Abstract

The purpose of this paper is to examine how colonization experience, length and recency in emerging market multinational enterprise (EMNE) home countries may influence the relationship between formal/informal institutional distance and EMNE equity participation in target firms across border.

The study uses panel data of combined measures of formal and informal institutional distance, as well as colonization experience and a variety of firm-level and country-level controls to conduct regression models. The data sample consists of 1,725 mergers and acquisitions (M&As) deals between 2001–2015 across different emerging markets.

The findings show that EMNEs are generally likely to choose higher equity participation when there is greater formal institutional distance between the home country and the target firm country, while equity participation is lesser when there is greater informal institutional distance. However, for EMNEs from countries that were colonized, the authors found that colonization experience, colonization duration and years since colonization play a significant role in altering how formal and informal institutional distance affects equity participation choices.

This study shows that EMNEs from formerly colonized countries approach cross-border M&As differently, interpreting institutional distance and institution-based view in unique ways. This study shows how postcolonialism shapes decision-making. The authors also extend existing frameworks, such as the liability of foreignness, by introducing colonization experience as an additional theoretical lens to understand institutional distance in acquisition decisions.