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Distance and the completion of Chinese cross-border mergers and acquisitions

Lijun Dong (School of Economics and Business Administration, Central China Normal University, Wuhan, China)
Xin Li (Department of International Economics, Government and Business, Copenhagen Business School, Frederiksberg, Denmark)
Frank McDonald (Leeds University Business School, Leeds, UK)
Jiaguo Xie (School of Economics and Business Administration, Central China Normal University, Wuhan, China)

Baltic Journal of Management

ISSN: 1746-5265

Article publication date: 14 May 2019

Issue publication date: 18 June 2019

Abstract

Purpose

The purpose of this paper is to draw attention to the significant lower completion rate of mergers and acquisitions (M&As) by firms from emerging economies (EEs) (China in particular) compared with firms from advanced economies, and identify the country- and industry-level factors that affect the completion of cross-border M&As by Chinese firms.

Design/methodology/approach

This study explores the effects of economic, cultural and institutional distances and target firms in technology- and knowledge-intensive industries on the completion of cross-border M&As by Chinese firms. It also examines the interplay between distance factors and technology- and knowledge-intensive industries on cross-border M&A completion. This study adopts a quantitative approach and is based on a sample of 768 announced cross-border M&A deals by firms in China between 2000 and 2015.

Findings

The results indicate that economic distance increases the likelihood of the completion of cross-border M&As when the target is in a more developed economy than China, but decreases when the target is in a less developed economy. Cultural and institutional distances have a significant, negative impact on the completion of cross-border M&As. In addition, target technology-intensive industries have a significant direct negative effect on cross-border M&A completion and moderate the relationship between the distance factors and the likelihood of cross-border M&A completion.

Research limitations/implications

The results reveal factors that affect the completion of cross-border M&As by emerging market firms (EMFs). Further research, however, is needed to discover how distance factors affect how EMFs find, evaluate and negotiate international bids. To broaden the scope of the research, data for firms from other EEs would also be required.

Originality/value

The study expands the literature that considers the effects of major distances on cross-border M&A completion. In addition, the importance of defining and measuring distances in the context of cross-border M&As is highlighted. Finally, the study expands knowledge on how cross-border M&As affect the internationalization strategies of EMFs by conceptualizing and testing how target industries affect cross-border M&A completion.

Keywords

Acknowledgements

The authors thank Professor Zhengge Tu and the anonymous reviewers for their valuable comments and suggestions. Xin Li is also grateful to the Danish Carlsberg Foundation for funding the postdoctoral research project titled “An inquiry into the survival and international success of resource-poor firms from China” (Grant ID: CF15-0270).

Citation

Dong, L., Li, X., McDonald, F. and Xie, J. (2019), "Distance and the completion of Chinese cross-border mergers and acquisitions", Baltic Journal of Management, Vol. 14 No. 3, pp. 500-519. https://doi.org/10.1108/BJM-06-2018-0223

Publisher

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Emerald Publishing Limited

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