The moderating influence of market potential and prior experience on the governance quality-equity participation relationship: Evidence from acquisitions in BRIC

Abstract

Purpose

The purpose of this paper is to theorize and examine how target country governance quality, target country market potential and acquirer’s prior experience impacts equity participation in cross-border acquisitions.

Design/methodology/approach

The hypothesized effects are tested using a sample of 1,447 acquisitions undertaken over an 11-year time by US-based multinational enterprises (MNEs) in four emerging markets: Brazil, Russia, India and China (BRIC).

Findings

Analysis suggests that target country governance quality (government effectiveness, rule of law and control of corruption) strongly influences equity participation, and market potential moderates the influence of governance quality on equity participation. Further, findings demonstrate that acquirer’s target country acquisition experience amplifies the positive influence of market potential on governance quality-equity participation relationship.

Originality/value

This study adds to the existing knowledge of equity participation in cross-border acquisitions (CBAs) undertaken by foreign MNEs in BRICs. This understanding is important since MNEs across the globe invest in BRIC utilizing CBA, and related research remains limited.

Citation

Lahiri, S. (2017), "The moderating influence of market potential and prior experience on the governance quality-equity participation relationship: Evidence from acquisitions in BRIC", Management Decision, Vol. 55 No. 1, pp. 203-217. https://doi.org/10.1108/MD-06-2016-0408