Edited by Mehmet Demirbag and Attilia Yaprak
Chapter 5: How institutional distance matters to cross-border mergers and acquisitions by multinational enterprises from emerging economies in OECD countries
Yingqi Wei and Yaoan Wu
AbstractThis chapter offers a conceptual framework for the institutional distance between home and host country influencing cross-border mergers and acquisitions (CBMAs) by multinational enterprises (MNEs) from emerging economies (EMNEs) in Organisation for Economic Co-operation and Development (OECD) countries. Multinational enterprises are embedded in both their home- and host-country contexts, and, therefore, are affected by the relative position of home to host country institutions. Traditionally it has been claimed that home–host country institutional distance (ID) creates barriers to interactions between headquarters and host-country subsidiaries and between these subsidiaries and local economic agents, and therefore has a negative impact on CBMAs. However, this view fails to take into account the multidimensional nature of the concept of ID. Different dimensions of ID impact CBMAs in different ways. On the basis of the comprehensive framework developed by Berry et al. (2010) that covers eight dimensions of ID (that is, political, economic, financial, knowledge, global connectedness, demographic, administrative and cultural distance), we develop hypotheses of positive relationships between political, economic and knowledge distance, but negative relationships between financial, global connectedness, demographic, administrative and cultural distance and the number of CBMAs by EMNEs in OECD countries. Empirical results confirm that when making strategic location decisions, EMNEs respond favorably to large political, economic and knowledge distance but small global connectedness, administrative, and cultural distance. Financial, demographic and geographical distances are found to play an insignificant role.
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