Title of the Paper
Cross-border mergers and acquisitions, M&As is a general term used to refer to the consolidation of assets or companies, which is a commonly used business strategy to increase internal growth as well as enhance company expansion. Several determinants make firms consider pursuing this approach, many of which are related to the value it can add to the firm, which is also the rationale for shareholders’ consent to permit the acquisitions. Research has shown that firm strategies versus competitors may influence why firms might engage in M&As. If a firm does not own adequate intangible assets to be competitive, it may opt to seek them in the asset bundle of a prevailing local firm via acquisition.
On the other side, if a firm has competitive and technological advantages that it resolutely wishes to retain control over, it may choose Greenfield investment to M&As. This is in consideration of the fact that cross-border M&As facilitates the identification of undervalued targets through increased scope in searching for possible M&A targets. Research shows that when corporate control policies in a country are feeble, foreign acquiring firms could enhance value through expansion in target firm management. This is regarded as the value of investor protection, and many firms could love to protect their value through venturing into M&As strategy.
Moreover, there is evidence that M&As can provide access to technologies for the target firms, which local firms may not possess. It is depicted that when a firm is acquired, and its headquarters are based in another country, it may be introduced to innovative management practices to the host economy. This may make it easier to become part of global marketing and sourcing networks of the acquiring international corporations. This can improve opportunities to gain new capabilities and knowledge from the foreign market, facilitating penetration into international markets. Other driving factors toward cross- border mergers have been attributed to the lower combined tax liability of the joint firms, agency considerations, and market development levels that can help firms make value-decreasing acquisitions that augment their utilities.
From the shareholders perspective, evidence suggests that cross-border M&As have been successful. This is from the view that the exploitation of imperfections in factor, product, and capital markets drives cross-border M&As. In the essence that benefits from exploiting such flaws may, to some extent, emerge from reduced production costs or augmented market share, rather than the development and exploitation of synergies. For instance, it is depicted that acquirer firms usually require to integrate the target firms into their operations upon completion of an acquisition to generate the net value for their investment. In this context, cross-border M&As can be recognized as a mode of diversification or entry into a foreign market, a value-creating approach, or as a dynamic learning process. Meaning, firms’ prior acquisition experiences that are applied as learning tools can enhance the firms’ incentive to engage in ensuing international acquisitions.
Studies have shown that both prior international acquisitions and domestic acquisitions determine the possibility of acquisitions in foreign markets. Since the international experience of a firm is generally related to organizational and managerial skills, firms with more experience on international tend to favor takeovers due to increased benefits associated with them in terms of increased capacity and competitive advantage. Similarly, firms acquire companies in other economies based on the fact that the covariance of industry income across economies is likely to be smaller than within a single marketplace. Meaning, market risk that only the shareholders may have borne is spread across. In practice, differences in cyclical conditions at a specific point in time favor acquisitions. That is, a relatively stable stock market augments the means accessible to companies for purchases, rendering foreign targets cheaper.
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