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Equity Ownership in Cross‐border Mergers and Acquisitions by British Firms: An Analysis of Real Options and Transaction Cost Factors
Author(s) -
Ahammad Mohammad F.,
Leone Vitor,
Tarba Shlomo Y.,
Glaister Keith W.,
Arslan Ahmad
Publication year - 2017
Publication title -
british journal of management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.407
H-Index - 108
eISSN - 1467-8551
pISSN - 1045-3172
DOI - 10.1111/1467-8551.12215
Subject(s) - equity (law) , transaction cost , mergers and acquisitions , complementary assets , database transaction , business , industrial organization , microeconomics , economics , finance , monetary economics , political science , computer science , law , programming language
The authors investigate the factors influencing the share of equity ownership sought in cross‐border mergers and acquisitions (CBM&As). Drawing on real options theory and transaction cost economics (TCE), they address and hypothesize key factors linked to commitment under exogenous uncertainty and the separation of desired and non‐desired assets’ influence on share of equity sought by acquiring firms in CBM&As. Empirical analysis based on 1872 CBM&As undertaken by British firms in both developed and emerging economies shows that British MNEs are more likely to pursue a partial acquisition in a target foreign firm when those foreign firms are from culturally distant countries. Further, findings support the view that the high cost of separating desired assets from non‐desired assets motivates firms to make a partial acquisition rather than acquire the target completely. This is one of the first studies to use real options theory to address the cost of commitment under exogenous uncertainty, as well as TCE logic to address the separation of desired and non‐desired assets in the target firm while analysing equity ownership sought in CBM&As. Empirically, this paper contributes by examining CBM&As by British firms in both developed and emerging markets.