IDEAS home Printed from https://ideas.repec.org/a/spr/manint/v49y2009i4d10.1007_s11575-009-0006-7.html
   My bibliography  Save this article

The Effects of Geographic Distance on the Foreign Acquisition Activity of U.S. Firms

Author

Listed:
  • Roberto Ragozzino

    (The University of Texas at Dallas)

Abstract

This paper examines cross-border mergers and acquisitions undertaken by U.S. companies to determine whether geographic distance directly affects these firms’ governance decisions. We find that U.S. firms tend to acquire higher stakes in geographically proximate targets than in remote ones. The paper also investigates the moderating effect of geographic distance on cultural distance and political risk. We find that as these two hazards increase, acquirers prefer shared ownership for proximate deals, and full ownership for acquisitions of geographically distant targets. These findings indicate that the previously-reported effects of cultural distance and political risk on FDI are not absolute, but they are moderated by geographic distance.

Suggested Citation

  • Roberto Ragozzino, 2009. "The Effects of Geographic Distance on the Foreign Acquisition Activity of U.S. Firms," Management International Review, Springer, vol. 49(4), pages 509-535, September.
    • Handle: RePEc:spr:manint:v:49:y:2009:i:4:d:10.1007_s11575-009-0006-7
    DOI: 10.1007/s11575-009-0006-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11575-009-0006-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11575-009-0006-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 17(3), pages 1-26, September.
    2. Yuko Kinoshita & Nauro F. Campos, 2003. "Why Does Fdi Go Where it Goes? New Evidence From the Transition Economies," IMF Working Papers 2003/228, International Monetary Fund.
    3. Charles W. L. Hill & Peter Hwang & W. Chan Kim, 1990. "An eclectic theory of the choice of international entry mode," Strategic Management Journal, Wiley Blackwell, vol. 11(2), pages 117-128, February.
    4. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 577-598.
    5. repec:bla:jfinan:v:44:y:1989:i:1:p:41-57 is not listed on IDEAS
    6. Keith D. Brouthers & Lance Eliot Brouthers, 2000. "Acquisition or greenfield start‐up? Institutional, cultural and transaction cost influences," Strategic Management Journal, Wiley Blackwell, vol. 21(1), pages 89-97, January.
    7. M Krishna Erramilli & Sanjeev Agarwal & Seong-Soo Kim, 1997. "Are Firm-Specific Advantages Location-Specific Too?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(4), pages 735-757, December.
    8. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
    9. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    10. Bae, Kee-Hong & Stulz, René M. & Tan, Hongping, 2008. "Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts," Journal of Financial Economics, Elsevier, vol. 88(3), pages 581-606, June.
    11. Lerner, Josh, 1995. "Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-318, March.
    12. Russell W. Coff, 1999. "How Buyers Cope with Uncertainty when Acquiring Firms in Knowledge-Intensive Industries: Caveat Emptor," Organization Science, INFORMS, vol. 10(2), pages 144-161, April.
    13. Gatignon, Hubert & Anderson, Erin, 1988. "The Multinational Corporation's Degree of Control over Foreign Subsidiaries: An Empirical Test of a Transaction Cost Explanation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(2), pages 305-336, Fall.
    14. Reuer, Jeffrey J. & Shen, Jung-Chin, 2004. "Sequential divestiture through initial public offerings," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 249-266, June.
    15. Daphne Yiu & Shige Makino, 2002. "The Choice Between Joint Venture and Wholly Owned Subsidiary: An Institutional Perspective," Organization Science, INFORMS, vol. 13(6), pages 667-683, December.
    16. Bevan, Alan & Estrin, Saul & Meyer, Klaus, 2004. "Foreign investment location and institutional development in transition economies," International Business Review, Elsevier, vol. 13(1), pages 43-64, February.
