Foreign acquisitions in developed and developing economies: motivations, long-term operating performance and their cross-sectional determinants

Submission note: A thesis submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy to the Department of Economics and Finance, La Trobe Business School, La Trobe University, Victoria.

This thesis presents new and up-to-date evidence on the U.S cross-border takeover market by investigating a sample of 266 successful, majority-control foreign acquisitions by U.S public corporations, that were announced between 2000 and 2012. A beginning-to-end analysis is conducted by an examination of the motives of acquisitions, their long-term operating performance and the relationship between motive-based synergies and the post-acquisition operating performance outcomes. Overall, the traditional takeover motives associated with operating synergies and disciplining target management are important for U.S international acquirers. Key differences emerge in the motivations of bidders that acquire firms in developed and developing economies. Research and development intensity of target firms increases the likelihood of conducting acquisitions in developed markets, whereas target firms characterized with high free cash flow ratios increase the likelihood of conducting acquisitions in developing markets. Attractive corporate tax rates in the target country increases the likelihood of acquisitions in developed countries, whereas favourable exchange rate terms relative to the target country currency increases the likelihood of acquiring firms in developing countries. The long-term operating performance of acquisitions in developed countries, on average, deteriorates, whereas that of developing country acquisitions improves. In developed countries, the post-acquisition operating performance is associated with scaled based synergies in the operating activities and research and development functions. In emerging markets, value is created by improving the managerial practices subsequent to the acquisitions; lending support to the idea that acquisitions from developed countries, such as the U.S, act as an effective mechanism to provide firms in developing economies with better quality governance.