Cross‐border acquisitions by state‐owned firms: How do legitimacy concerns affect the completion and duration of their acquisitions?
| Author | Zhouyu Lin,Jing Li,Jun Xia |
| Published date | 01 September 2017 |
| DOI | http://doi.org/10.1002/smj.2609 |
| Date | 01 September 2017 |
Strategic Management Journal
Strat. Mgmt. J.,38: 1915–1934 (2017)
Published online EarlyView 14 December 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2609
Received 12 August 2014;Final revisionreceived 1 October 2016
CROSS-BORDER ACQUISITIONS BY STATE-OWNED
FIRMS: HOW DO LEGITIMACY CONCERNS AFFECT
THE COMPLETION AND DURATION OF THEIR
ACQUISITIONS?
JING LI,1JUN XIA,2and ZHOUYU LIN3*
1International Business, Beedie School of Business, Simon Fraser University,
Burnaby, British Columbia, Canada
2Organizations, Strategy and International Management, Jindal School of
Management, University of Texas, Richardson, Texas, U.S.A.
3Strategy and Management, Management School, Jinan University, Guangzhou,
China
Research summary: Cross-border acquisitions may raise legitimacy concerns by host-country
stakeholders, affecting the acquisition outcomes of foreign rms. We propose that theorization
by local regulatory agencies is a key mechanism that links legitimacy concerns with acquisition
outcomes. Given that theorization is time consuming and its outcome is uncertain, we argue that
state-owned foreign rms experience a lower likelihood of acquisition completion and a longer
duration for completing a deal than other foreign rms. Moreover, we introduce a set of rm
characteristics (target public status, targetR&D alliances, and acquirer acquisition and alliance
experiences) that may affect the threshold level of legitimacy, thereby altering the proposed
relationships. Our framework and ndings provide useful implications for institutional theory on
its core concept of legitimacy.
Managerial summary: Cross-border acquisitions by state-owned foreign rms may lead to
national security concerns and thus debates and discussions among local regulatory agencies.
We argue that such institutional processes may reduce the likelihood of acquisition completion
and prolong the duration of acquisition completion. Using cross-border acquisitions in the United
States, we nd that acquisitions by state-owned foreign rms are not less likely to be completed
than acquisitions by other foreign rms, but they take more time to be completed. Moreover,
state-owned foreign rms are less likely to complete an acquisition when the targetrm has more
R&D alliances. However,their acquisition experience and alliance experience in the host country
increase the likelihoodof acquisition completion, whereas their alliance experience alone shortens
the acquisition duration. Copyright © 2016 John Wiley & Sons, Ltd.
INTRODUCTION
Cross-border mergers and acquisitions (hereafter
referred to as “acquisitions”) involving state-owned
rms have increased in recent years (Sun et al.,
Keywords: cross-border acquisition; state-owned rms;
legitimacy concerns; theorization; institutional theory
*Correspondence to: Zhouyu Lin, Management School, Jinan
University, 601 Huangpu Avenue West, Guangzhou, China.
E-mail: linzhouyu@jnu.edu.cn
Copyright © 2016 John Wiley & Sons, Ltd.
2012). However, this practice is not always
preferred or viewed as appropriate by stakeholders
in the host countries (Cuervo-Cazurra et al., 2014;
Globerman and Shapiro, 2009; Meyer et al., 2014;
Zhang, Zhou, and Ebbers, 2011). State-owned for-
eign rms are frequently regarded as agents of their
home-country governments, which are likely pursu-
ing political agendas (Cui and Jiang, 2012; Glober-
man and Shapiro, 2009; Li, Li, and Wang, 2014;
Sauvant, 2010). Thus, acquisitions by state-owned
foreign rms have raised legitimacy concerns
1916 J. Li, J. Xia, and Z. Lin
among local stakeholders, leaving the following
question open: Why and to what extent do such
legitimacy concerns affect the acquisition outcomes
(i.e., acquisition completion and acquisition dura-
tion) of state-owned foreign rms in a host market?
Our study aims to address this question by
advancing a legitimacy perspective rooted in
institutional theory (DiMaggio and Powell, 1991).
As noted by Suchman (1995: 583), “Taken-for-
grantedness represents the most subtle and the most
powerful source of legitimacy identied to date.”
