Network information and cross‐border M&A activities

• Author: Weiwen Li,Xufei Ma,Tony W. Tong,Jun Xia
• Date: 01 May 2018
• DOI: http://doi.org/10.1002/gsj.1182
• Published date: 01 May 2018

RESEARCH ARTICLE

Network information and cross-border M&A

activities

Jun Xia

1

| Xufei Ma

2

| Tony W. Tong

3

| Weiwen Li

4

1

Organizations, Strategy and International

Business, Jindal School of Management,

University of Texas at Dallas, Richardson, Texas

2

Department of Management, The Chinese

University of Hong Kong, Hong Kong, Hong

Kong, China

3

Department of Management and

Entrepreneurship, Leeds School of Business,

University of Colorado Boulder, Boulder,

Colorado

4

Department of Business Administration, Business

School, Sun Yat-Sen University, Guangzhou,

China

Correspondence

Weiwen Li, Department of Business

Administration, Business School, Sun Yat-Sen

University, Guangzhou, Guangdong Province,

510275, China.

Email: allenliweiwen@gmail.com

Funding information

National Natural Science Foundation of China,

Grant/Award numbers: 71572198, 71232009,

71672021, 71672021, 71232009, 71572198; GRF

Grants by HKSAR, Grant/Award number:

14501714, 14504715; HKSAR, Grant/Award

numbers: 14504715, 14501714

Research Summary: How information about social net-

works affects firms’global expansion is an important but

rarely investigated question. We argue that different sources

of network information will affect a firm’s investment activ-

ities in the global market, but their relative importance may

vary. Moreover, the influence of network information can

be bounded by the global trade network. The results from a

sample of cross-border merger and acquisition (M&A)

activities conducted by U.S. publicly listed firms reveal that

although M&A experience of both interlocking and joint

venture partners affects the focal firm’s global expansion,

the effect of interlocking partners is more influential than

joint venture partners. Meanwhile, when mutual trade

dependence between countries is high, the positive effect of

network information from board interlocks diminishes.

Managerial Summary: Firms are hesitant to engage in

cross-border M&As, because it is difficult for them to get

information about local business practices and environ-

mental idiosyncrasies. This study shows that firms can

deal with this challenge by accessing relevant information

from the M&A experience of interlocking partners and

joint venture partners. The information generated from the

M&A experience of interlocking partners is even more

valuable and important than that of joint venture partners

in shaping firms’cross-border M&A decisions. Moreover,

the M&A experience of interlocking partners and joint

venture partners is particularly valuable for firms contem-

plating M&A activities in a country with relatively fewer

buyer-seller exchange networks with their home country.

KEYWORDS

cross-border merger and acquisition, global trade

network, interlocking partners, joint venture partners,

network information

Received: 21 July 2014 Revised: 1 August 2017 Accepted: 11 September 2017

DOI: 10.1002/gsj.1182

Copyright © 2017 Strategic Management Society

Global Strategy Journal. 2018;8:301–323. wileyonlinelibrary.com/journal/gsj 301

1|INTRODUCTION

Firms engaging in global expansion activities often face high levels of uncertainty in new terri-

tories that can create difficulties for organizational decision making. As a result, firms tend to rely

on various sources of information to deal with external uncertainty. Broadly speaking, firms may

draw information from three distinct sources: their own experience (“a learning effect”), observed

similar actions by others (“an imitation effect”), and direct communication with interconnected

firms (“a network effect”) (Lieberman & Asaba, 2006). To date, the importance of a firm’s experi-

ence in a given foreign market has been studied extensively in a broad range of disciplines

(Brouthers & Hennart, 2007; Shimizu, Hitt, Vaidyanathc, & Pisanod, 2004). Moreover, several

studies have focused on the influence of intrafirm ties (Banerji & Sambharya, 1996;Guillén, 2002 ;

Henisz & Delios, 2001) because decisions of business group members in a foreign country can

yield substantive information about an organizational practice in that country. In addition, scholars

have made considerable progress in explaining how firms’strategic decisions about foreign direct

investment (FDI) activities are shaped by imitation when the decision is marked by uncertainty

(Guillén, 2002; Henisz & Delios, 2001).

However, it is surprising that information derived from social network has rarely been studied to

explain global expansion activities, even though actions of network partners can also generate valu-

able information that can affect a firm’s strategic decisions. Social network approaches highlight the

influence of embeddedness (Granovetter, 1985; Uzzi, 1997), which may not be addressed easily by

approaches that ignore inter-actor ties. According to Granovetter (1985), economic actions are

embedded in social networks. The rich literature has shown that network ties affect a variety of busi-

ness activities (Borgatti & Foster, 2003), such as organizational learning (Anand & Khanna, 2000;

Powell, Koput, & Smith-Doerr, 1996) and acquisition behavior (Haunschild, 1993; Haunschild &

Beckman, 1998; Westphal, Seidel, & Stewart, 2001). Moreover, the study of networks plays a cen-

tral role in consolidating theoretical approaches to embeddedness (Dacin, Ventresca, & Beal, 1999),

which may shape the research agenda for global strategy.

To advance network research on global expansion, we focus on cross-border mergers and acqui-

sitions (M&As) to demonstrate how a firm’s social embeddedness affects its geographic reach along

with some boundary conditions. The concept of embeddedness has often taken on multiple aspects

(Zukin & DiMaggio, 1990). To differentiate from earlier studies that have focused on cultural or

institutional embeddedness in specific settings, our study focuses on structural embeddedness, which

is defined primarily in terms of inter-actor ties or interfirm networks (Uzzi, 1997). More importantly,

scholars have noticed that network research must pay greater attention to the content underlying dif-

ferent types of social ties rather than the simple presence of ties (Brass, Galaskiewicz, Greve, &

Tsai, 2004; Dacin et al., 1999). Specifically, “social networks per se do not have content”and, thus,

“it will be impossible to explain what kinds of social relations have what kind of effect on the

behavior of organizations and individuals”(Friedland & Alford, 1991, p. 252; see also Dacin et al.,

1999). To address this issue, prior research has incorporated other social constructs such as status

(Stuart, 2000), power (Cook & Yamagishi, 1992), and isomorphism (Westphal et al., 2001) into net-

work research.

As noted, firms often participate in di fferent types of social networks (Burt, 1992; Lomi &

Pattison, 2006). Thus, it is important to under stand the nature of each type of network and its r ela-

tive importance. In this study, we focus on two type s of social networks—board interlocks and

joint ventures (JVs)—that are studied wi dely in network research (Borgatti & Foster, 2003), and

we examine their relative predictive powe r. Such a comparison is important since prior studies

302 XIA ET AL.