Product and geographic scopes of target firm and equity control in cross‐border acquisitions: An information asymmetry perspective

• Author: Viswa Prasad Gada,Manish Popli
• DOI: http://doi.org/10.1002/jsc.2207
• Date: 01 July 2018
• Published date: 01 July 2018

RESEARCH ARTICLE

DOI: 10.1002/jsc.2207

Strategic Change. 2018;27(4):351–358. wileyonlinelibrary.com/journal/jsc © 2018 John Wiley & Sons, Ltd. 351

Abstract

roduct and ]eo]rarhic scores o= emer]in] marhet tar]et Crms are ne]aঞely related to etent

o= etuity control sou]ht by orei]n actuirers. uildin] on in=ormaঞon asymmetry rersrecঞe,

the current study rroroses testable rrorosiঞons that hi]her rroduct and ]eo]rarhic score o=

the tar]et Crm in an emer]in] economy eacerbate eŊante in=ormaঞon asymmetry and adŊ

erse selecঞon rroblems =or actuirers =rom =orei]n marhets and hence hinders etent o= etuity

bou]ht. urthermore, we rrorose that actuirersĽ rrior ererience, industry tyre, and ownershir

concentraঞon o= the tar]et Crm moderate this relaঞonshir.

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Desrite the decades o= research accentuated the =act that suLcient

etuity control in tar]et Crm rroides actuirers with salient ri]hts o=

monitoring and resource deployment (Jensen & Ruback, 1983; Manne,

19ѵ5; Ramaswamy & Li, 2001), what determines the etent o= etuity

control in cross border actuisiঞons (s) is sঞll remains as a puŊ

le as it has not receied enough aenঞon in the literature (hari &

hang, 2009). $he literature predominantly highlighted that target

CrmĽs sie (ennart & Reddy, 1997), geographical distance (Malhotra &

aur, 2014; Malhotra, Siakumar, & ,hu, 2011; Ragoino, 2009),

cultural distance (ogut & Singh, 1988; Reuer, Shenkar, & Ragoino,

2004), and unrelated actuisiঞons (hari & hang, 2009; Montgomery,

1985) are the =actors that determine etent o= etuity control in s.

Despite product and geographic scopes o= target Crm being important

determinants o= in=ormaঞon asymmetry in s (arkema & Schijen,

2008; apron & Shen, 2007; uypers, uypers, & Marঞn, 2017), a

lile is known about the impact o= product and geographic scopes o=

target Crm on etuity control.

In=ormaঞon asymmetry about target Crm endangers the actuirer

with the problem o= aderse selecঞon (kerlo=, 1970; alakrishnan &

oa, 1993). igher in=ormaঞon asymmetry enhances the need

=or gathering more in=ormaঞon and also the in=ormaঞon costs

(Malhotra & ,hu, 2013). Since target Crm has in=ormaঞon adanŊ

tage oer actuirer, target Crm may behae opportunisঞcally which

is called—the problem of precontractual opportunism (Milgrom &

Roberts, 1992). ctuirers may also end up paying higher premiums

due to informaঞon asymmetry about the true alue of target (Inkpen,

Sundaram, & Rockwood, 2000) which further impacts the resources

aailability for future endeaors.

 signiCcant amount of M& research pronounces that product

and geographic scopes of target Crm are prominent sources of inforŊ

maঞon asymmetry in M& deals (eamples, apron & Shen, 2007;

Moon, 1999) as informaঞon is opatue when a target Crm operates

across many industries (uypers et al., 2017) and naঞons (arkema

& Schijen, 2008). In this stream of research, ark, Sarkar, Sarkar, and

+ost (2013) argue that informaঞon asymmetry problems arise owing

to comple business operaঞons of mulঞnaঞonal Crms, spanned across

di@erent naঞons. $arget Crms with broader product and geographic

scopes are eposed to arious technologies, naঞonal cultures, insঞtuŊ

ঞons, and market condiঞons which prompt eŊante actuisiঞon inforŊ

maঞon asymmetry.

merging markets (Ms) are characteried by less deeloped

insঞtuঞons, market imperfecঞons (hanna & alepu, 2000a; MenkŊ

ho@, euberger, & Suwanaporn, 200ѵ; Meyer, strin, haumik, &

eng, 2009) and structural uncertainty (Luo, 2003). $here has been

poor monitoring of informaঞon disclosed by Crms under less deelŊ

oped insঞtuঞons (hanna & alepu, 2000a; Menkho@ et al., 200ѵ).

ro7ct am7 ];o]rar_bc scor;s o= tar];t Crl am7 ;tbt

comtroѴ bm crossŊbor7;r actbsbঞomsĹ Am bm=orlaঞom

asll;tr r;rsr;cঞ;Ŗ

Viswa Prasad GadaՊ|Պamis_ PorѴi

Indian Insঞtute of Management, Indore,

Madhya Pradesh, India

orr;sromd;mc;

Manish Popli, Indian Insঞtute of

Management, Prabandh Shikhar, Rau

Pithampur Road, Indore, MP 453556, India.

Email: manishp@iimidr.ac.in

* JEL classiCcaঞon code: 34.

Strategic Change. 2018;27(4):351–358. wileyonlinelibrary.com/journal/jsc © 2018 John Wiley & Sons, Ltd. 351