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A real options perspective on sequential acquisitions in China

Author

Listed:
  • Dean Xu

    (School of Business, The University of Hong Kong, Pokfulam, Hong Kong)

  • Changhui Zhou

    (Guanghua School of Management, Peking University, Beijing, China)

  • Phillip H Phan

    (Carey Business School, Johns Hopkins University, Baltimore, MD, USA)

Abstract

We examine how firms in an emerging market address their information disadvantage in takeovers. One strategy is to complete the acquisition sequentially rather than as a one-time deal. In contrast to firms in developed economies that enjoy relatively easy access to information, emerging-market firms face differential access to information on target firms, owing to institutional weaknesses and constraints in those markets. Sequential acquisitions are conceptualized as a real-option-based strategy, whereby the sequential acquirer resolves valuation uncertainty through information gathering and learning after making a toehold purchase. The value of a sequential acquisition strategy increases for firms that are at an information disadvantage. Statistical analysis, based on 272 completed acquisitions of Chinese listed firms between 1995 and 2003, shows that the sequential method is more likely to be chosen over a single-transaction mode when the acquirer is a private firm, or when the acquirer is diversifying into a new business area. Thus we offer a new way of viewing real option strategies in emerging economies, by treating sequential acquisitions as information and learning mechanisms as opposed to tools for hedging.

Suggested Citation

  • Dean Xu & Changhui Zhou & Phillip H Phan, 2010. "A real options perspective on sequential acquisitions in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(1), pages 166-174, January.
    • Handle: RePEc:pal:jintbs:v:41:y:2010:i:1:p:166-174
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    Cited by:

    1. Olga Golubeva, 2017. "Does Perception of Business Climate Differ Between Foreign and Local Investors. A Firm-level Study of Transition Economies in Eastern Europe and Central Asia," Applied Economics and Finance, Redfame publishing, vol. 4(2), pages 113-128, March.
    2. Schmid, David & Morschett, Dirk, 2023. "Retailers’ foreign market exits over time: A strategic management perspective," International Business Review, Elsevier, vol. 32(5).
    3. Martin, Xavier, 2013. "Solving theoretical and empirical conundrums in international strategy research by matching foreign entry mode choices and performance," Other publications TiSEM 7645ea46-0b9a-4fc0-ae33-a, Tilburg University, School of Economics and Management.
    4. Yuping Zeng & Thomas J. Douglas & Changqi Wu, 2013. "The Seller's Perspective on Determinants of Acquisition Likelihood: Insights from China's Beer Industry," Journal of Management Studies, Wiley Blackwell, vol. 50(4), pages 673-698, June.
    5. Song, Sangcheol, 2020. "Actualization of growth potential in international joint ventures: The moderating effects of localization strategies," Journal of World Business, Elsevier, vol. 55(2).
    6. Varshney, Mayank & Jain, Amit, 2023. "Technology acquisition following inventor exit in the biopharmaceutical industry," Technovation, Elsevier, vol. 126(C).
    7. Athreye, Suma & Saeed, Abubakr & Saad Baloch, Muhammad, 2023. "The survival of outward investments from China and India: Is there a North-South divide?," Journal of Business Research, Elsevier, vol. 154(C).
    8. Tailan Chi & Jing Li & Lenos G Trigeorgis & Andrianos E Tsekrekos, 2019. "Real options theory in international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 525-553, June.
    9. Kinateder, Harald & Fabich, Matthias & Wagner, Niklas, 2017. "Domestic mergers and acquisitions in BRICS countries: Acquirers and targets," Emerging Markets Review, Elsevier, vol. 32(C), pages 190-199.
    10. Evans Opoku-Mensah & Yuming Yin & Asantewaa Ampofo Sandra & Priscilla Tuffour, 2019. "Mergers and Acquisitions Antecedents in BRICS," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 11(3), pages 202-214, September.
    11. Andrejs Čirjevskis, 2022. "Measuring Collaborative Synergies with Advanced Real Options: MNEs’ Sequential Acquisitions of International Ventures," JRFM, MDPI, vol. 16(1), pages 1-18, December.
    12. Shekhar, Shiva & Wey, Christian, 2017. "Uncertain merger synergies, passive partial ownership, and merger control," DICE Discussion Papers 260, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    13. Rekha Rao-Nicholson & Catherine Cai, 2020. "The effects of ownership identity on corporate diversification strategy of Chinese companies in foreign markets," Asia Pacific Journal of Management, Springer, vol. 37(1), pages 91-126, March.
    14. Andrejs Čirjevskis, 2023. "Measuring Value in Development with Advanced Real Options for International Sequential Acquisitions," JRFM, MDPI, vol. 16(9), pages 1-12, September.
    15. Chris Changwha Chung & Seung-Hyun Lee & Jeoung-Yul Lee, 2013. "Dual-Option Subsidiaries and Exit Decisions During Times of Economic Crisis," Management International Review, Springer, vol. 53(4), pages 555-577, August.
    16. Sangcheol Song, 2017. "Ownership Increase in International Joint Ventures: The Within- and Across-Country Flexibility Perspective," Management International Review, Springer, vol. 57(1), pages 93-120, February.
    17. Wooster, Rossitza B. & Blanco, Luisa & Sawyer, W. Charles, 2016. "Equity commitment under uncertainty: A hierarchical model of real option entry mode choices," International Business Review, Elsevier, vol. 25(1), pages 382-394.
    18. Song, Sangcheol, 2014. "Unfavorable Market Conditions, Institutional and Financial Development, and Exits of Foreign Subsidiaries," Journal of International Management, Elsevier, vol. 20(3), pages 279-289.
    19. Song, Sangcheol, 2022. "Determining investment size and local embeddedness under host market uncertainty and growth rates," International Business Review, Elsevier, vol. 31(2).
    20. Fuentelsaz, Lucio & Garrido, Elisabet & González, Minerva, 2020. "Ownership in cross-border acquisitions and entry timing of the target firm," Journal of World Business, Elsevier, vol. 55(2).
    21. Dou, Junsheng & Wang, Ning & Su, Emma & Fang, Hanqing & Memili, Esra, 2020. "Goal complexity in family firm diversification: Evidence from China," Journal of Family Business Strategy, Elsevier, vol. 11(1).
    22. Yulia Muratova & Jakob Arnoldi & Xin Chen & Joachim Scholderer, 2018. "Political rotations and cross-province firm acquisitions in China," Asian Business & Management, Palgrave Macmillan, vol. 17(1), pages 37-58, February.
    23. Dean Xu & Chuang Chen & Xiaohui Wu, 2019. "Ownership structure and the use of non-family executives in family-dominated Chinese listed firms: An institutional logics perspective," Asia Pacific Journal of Management, Springer, vol. 36(3), pages 797-820, September.
    24. Lebedev, Sergey & Peng, Mike W. & Xie, En & Stevens, Charles E., 2015. "Mergers and acquisitions in and out of emerging economies," Journal of World Business, Elsevier, vol. 50(4), pages 651-662.

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