Policy threat negatively impacts acquisition completion, however the energy of the impact relies on home-host nation relations, in line with new analysis printed in Global Strategy Journal. The relationship between coverage threat and cross-border acquisition completion is damaging and powerful below conflictive relations, weaker below cooperative relations, and weakest below ambivalent relations, the examine authors discovered.
“In the current decade, we’re observing main shifts within the geopolitical surroundings and ever extra dynamic intercountry relations that may seemingly proceed to affect cross-border investments, which makes our analysis well timed and related,” says lead researcher Tsvetomira V. Bilgili, an assistant professor at Kansas State University.
The group used longitudinal occasion knowledge on intercountry interactions to deduce cooperative, conflictive, and ambivalent relations. Each occasion within the pattern was assigned a rating between -10 and +10 to point how constructive or damaging the occasion is. For instance, the signing of a proper settlement was scored 8, whereas the imposition of an embargo, boycott, or sanctions acquired a rating of -8.
To take a look at the impact of home-host nation relations on the connection between coverage threat and cross-border acquisition completion, the analysis group used logistic regression on a pattern of 26,124 cross-border acquisitions by 14,568 distinctive acquirers.
The researchers discovered that for every unit enhance in coverage threat, the chance of finishing a deal decreases by 2.2%, however that home-host nation relations can change the impact. When the connection between nations is conflictive, coverage threat poses even larger challenges to deal completion as a result of host governments could also be extra motivated to intervene within the deal.
Cooperative intercountry relations could supply a buffer, however the impact of coverage threat is not absolutely mitigated; nevertheless, ambivalent intercountry relations scale back the impact of coverage threat to the best extent—presumably, the group hypothesized, as a result of host governments could wish to preserve relations with the house nation by avoiding arbitrary and opposed actions towards acquirers.
“For occasion, China and India have lengthy had disputes over border safety however have additionally collaborated within the financial realm,” Bilgili says. “We argue that the state of intercountry relations might be indicative of the host nation authorities’s intentions and motivations to interact in arbitrary or opportunistic coverage modifications that may stop the completion of cross-border acquisitions.”
For executives, this underscores the significance of maintaining a tally of intercountry relations to raised assess the chance of coverage modifications that would have a damaging impact on overseas acquisitions. Depending on the state of intercountry relations, some organizations will likely be higher positioned to efficiently pursue funding alternatives in excessive coverage threat nations.
“Our findings recommend that in an more and more complicated world surroundings, understanding intercountry relations is essential to companies’ capability to finish cross-border acquisitions in nations the place coverage threat is excessive,” Bilgili says.
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More info:
Tsvetomira V. Bilgili et al, Friends, foes, or “frenemies”: Intercountry relations and cross‐border acquisitions, Global Strategy Journal (2022). DOI: 10.1002/gsj.1460
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Strategic Management Society
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Conflictive home-host nation relations have a powerful, damaging impact on coverage threat (2022, September 2)
retrieved 2 September 2022
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