How Latin American multinational companies’ institutional capabilities influence ownership in cross-border acquisitions

Abstract

Objective: Multinational Companies (MNCs) can learn from their experience in host countries and develop an ability to deal with specific institutional inefficiencies. We advance that MNCs’ institutional capabilities, or the capabilities to deal with institutionally underdeveloped milieus, will likely lower the ownership requirements in subsequent deals. Method: Using regressions with a secondary dataset of 1,686 cross-border acquisitions (CBA) made by Latin American firms worldwide, we investigate how the MNCs’ priorly-acquired capabilities of operating in countries with underdeveloped regulatory quality, less effective rule of law, and lower corruption control lower the ownership acquired in subsequent acquisition deals. Main Results: We show that MNCs with experiences with CBA in countries with poor institutional contexts learn how to work in those contexts. Hence, these MNCs build capabilities that make them more likely to take a lower ownership stake in future CBAs. Relevance/ Originality: There is still much to be understood regarding the extent to which the knowledge developed in one country could be extrapolated and used in another country with similar problems. We delve into this matter with an institution-based view. Theoretical/ Methodological Contributions: This study thus contributes to a better understanding of the effect of MNCs’ institutional capabilities for operating in institutionally inefficient countries on the ownership stakes required.

Keywords

• Institutional Knowledge
• Institutional Environment
• Cross-border Acquisitions
• Latin America