    17. Jean‐Francois Hennart & Young‐Ryeol Park, 1994. "Location, governance, and strategic determinants of japanese manufacturing investment in the united states," Strategic Management Journal, Wiley Blackwell, vol. 15(6), pages 419-436, July.
    18. M Krishna Erramilli, 1996. "Nationality and Subsidiary Ownership Patterns in Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(2), pages 225-248, June.
    19. Laszlo Tihanyi & David A Griffith & Craig J Russell, 2005. "The effect of cultural distance on entry mode choice, international diversification, and MNE performance: a meta-analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(3), pages 270-283, May.
    20. Jean-François Hennart & Jorma Larimo, 1998. "The Impact of Culture on the Strategy of Multinational Enterprises: Does National Origin Affect Ownership Decisions?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(3), pages 515-538, September.
    21. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    22. Hansen, Robert G, 1987. "A Theory for the Choice of Exchange Medium in Mergers and Acquisitions," The Journal of Business, University of Chicago Press, vol. 60(1), pages 75-95, January.
    23. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    24. Mark J. Garmaise, 2004. "Confronting Information Asymmetries: Evidence from Real Estate Markets," The Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 405-437.
    25. Morck, Randall & Yeung, Bernard, 1992. "Internalization : An event study test," Journal of International Economics, Elsevier, vol. 33(1-2), pages 41-56, August.
    26. Audretsch, David B & Stephan, Paula E, 1996. "Company-Scientist Locational Links: The Case of Biotechnology," American Economic Review, American Economic Association, vol. 86(3), pages 641-652, June.
    27. repec:bla:kyklos:v:44:y:1991:i:3:p:363-82 is not listed on IDEAS
    28. Bruce Kogut, 1988. "Joint ventures: Theoretical and empirical perspectives," Strategic Management Journal, Wiley Blackwell, vol. 9(4), pages 319-332, July.
    29. Martín, Carmela & Velazquez, Francisco J, 1997. "The Determining Factors of Foreign Direct Investment in Spain and the rest of the OECD: Lessons for CEECs," CEPR Discussion Papers 1637, C.E.P.R. Discussion Papers.
    30. Moshe Farjoun, 1994. "Beyond Industry Boundaries: Human Expertise, Diversification and Resource-Related Industry Groups," Organization Science, INFORMS, vol. 5(2), pages 185-199, May.
    31. Balakrishnan, Srinivasan & Koza, Mitchell P., 1993. "Information asymmetry, adverse selection and joint-ventures : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 20(1), pages 99-117, January.
    32. Audretsch, David B & Feldman, Maryann P, 1996. "R&D Spillovers and the Geography of Innovation and Production," American Economic Review, American Economic Association, vol. 86(3), pages 630-640, June.
    33. Eckbo, B Espen & Giammarino, Ronald M & Heinkel, Robert L, 1990. "Asymmetric Information and the Medium of Exchange in Takeovers: Theory and Tests," The Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 651-675.
    34. Joseph E. Stiglitz, 2000. "The Contributions of the Economics of Information to Twentieth Century Economics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1441-1478.
    35. Keith D Brouthers, 2002. "Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(2), pages 203-221, June.
    36. Srivastava, Rajendra K & Green, Robert T, 1986. "Determinants of Bilateral Trade Flows," The Journal of Business, University of Chicago Press, vol. 59(4), pages 623-640, October.
    37. Frank T. Paine & Daniel J. Power, 1984. "Merger strategy: An examination of Drucker's five rules for successful acquisitions," Strategic Management Journal, Wiley Blackwell, vol. 5(2), pages 99-110, April.
    38. Datar, Srikant & Frankel, Richard & Wolfson, Mark, 2001. "Earnouts: The Effects of Adverse Selection and Agency Costs on Acquisition Techniques," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 17(1), pages 201-238, April.
    39. W Chan Kim & Peter Hwang, 1992. "Global Strategy and Multinationals' Entry Mode Choice," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(1), pages 29-53, March.
