Anderson, J.C., & Gerbing, D.W. (1988). Structural equation modeling in practice: A review and recommended two-step approach. Psychological Bulletin, 103(3), 411.
Arregle, J.-L., Miller, T.A., Hitt, M.A., & Beamish, P.W. (2013). Do Regions Matter? An Intergrated Institutional and Semiglobalization Perspective on the Internationalization of MNEs. Strategic Management Journal, 34, 910–934.
Aybar, B., & Ficici, A. (2009). Cross-border acquisitions and firm value: An analysis of emerging-market multinationals. Journal of International Business Studies, 40, 1317–1338.
Bagozzi, R.P., & Yi, Y. (1988). On the evaluation of structural equation models. Journal of the
Academy of Marketing Science, 16(1), 74–94.
Barkema, H.G., & Schijven, M. (2008). How Do Firms Learn to Make Acquisitions? A Review of Past Research and an Agenda for the Future. Journal of Management, 34(3), 594–634.
Bentler, P.M., & Chou, C.P. (1987). Practical issues in structural modeling. Sociological Methods & Research, 16(1), 78–117.
Berry, H., Guillen, M., & Zhou, N. (2010). An Institutional Approach to Cross-National Distance. Journal of International Business Studies, 41, 1460–1480.
Bollen, K.A. (1990). Overall fit in covariance structure models: two types of sample size effects. Psychological Bulletin, 107(2), 256.
Campa, J., & Guille´n, M.F. (1999). The internalization of exports: Firm- and location-specific factors in a middle-income country. Management Science, 45(11), 1463–1478.
Caves, R.E. (1996). Multinational enterprise and economic analysis. New York: Cambridge University Press.
Chakrabarti, R., Gupta-Mukherjee, S., & Narayanan, J. (2009). Mars-Venus Marriages: Culture and cross-border M&A. Journal of International Business Studies, 40(2), 216–236.
Chari, M.D., & Chang, K. (2009). Determinants of the share of equity sought in cross-border acquisitions. Journal of International Business Studies, 40, 1277–1297.
Chen, S., & Hennart, J. (2004). A hostage theory of joint ventures: Why do Japanese investors choose partial over full acquisitions to enter the United States? Journal of Business Research, 57(10), 1126–1134.
Chen, W. (2011). The effect of investor origin on firm performance: Domestic and foreign direct investment in the United States. Journal of International Economics, 83(2), 219–228.
Chun, B.G. (2009). Firm's choice of ownership structure: an empirical test with Korean multinationals. Japan and the World Economy, 21(1), 26–38.
Das, T.K., & Teng, B.S. (2000). A resource-based theory of strategic alliances. Journal of Management, 26(1), 31–61.
Dikova, D., Sahib, P., Witteloostuijn, A. (2010). Cross-border acquisition abandonment and completion: The effect of institutional differences and organizational learning in the international business service industry, 1981-2001. Journal of International Business Studies, 41, 223–245.
Dunlop, J.T., Harbison, F.H., Kerr, C., & Myers, C.A. (1975). Industrialism and industrial man reconsidered. Princeton, N. J.: Princeton University Press.
Elango, B., & Pattnaik, C. (2011). Learning before making the big leap: Acquisition strategies of emerging market firms. Management International Review, 51, 461–481.
Gelfand, M.J., Raver, J.L., Nishii, L., Leslie, L.M., & Yamaguchi, S. (2011). Differences between tight and loose cultures: A 33-nation study. Science, 332, 1100–1104.
Gubbi, S., Aulakh, P., Ray, S., Sarkar, M., & Chittoor, R. (2010). Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. Journal of International Business Studies, 41(3), 397–418.
Hair, A., & Tatham, B. (1998). A Mutivariate Data Analysis. Prentice Hall.
Haleblian, J., Devers, C., McNamara, G., Carpenter, M., & Davison, R. (2009). Taking Stock of What We Know About Mergers and Acquisitions: A Review and Research Agenda. Journal of Management, 35(3), 469–502.
Hope, O., Thomas, W., & Vyas, D. (2011). The cost of pride: Why do firms from developing countries bid higher? Journal of International Business Studies, 42, 128–151.
