Institutional and Cultural Determinants of International M&A: Moderating Effect of Co-Industry Firms’ Strategic Decisions

Abstract

The study investigates institutional and cultural determinants of corporate internationalization strategy. In particular, it explores how differences in cultural and institutional environments of a firm’s home and potential host country would affect likelihood of an M&A in the host country. The assumption about negative effects of high institutional and cultural differences on the probability of a cross-border M&A reflects transactions costs, institutional and other theories. Also, basing on findings of Davidson (1980), the study investigates how past strategic decisions of firms from the same industry with a focal firm would affect the firm’s foreign investment strategy. Institutional, network and social learning theories suggest that prior M&A experience in a focal country of firms from the same industry with a focal firm would produce a direct effect on the likelihood of M&A by the firm, as well as would moderate the relationships between cultural and institutional distance to the focal country and the likelihood that the firm would engage in an M&A in the focal country, demonstrating rational and irrational responses on the environmental uncertainty. The hypotheses derived from the assumptions above were tested using the sample which includes data on cross-border M&A by Korean companies from 1986 to June 2013. In order, to test the likelihood of M&A in different countries a panel data with binary dummy dependent variable was created and tested. The results showed support for all of the proposed hypotheses.