Degree of equity ownership in cross-border acquisitions of Brazilian firms by multinationals: a strategic response to institutional distance

Ferreira, Manuel Portugal; Vicente, Simone César da Silva; Borini, Felipe Mendes; Almeida, Martinho Isnard Ribeiro de

http://hdl.handle.net/10400.8/6031

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Authors

Ferreira, Manuel Portugal

Vicente, Simone César da Silva

Borini, Felipe Mendes

Almeida, Martinho Isnard Ribeiro de

Abstract(s)

This study analyzes how foreign multinational enterprises respond to uncertainty in their cross-border acquisitions in emerging economies and,specifically in Brazil, given the institutional differences that separate the home and host countries. We analyze how institutional distance impactsmultinational enterprises strategy in taking a partial or full ownership stake in their Brazilian acquisitions. We propose that the equity stake is astrategic response to the uncertainty of operating in institutionally distant countries. In an study based on secondary data of 736 acquisitions between2008 and 2012, we tested statistically the relation between nine dimensions of institutional distance and the equity stake acquired. Results showdifferentiated effects albeit with significant evidence that greater geographic distance lead multinational enterprises to take a partial equity stake,while financial and cultural distance leads to a full acquisition. This study has two contributions: reinforces the understanding of the institutionalchallenges of entering emerging economies, and puts forth how firms’ strategies may incorporate structural solutions that minimize risks andinvestments when facing institutional uncertainties.