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Navigating the New Normal: Political Affinity and Multinationals’ Post‐Acquisition Performance
Author(s) -
Hasija Dinesh,
Liou RuShiun,
Ellstrand Alan
Publication year - 2020
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/joms.12545
Subject(s) - legitimacy , politics , volatility (finance) , political risk , financial crisis , emerging markets , financial market , international business , business , economics , market economy , economic system , international economics , political economy , finance , political science , macroeconomics , law , management
The New Normal in the international business landscape reflects a world challenged by economic volatility and political hostilities. This suggests increased political risk, even for MNEs operating in developed markets. We use the legitimacy‐based view of political risk to examine how political affinity between host and home markets may contribute to an MNE’s post‐acquisition performance in a developed market. A high degree of political affinity signifies aligned national interests thus reducing legitimacy concerns faced by MNEs during post‐acquisition integration. Based on cross‐border M&A deals focused on U.S. targets completed by MNEs representing 45 countries between 2004 and 2012, we find that MNEs from countries with greater political affinity to the U.S. experience better post‐acquisition performance. We also investigate two country‐level factors that intensify the threat to legitimacy; the MNEs’ home market economic status and the presence of a financial crisis in the host market. Our findings indicate that political affinity mitigates risk for MNEs originated from emerging economies much more than for MNEs originated from developed economies, whereas a financial crisis reduces the benefit of political affinity.