Cross-border acquisitions and firm value: an analysis of emerging-market multinationals
Aybar, B. and Ficici, A.
- Emerging-market multinationals (EMMs): faced increasing competition from
domestic rivals and aggressive outward expansion by foreign internationals into their
- Response was to adopt an outward strategic orientation.
- Study explores whether value manifests itself in cross-border company acquisitions
- On average, cross-border expansions of EMMs through acquisitions do not create
value, but rather value destruction.
International expansion and firm value: theoretical issues
- The value of strategic actions leading to the creation of a multinational network
stem from the firm’s ability to arbitrage across institutional environments, the
informational externalities captured by the firm, and the cost savings gained by
economies of scale in production, marketing and finance.
- Cross-border acquisitions may increase the operational flexibility of the firm by
giving it the opportunity to exploit market conditions.
- As long as the costs of creating and maintaining a diversified corporate network are
not excessive, presence in multiple markets can yield additional value to the firm
because of its ability to exploit more diverse conditions.
- Lack of experience, organizational inertia, prior absence in the country,
complications in target assessment, misidentifications of asset complementarities,
informational asymmetries, and high premiums paid for the targets may inhibit the
benefits of acquisition.
- Global diversification can lead to the inefficient cross-subsidization of less profitable
- Managers’ self-serving goals and incentives in value-reducing diversification
strategies may not be consistent with shareholder wealth creation.
Firm characteristics and value implications
- Regional domicile: considers geographic influence on the performance of acquiring
firms, and the way in which markets react to their strategic activities.
- Investment size: based on the argument that firms can achieve operating economies
leading to economies of scale.
- Level of control in target: significance for acquirer value of gaining a controlling
stake in acquisition.
- Target status: acquirers earn significantly negative returns when buying public
targets, and earn significantly positive returns when buying private or subsidiary
- Level of international experience: information asymmetries and the liability of
foreignness are reduced through familiarity with the local environment.
- Good corporate governance: contributes to acquirer value.