Degree of equity ownership in cross-border acquisitions of Brazilian firms by multinationals: a strategic response to institutional distance

Ferreira, Manuel Anibal Silva Portugal Vasconcelos; Vicente, Simone César da Silva; Borini, Felipe Mendes; Almeida, Martinho Isnard Ribeiro de

doi:10.1016/j.rausp.2016.09.001

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Strategy & Bussiness Economics • Rev. Adm. (São Paulo) 52 (1) • Jan-Mar 2017 • https://doi.org/10.1016/j.rausp.2016.09.001 copy

Degree of equity ownership in cross-border acquisitions of Brazilian firms by multinationals: a strategic response to institutional distance

Grau de propriedade de capital nas aquisições de empresas brasileiras por multinacionais: uma resposta estratégica à distância institucional

Propiedad de capital en las adquisiciones de empresas brasileñas por multinacionales: respuesta estratégica a la distancia institucional

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

This study analyzes how foreign multinational enterprises respond to uncertainty in their cross-border acquisitions in emerging economies and, specifically in Brazil, given the institutional differences that separate the home and host countries. We analyze how institutional distance impacts multinational enterprises strategy in taking a partial or full ownership stake in their Brazilian acquisitions. We propose that the equity stake is a strategic response to the uncertainty of operating in institutionally distant countries. In an study based on secondary data of 736 acquisitions between 2008 and 2012, we tested statistically the relation between nine dimensions of institutional distance and the equity stake acquired. Results show differentiated effects albeit with significant evidence that greater geographic distance lead multinational enterprises to take a partial equity stake, while financial and cultural distance leads to a full acquisition. This study has two contributions: reinforces the understanding of the institutional challenges of entering emerging economies, and puts forth how firms’ strategies may incorporate structural solutions that minimize risks and investments when facing institutional uncertainties.

Keywords
Institutional environment; Institutional distance; Cross-border acquisitions; Brazil; Uncertainty reduction strategy

	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16
1. Partial acquisition	1.000
2. Acquirer size	-0.021	1.000
3. Acquirer high tech	-0.058	0.091^a a Significant at 0.05.	1.000
4. Target high tech	-0.033	-0.037	0.650^b b Significant at 0.01.	1.000
5. Diversification from core business	0.081^a a Significant at 0.05.	0.092^a a Significant at 0.05.	-0.011	-0.014	1.000
6. General diversification	0.070	0.058	-0.104^b b Significant at 0.01.	-0.123^b b Significant at 0.01.	0.404^b b Significant at 0.01.	1.000
7. Acquisition experience	0.036	0.122^b b Significant at 0.01.	0.084^a a Significant at 0.05.	0.054	-0.013	0.077^a a Significant at 0.05.	1.000
8. Economic dist.	-0.048	0.139^b b Significant at 0.01.	0.060	0.040	0.123^b b Significant at 0.01.	0.101^b b Significant at 0.01.	-0.027	1.000
9. Financial dist.	-0.058	-0.039	0.060	0.024	-0.041	0.055	0.112^b b Significant at 0.01.	0.279^b b Significant at 0.01.	1.000
10. Political dist.	0.028	0.204^b b Significant at 0.01.	0.016	-0.014	0.054	0.004	-0.086^a a Significant at 0.05.	0.396^b b Significant at 0.01.	-0.004	1.000
11. Administrative dist.	0.053	0.073^a a Significant at 0.05.	-0.066	-0.060	-0.003	0.056	-0.091^a a Significant at 0.05.	0.098^b b Significant at 0.01.	-0.199^b b Significant at 0.01.	0.068	1.000
12. Cultural dist.	-0.086^a a Significant at 0.05.	0.020	0.021	0.014	0.039	0.106^b b Significant at 0.01.	-0.170^b b Significant at 0.01.	0.452^b b Significant at 0.01.	0.434^b b Significant at 0.01.	0.115^b b Significant at 0.01.	0.160^b b Significant at 0.01.	1.000
13. Demographic dist.	0.013	0.209^b b Significant at 0.01.	0.044	-0.003	0.031	-0.003	0.113^b b Significant at 0.01.	-0.059	-0.079^a a Significant at 0.05.	-0.203^b b Significant at 0.01.	0.195^b b Significant at 0.01.	0.036	1.000
14. Knowledge dist.	-0.084^a a Significant at 0.05.	0.152^b b Significant at 0.01.	0.105^b b Significant at 0.01.	0.041	0.041	0.029	-0.085^a a Significant at 0.05.	0.693^b b Significant at 0.01.	0.383^b b Significant at 0.01.	0.587^b b Significant at 0.01.	0.055	0.489^b b Significant at 0.01.	-0.115^b b Significant at 0.01.	1.000
15. Global connections dist.	-0.042	0.043	-0.033	-0.027	0.012	0.053	-0.137^b b Significant at 0.01.	0.424^b b Significant at 0.01.	0.396^b b Significant at 0.01.	00.091^a a Significant at 0.05.	0.323^b b Significant at 0.01.	0.668^b b Significant at 0.01.	-0.030	0.431^b b Significant at 0.01.	1.000
16. Geographic dist.	0.127^b b Significant at 0.01.	0.140^b b Significant at 0.01.	-0.120^b b Significant at 0.01.	-0.114^b b Significant at 0.01.	0.030	0.038	-0.044	0.050	-0.201^b b Significant at 0.01.	0.257^b b Significant at 0.01.	0.330^b b Significant at 0.01.	0.135^b b Significant at 0.01.	0.329^b b Significant at 0.01.	-0.093^a a Significant at 0.05.	0.125^b b Significant at 0.01.	1.000

