Quotation Lindner, Thomas, Puck, Jonas, Filatotchev, Igor. 2014. The impact of institutional distance on the debt-equity choice in international corporate acquisitions. AIB, Vancouver, Kanada, 23.06.-26.06.


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Abstract

International acquisitions trigger significant changes to the acquiring company's capital structure. It is valuable for managers of a multinational enterprise (MNE) to have at their disposal a model that determines the optimal financing structure for corporate expansion already when making the respective investment decision. Intense discussion in the finance and international business (IB) literature has clarified the firm-specific characteristics that determine the degrees to which acquisitions are financed with debt or equity. Research has also pointed out the importance of national characteristics for capital structure, but not linked it to international acquisitions. Consequently, this paper develops and empirically tests a framework integrating firm-specific and regulatory institutional distance variables that models the financing decision. Institutional, pecking-order and trade-off theories are accommodated in the development of the model. Hierarchical linear analysis is conducted on secondary data describing a multi-home and multi-host country sample of 874 cross-border acquisitions in the 2000s. Underinvestment problems, diversification, operational risk and institutional distance are found to affect the acquiring company's debt-equity choice. The integration of financial and IB theory explains how country-level characteristics affect the optimal financing of international acquisitions and puts a comprehensive model for the financial side of strategic acquisition planning at managers' disposal.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title The impact of institutional distance on the debt-equity choice in international corporate acquisitions
Event AIB
Year 2014
Date 23.06.-26.06
Country Canada
Location Vancouver
URL http://aib.msu.edu/events/2014/

Associations

People
Lindner, Thomas (Details)
Puck, Jonas (Details)
Filatotchev, Igor (Details)
Organization
International Business (Details)
Institute for International Business IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
5300 Economics (Details)
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