Is national pride a bane or a boon for cross-border acquisitions?
Although existing cross-border M&A research suggests that national pride is associated with higher bid premiums, the underlying rationale behind these national pride bids is unclear. We study two plausible explanations for this phenomenon: payment for a prearranged expansion strategy (real options) and bidders’ lack of experience in a target country (organization learning). Using a sample of cross-border acquisitions of developed-country targets by developing-country acquirers, we perform an extensive media search to identify 36 acquisitions that involve national pride. We divide these 36 acquisitions into those with zero bids completed in that particular country prior to the national pride bid (non-foothold bidders) and those with at least one bid completed in that country before the national pride acquisition (foothold bidders). We find that the higher premium paid in so-called national pride bids is primarily attributable to the non-foothold acquirers. Since non-foothold characteristics can proxy for either lack of experience or higher value of embedded real options, or both, we perform further tests which confirm that the higher premium of national pride bids can be attributed to both channels, supporting both organizational learning theory and real options explanation. We further demonstrate that national pride acquirers underperform operationally post-acquisition, and such underperformance is also attributable to the non-foothold acquirers. One explanation for this finding is the lack of prior acquisition experience of non-foothold bidders.
cross-border acquisition, national-pride, foothold, bid premium, real options, organizational learning theory
Master of Science (M.Sc.)
Edwards School of Business