Firm actions that are taken-for-granted are less
subject to external evaluations. By contrast, rm
actions that shift away from taken-for-granted prac-
tices will result in legitimacy concerns (Henisz and
Zelner, 2005), which may trigger “theorization,” a
concept originally used as a critical linkage between
pre-institutionalized and taken-for-granted activ-
ities (Greenwood, Suddaby, and Hinings, 2002;
Strang and Meyer, 1993). According to Tolbert
and Zucker (1996), specication (simplifying a
phenomenon) and justication (legitimizing the
phenomenon) are two major tasks of theorization.
Regulatory agencies such as legislation bodies,
state authorities, or professional associations play
an important role in implementing the tasks of
theorization (Greenwood et al., 2002). Through
theorization, these agencies seek to understand the
motivations behind organizational actions (Green,
2004) and “what meanings are associated with these
actions” (Ruef and Scott, 1998: 879). Furthermore,
they seek to evaluate the potential effects of these
actions and specify the types of actions that should
be encouraged (or discouraged) (King and Kugler,
2000; Munir, 2005; Strang and Meyer, 1993).
As theorization by regulatory agencies is time
consuming and its outcome is uncertain, we argue
that legitimacy concerns can be an important fac-
tor affecting acquisition outcomes of state-owned
foreign rms. Regulatory agencies may apply par-
ticular procedures to address specic concerns such
as national security and technology leakage, a pro-
cess leading to the rejection or delay of an acqui-
sition deemed less desirable or appropriate. Thus,
state-owned foreign rms, compared with other for-
eign rms, have a lower likelihood of acquisition
completion or a longer duration to complete an
announced acquisition.
For a ner-grained understanding of the proposed
relationships, we further consider the characteristics
of the local targets and foreign rms (i.e., public sta-
tus of the target, research and development [R&D]
alliances of the target, and host-country alliance
and acquisition experiences of the foreign rm) as
contingency conditions. These characteristics may
affect the threshold level of legitimacy (more or
less legitimacy concerns) associated with acquisi-
tions by state-owned foreign rms, thereby modify-
ing the relationship between government ownership
and acquisition outcome. We use the acquisition
information of foreign rms in the United States
(U.S.) from 1990 to 2012 to examine these ideas.
This study provides new insights into the cross-
border investment literature by focusing on the
impact of legitimacy concerns on cross-border
acquisition outcomes. Although waves of
cross-border acquisitions have taken place in
the past decades (Barkema and Schijven, 2008;
Shimizu et al., 2004), many announced acquisitions
either took several months to complete or were not
completed et al. (Schneper and Guillén, 2004; Xia,
Boal, and Delios, 2009). One important reason is
that foreign investors frequently tackle the liability
of foreignness (Zaheer, 1995), and the lack of
legitimacy has been viewed as a central component
of this liability (Kostova and Zaheer, 1999). In the
context of cross-border acquisitions, researchers
have begun to explore institutional factors that
may affect the acquisition outcomes, including
institutional differences between countries (Dikova,
Sahib, and Witteloostuijn, 2010), local regulatory
environments (Zhang et al., 2011), and the liability
of opaqueness of foreign investors (Li etal., 2014).
Despite this progress, the effect of legitimacy
concerns raised by local regulatory authorities
on acquisition outcomes remains unclear. Our
study takes an important step to ll this gap in the
cross-border acquisition literature.
Specically, we use acquisitions by state-owned
foreign rms as an important case to demonstrate
the legitimacy concerns (Cui and Jiang, 2012;
Meyer et al., 2014) and to explain why and how
such concerns affect acquisition outcomes. To this
end, we extend the legitimacy perspective (DiMag-
gio and Powell, 1991; Suchman, 1995; Zimmerman
and Zeitz, 2002) by emphasizing “theorization”
(Greenwood et al., 2002; Strang and Meyer, 1993)
as a mechanism that links the legitimacy concerns
with acquisition outcomes. We examine two types
of acquisitions outcomes (completion and dura-
tion) and nd that legitimacy concerns may have
differentiating effects (e.g., allowing state-owned
foreign rms to acquire but prolonging the acqui-
sition duration). Furthermore, by considering
Copyright © 2016 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 1915–1934 (2017)
DOI: 10.1002/smj
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