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Formal Institutional Uncertainty and Equity Sought on Foreign Market Entry: Does Industry Matter?

Kashif Ahmed, Ralf Bebenroth and Jean-Francois Hennart

No DP2020-03, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This study examines how the effect of host country formal institutional uncertainty on the percentage of equity sought in cross border acquisitions is moderated by the host country industry (i.e. targets from the technology versus those from the non-technology industry). This study is based upon the legitimacy perspective of institutional theory and employs Tobit regression analysis on a sample of 1340 cross-border acquisitions. Results show that cross-border acquirers prefer a lower equity level for targets in institutionally less developed countries, and that this negative effect of host country institutional risk on the equity percentage sought is more pronounced for technology-based targets. This study shows that the industry selected has a bearing on equity sought in cross-border acquisitions. Investing in institutionally less developed countries is particularly challenging when the targets of acquisition are in the technology industry.

Keywords: Institutional theory; Cross-border acquisitions; Percentage of equity sought; Technology industry; Host country formal institutional uncertainty (search for similar items in EconPapers)
Pages: 22 pages
Date: 2020-01
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Citations: View citations in EconPapers (4)

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