Iacobucci, D. (2009). Everything you always wanted to know about SEM (structural equations modeling) but were afraid to ask. Journal of Consumer Psychology, (19), 673–680.
Iyer, G.R. (1997). Comparative marketing: An interdisciplinary framework for institutional analysis. Journal of International Business Studies, 28(3), 531–561.
Jöreskog, K.G., & Sörbom, D. (1996). LISREL 8: User's reference guide. Scientific Software International.
Kedia, B., Gaffney, N., & Clampit, J. (2012. Emerging Market Multinationals and Knowledge-Seeking FDI. Management International Review, 52(2), 155–173.
Khanna, T., & Palepu, K. (2006). Emerging giants: building world-class companies in developing economies. Harvard Business Review, 84, 60–70.
Kostova, T. (1996). Success of the transnational transfer of organizational practices within multinational companies. Unpublished doctoral dissertation, University of Minnesota, Minneapolis.
Kostova, T. (1999). Transnational transfer of strategic organizational practices: A contextual perspective. Academy of Management Review, 24, 308–324.
Kostova, T., & Zaheer, S. (1999). Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 24, 64–81.
Luo, Y., & Tung, R.L. (2007). International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38, 481–498.
Malhotra, S., Sivakumar, K., & Zhu, P. (2011). Curvilinear relationship between cultural distance and equity participations: An empirical analysis of cross-border acquisitions. Journal of International Management, 17, 316–332.
Mathews, J.A. (2002). Competitive Advantages of the Latecomer Firm: A Resource-Based Account of Industrial Catch-Up Strategies. Asia Pacific Journal of Management, 19, 467–488.
Mathews, J.A. (2006). Dragon multinationals: new players in 21st century globalization. Asia Pacific Journal of Management, 23, 5–27.
Miller, T., Holmes, K.R., & Feulner, E.J. (2013). Index of Economic Freedom. Washington D.C.: The Heritage Foundation and Dow Jones & Company, Inc. Retrieved from http://www.heritage.org/index.
Morschett, D., Schramm-Klein, H., & Swoboda, B. (2010). Decades of Research on market entry modes: What do we really know about external antecedents of entry mode choice? Journal of International Management, 16, 60–77.
Nunnally, J.C. (1978). Psychometric Theory. McGrawHill, New York, NY.
Pan, Y., & Tse, D. (2000). The hierarchical model of market entry modes. Journal of International Business Studies, 31, 535–554.
Pisano, G.P. (1989). Using equity participation to support exchange: Evidence from the biotechnology industry. Journal of Law, Economics, and Organization, 5(1), 109–126.
Ramamurti, R. (2009). What we have learned about emerging-market MNEs? In R. Ramamurti, & J.V. Singh (Eds.), Emerging Multinationals in Emerging Markets (pp. 399–424). New York: Cambridge.
Rugman, A.M. (2009). Theoretical aspects of MNEs from emerging economies. In R. Ramamurti, & J.V. Singh (Eds.), Emerging Multinationals in Emerging Markets (pp. 42–63). New York: Cambridge.
Scott, W.R. (1995). Institutions and organizations. Thousand Oaks, CA: Sage.
Scott, W.R. (2001). Institutions and organizations (2nd Edition). Thousand Oaks, CA: Sage.
Shimizu, K., Hitt, M., Vaidyanath, D., & Pisano, V. (2004). Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future. Journal of International Management, 10, 307–353.
UNCTAD. (2024). Global and Regional Trends of FDI Outflows in 2023. Global Investment Trends Monitor.
Whitley, R. (1992). Business systems in East Asia: Firms, markets, and societies. London: Sage Publications.
Xu, D., & Shenkar, O. (2002). Institutional Distance and the Multinational Enterprise. Academy of Management Review, 27, 608–618.
Yeung, H.W.C. (1997). Business networks and transnational corporations: A study of Hong-Kong firms in the ASEAN region. Economic Geography, 73(1), 1–25.
Zaheer, S., & Zaheer, A. (1997). Country effects on information seeking in global electronic networks. Journal of International Business Studies, 28(1), 77–100.
