Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Strong alien or weak acquaintance? The effect of perceived institutional distance and cross-national uncertainty on ownership level in foreign acquisitions

Strong alien or weak acquaintance? The effect of perceived institutional distance and... Focusing on the direction of foreign acquisition, this study aims to differentiate the effect of institutional distance on the level of ownership. The authors identify several theoretical and methodological issues that might account for the inconsistencies in the literature and provide remedies accordingly. Specifically, the authors propose perceived institutional distance as a conceptualization of distance that controls for asymmetric uncertainty.Design/methodology/approachThe authors test the framework with ordinary least squares regression for a sample of 14,192 firm-entries in 115 target countries over 2007–2017.FindingsThe authors find that institutional distance shows a negative effect on equity ownership in all-inclusive global samples, while there are two imbalanced opposite effects if direction is considered. This casts doubt on the validity of studies that ignore direction. The authors suggest that multinational enterprises entering countries with lower-quality institutions tend to perceive more pronounced distance effects than those expanding the other way around. Hence, the authors argue that “perceived institutional distance” better explains the functional role of distance than simple distance.Practical implicationsThis study better delineates the link between distance and uncertainty and enhances managerial insights for entry mode selection. For policy-making purposes, the authors also show that improvement in institutional quality has a different effect on foreign resource commitment in developed and developing countries.Originality/valueTo the best of authors’ knowledge, this is the first study that considers both directionality and imbalance in institutional distance and proposes a measure to control for non-linear asymmetric relationship between distance and ownership. The authors extend the institutional theory and show the superiority of perceived institutional distance in predicting ownership implications. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of International Business and Strategy Emerald Publishing

Strong alien or weak acquaintance? The effect of perceived institutional distance and cross-national uncertainty on ownership level in foreign acquisitions

Loading next page...
 
/lp/emerald-publishing/strong-alien-or-weak-acquaintance-the-effect-of-perceived-Pu8J5bIiVB
Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2059-6014
DOI
10.1108/ribs-04-2020-0047
Publisher site
See Article on Publisher Site

Abstract

Focusing on the direction of foreign acquisition, this study aims to differentiate the effect of institutional distance on the level of ownership. The authors identify several theoretical and methodological issues that might account for the inconsistencies in the literature and provide remedies accordingly. Specifically, the authors propose perceived institutional distance as a conceptualization of distance that controls for asymmetric uncertainty.Design/methodology/approachThe authors test the framework with ordinary least squares regression for a sample of 14,192 firm-entries in 115 target countries over 2007–2017.FindingsThe authors find that institutional distance shows a negative effect on equity ownership in all-inclusive global samples, while there are two imbalanced opposite effects if direction is considered. This casts doubt on the validity of studies that ignore direction. The authors suggest that multinational enterprises entering countries with lower-quality institutions tend to perceive more pronounced distance effects than those expanding the other way around. Hence, the authors argue that “perceived institutional distance” better explains the functional role of distance than simple distance.Practical implicationsThis study better delineates the link between distance and uncertainty and enhances managerial insights for entry mode selection. For policy-making purposes, the authors also show that improvement in institutional quality has a different effect on foreign resource commitment in developed and developing countries.Originality/valueTo the best of authors’ knowledge, this is the first study that considers both directionality and imbalance in institutional distance and proposes a measure to control for non-linear asymmetric relationship between distance and ownership. The authors extend the institutional theory and show the superiority of perceived institutional distance in predicting ownership implications.

Journal

Review of International Business and StrategyEmerald Publishing

Published: May 17, 2021

Keywords: Perceived risk; International investment; Entry mode; Asymmetric institutional distance; Cross-national uncertainty; Foreign acquisition ownership

References