    40. Jaideep Anand & Bruce Kogut, 1997. "Technological Capabilities of Countries, Firm Rivalry and Foreign Direct Investments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(3), pages 445-465, September.
    41. Grosse, Robert & Goldberg, Lawrence G., 1991. "Foreign bank activity in the United States: An analysis by country of origin," Journal of Banking & Finance, Elsevier, vol. 15(6), pages 1093-1112, December.
    42. Joshua D. Coval & Tobias J. Moskowitz, 1999. "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Journal of Finance, American Finance Association, vol. 54(6), pages 2045-2073, December.
    43. Joshua D. Coval & Tobias J. Moskowitz, 2001. "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 811-841, August.
    44. Laura Resmini, 2000. "The Determinants of Foreign Direct Investment in the CEECs: New evidence from sectoral patterns," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(3), pages 665-689, November.
    45. Robert Grosse & Len J Trevino, 1996. "Foreign Direct Investment in the United States: An Analysis by Country of Origin," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(1), pages 139-155, March.
    46. A Delios & W J Henisz, 2003. "Policy uncertainty and the sequence of entry by Japanese firms, 1980–1998," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(3), pages 227-241, May.
    47. Weijian Shan, 1991. "Environmental Risks and Joint Venture Sharing Arrangements," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 22(4), pages 555-578, December.
    48. Christo Pirinsky & Qinghai Wang, 2006. "Does Corporate Headquarters Location Matter for Stock Returns?," Journal of Finance, American Finance Association, vol. 61(4), pages 1991-2015, August.
    49. Ram Mudambi & Pietro Navarra, 2004. "Is knowledge power? Knowledge flows, subsidiary power and rent-seeking within MNCs," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 35(5), pages 385-406, September.
    50. Scott Shane, 1994. "The effect of national culture on the choice between licensing and direct foreign investment," Strategic Management Journal, Wiley Blackwell, vol. 15(8), pages 627-642, October.
    51. William M. Dugger, 1996. "The Mechanisms of Governance," Journal of Economic Issues, Taylor & Francis Journals, vol. 30(4), pages 1212-1216, December.
    52. Christopher J. Malloy, 2005. "The Geography of Equity Analysis," Journal of Finance, American Finance Association, vol. 60(2), pages 719-755, April.
    53. Jeffrey J. Reuer & Mitchell P. Koza, 2000. "Asymmetric information and joint venture performance: theory and evidence for domestic and international joint ventures," Strategic Management Journal, Wiley Blackwell, vol. 21(1), pages 81-88, January.
    54. Constatinos C Markides & Christopher D Ittner, 1994. "Shareholder Benefits from Corporate International Diversification: Evidence from U.S. International Acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 25(2), pages 343-366, June.
    55. Bevan, Alan A. & Estrin, Saul, 2004. "The determinants of foreign direct investment into European transition economies," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 775-787, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Caterina Moschieri & Roberto Ragozzino & Jose Manuel Campa, 2014. "Does Regional Integration Change the Effects of Country-Level Institutional Barriers on M&A? The Case of the European Union," Management International Review, Springer, vol. 54(6), pages 853-877, December.
    2. Blevins, Dane P. & Moschieri, Caterina & Pinkham, Brian C. & Ragozzino, Roberto, 2016. "Institutional changes within the European Union: How global cities and regional integration affect MNE entry decisions," Journal of World Business, Elsevier, vol. 51(2), pages 319-330.
    3. Morschett, Dirk & Schramm-Klein, Hanna & Swoboda, Bernhard, 2010. "Decades of research on market entry modes: What do we really know about external antecedents of entry mode choice?," Journal of International Management, Elsevier, vol. 16(1), pages 60-77, March.
