The Effects of Cross-Border and Cross-Industry M&As on Home-Region and Global MNEs

January 2014 | Hitt, Michael A.

We examine the effects of international and product diversification through mergers and acquisitions ( M& As) on the firm’s risk-return profile. We identify the rewards from different types of M& As and investigate whether becoming a global firm is a value-enhancing strategy. Drawing on the theoretical work of Vachani ( Journal of International Business Studies, 22 (1991), pp. 307−222) and on Rugman and Verbeke’s ( Journal of International Business Studies, 35 (2004), pp. 3−18) metrics, we classify firms according to their degree of international and product diversification. To account for the endogeneity of M& As, we develop a panel vector autoregression. We find that global and host-region multinational enterprises benefit from cross-border M& As that reinforce their geographical footprint. Cross-industry M& As enhance the risk-return profile of home-region firms. This effect depends on the degree of product diversification. Hence there is no value-enhancing M&A strategy for home-region and bi-regional firms to become ‘truly global’.

Author

Michael A. Hitt

Co-author(s)

• Gerhard Kling
• Abby Ghobadian
• Utz Weitzel
• Nicholas O'Regan

Publication(s)