	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6	Model 7	Model 8	Model 9	Model 10	Model 11
Acquirer size	0.001	-0.001	0.003	0.008	0.003	-0.003	0.006	-0.004	-0.002	0.011	0.017
Industry	0.878	0.859	0.922	0.878	0.934	1.006	0.913	0.893	0.934	0.879	1.137
Natural resources	-0.072	-0.073	-0.059	-0.118	-0.066	-0.041	-0.081	-0.013	-0.048	0.011	-0.014
Services	0.342	0.332	0.339	0.310	0.375	0.469	0.393	0.376	0.385	0.323	0.560
Trade	0.620	0.614	0.708	0.597	0.643	0.817	0.644	0.669	0.689	0.534	0.828
Others	21.325	21.366	21.458	21.233	21.378	21.500	21.433	21.415	21.314	21.555	21.701
Acquirer high tech	0.233	0.229	0.198	0.228	0.211	0.209	0.237	0.211	0.237	0.186	0.152
Target high tech	-0.193	-0.196	-0.167	-0.198	-0.204	-0.224	-0.211	-0.183	-0.200	-0.208	-0.289
Diversification from core business	-0.282	-0.301	-0.264	-0.272	-0.293	-0.286	-0.275	-0.291	-0.278	-0.265	-0.271
General diversification	-0.123	-0.135	-0.148	-0.130	-0.097	-0.184	-0.122	-0.130	-0.140	-0.120	-0.171
Years of acquisition	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Acqusition experience	-0.027	-0.026	-0.038	-0.035	-0.037	0.003	-0.022	-0.021	-0.016	-0.035	0.001
Economic dist.		0.007									-0.004
Financial dist.			0.038^a a p < 0.05.								-0.015
Political dist.				0.000							-0.000
Administrative dist.					-0.012						-0.011
Cultural dist.						0.299^b b p < 0.01.					0.400^b b p < 0.01.
Demographic dist.							-0.012				-0.012
Knowledge dist.								0.010			0.005
Global connections dist.									0.078		-0.003
Geographic dist.										-0.000^b b p < 0.01.	0.000
n	736	736	736	736	736	736	736	736	736	736	736
R ²	0.05	0.05	0.06	0.06	0.06	0.06	0.05	0.06	0.06	0.06	0.08
Chi-quadrado	39.377^c c p < 0.001.	40.102^c c p < 0.001.	43.388^c c p < 0.001.	41.934^c c p < 0.001.	42.976^c c p < 0.001.	49.001^c c p < 0.001.	40.779^c c p < 0.001.	41.283^c c p < 0.001.	41.802^c c p < 0.001.	48.049^c c p < 0.001.	64.272^c c p < 0.001.

Departamento de Administração da Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo Avenida Professor Luciano Gualberto, 908, sala F184, 05508-900 São Paulo / SP Brasil, Tel./Fax 55 11 3818-4002 - São Paulo - SP - Brazil
E-mail: rausp@usp.br

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[1] * Corresponding author at: Morro do Lena, Alto Vieiro, 2411-901 Leiria, Portugal. E-mail:manuel.portugal.ferreira@gmail.com (M.A. Ferreira).