    4. Canabal, Anne & White III, George O., 2008. "Entry mode research: Past and future," International Business Review, Elsevier, vol. 17(3), pages 267-284, June.
    5. Demirbag, Mehmet & Tatoglu, Ekrem & Glaister, Keith W., 2009. "Equity-based entry modes of emerging country multinationals: Lessons from Turkey," Journal of World Business, Elsevier, vol. 44(4), pages 445-462, October.
    6. Anne-Wil Harzing & Markus Pudelko, 2016. "Do We Need to Distance Ourselves from the Distance Concept? Why Home and Host Country Context Might Matter More Than (Cultural) Distance," Management International Review, Springer, vol. 56(1), pages 1-34, February.
    7. Reuer, Jeffrey J. & Ragozzino, Roberto, 2008. "Adverse selection and M&A design: The roles of alliances and IPOs," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 195-212, May.
    8. Javalgi, Rajshekhar (Raj) G. & Deligonul, Seyda & Ghosh, Amit K. & Lambert, Douglas M. & Cavusgil, S. Tamer, 2010. "Foreign market entry mode behavior as a gateway to further entries: The NAFTA experience," International Business Review, Elsevier, vol. 19(3), pages 209-222, June.
    9. Sels, A.T.H., 2006. "Foreign direct investment as an entry mode. An application in emerging economies," Other publications TiSEM 583ca9b5-1691-425d-8f77-0, Tilburg University, School of Economics and Management.
    10. Erdener Kaynak & Mehmet Demirbag & Ekrem Tatoglu, 2007. "Determinants of ownership-based entry mode choice of MNEs: Evidence from Mongolia," Management International Review, Springer, vol. 47(4), pages 505-530, October.
    11. Larimo, Jorma & Arslan, Ahmad, 2013. "Determinants of foreign direct investment ownership mode choice: Evidence from Nordic investments in Central and Eastern Europe," Journal of East European Management Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 18(2), pages 232-263.
    12. Xanthippe Adamoglou & Dimitris Kyrkilis, 2020. "MNEs Entry Strategies through a Distance Framework: A New Perspective," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 70(3-4), pages 83-105, July-Dece.
    13. Zdolsek, Daniel & Kolar, Iztok, 2013. "Management disclosure practices for disaggregated (financial) information in Slovenian unlisted companies," Journal of East European Management Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 18(2), pages 232-263.
    14. Malhotra, Shavin & Sivakumar, K. & Zhu, PengCheng, 2011. "Curvilinear relationship between cultural distance and equity participation: An empirical analysis of cross-border acquisitions," Journal of International Management, Elsevier, vol. 17(4), pages 316-332.
    15. Brian T. McCann & Jeffrey J. Reuer & Nandini Lahiri, 2016. "Agglomeration and the choice between acquisitions and alliances: An information economics perspective," Strategic Management Journal, Wiley Blackwell, vol. 37(6), pages 1085-1106, June.
    16. Cristina López-Duarte & Marta M. Vidal-Suárez & Belén González-Díaz & Nuno Rosa Reis, 2016. "Understanding the relevance of national culture in international business research: a quantitative analysis," Scientometrics, Springer;Akadémiai Kiadó, vol. 108(3), pages 1553-1590, September.
    17. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.
    18. George Peng & Paul Beamish, 2014. "The effect of host country long term orientation on subsidiary ownership and survival," Asia Pacific Journal of Management, Springer, vol. 31(2), pages 423-453, June.
    19. Mehmet Demirbag & Ekrem Tatoglu & Keith W. Glaister, 2010. "Institutional and Transaction Cost Influences on Partnership Structure of Foreign Affiliates," Management International Review, Springer, vol. 50(6), pages 709-745, December.
    20. Demirbag, Mehmet & Glaister, Keith W. & Tatoglu, Ekrem, 2007. "Institutional and transaction cost influences on MNEs' ownership strategies of their affiliates: Evidence from an emerging market," Journal of World Business, Elsevier, vol. 42(4), pages 418-434, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:manint:v:49:y:2009:i:4:d:10.1007_s11575-009-0006-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.