Top Management Team International Orientation and Cross-Border Acquisitions
Thesis or dissertation
University of Exeter
Reason for embargo
Abstract This thesis comprehensively examines in four key empirical chapters, if and how traits of the top management teams (TMTs) affect cross-border acquisition choices as well as consequential outcomes from the perspective of acquiring firms. Three aspects of the TMTs which are particularly relevant to these types of deals have been considered: their international experience, host country knowledge and national diversity. These TMT characteristics, has been termed as ‘international orientation’ here. The underlying premise of this thesis is that information asymmetry prevalent in these complex decisions are likely to be mitigated if and only if these specially-endowed TMTs are optimally orientated. A comprehensive dataset of listed cross-border acquirers from the United Kingdom from 1999-2008 with their TMT characteristics has been used here with a variety of methodologies and modelling techniques, including short and longer window event study methods, multilevel modelling, etc. The first and second chapters explores the consequences of the decision-making process by the TMTs, as the returns to these bidder firms; while the third chapter looks at one of the key elements of the process itself in terms of payment mode choices by bidder TMTs. The final chapter investigates whether the moderating role these internationally oriented TMTs play, is recognised in the investors’ reaction to frequent cross-country acquisition announcements. The first chapter examined the short-term wealth effects of international orientation of TMTs, focusing on when it may (not) improve performance due to internationalization decisions, synthesising the views expressed in prior research. Although not robust, a negative effect of international experience on abnormal returns in line with the hubris hypothesis was observed. Further, some discernible benefits from national diversity or country-specific experience in TMTs in consonance with the view of TMT ‘international orientation’ as a valuable resource were also detected. However, additional analyses revealed that performance benefits may only accrue to the most experienced TMTs and may be detrimental if too many of TMT members have same host country exposure. Generally, the acquirer announcement performance seemed to be affected by TMT orientation in opposite ways with different TMT proxies. The second chapter extended the investigation to both financial and operating performance for a one-year post-acquisition period to delve deeper into the effects of having globally-oriented TMTs in acquirer boards, motivated by lack of consensus on two counts. First, as to whether acquirers create or destroy wealth as far as the longer term outcomes are concerned; second, in respect of whether the TMTs of these firms act competently or take inefficient decisions on international expansions. The ‘international orientation’ of acquirer executives from two angles, i.e. their international experience and national diversity amongst them were examined. The findings presented strong evidence of curvilinear relationships of the chosen TMT proxies, although, in this case too, the effects observed were opposite for the different proxies. In particular, inadequate international knowledge of the team members at initial levels were likely to generate unfavourable outcomes, which could transform favourably at higher levels after a cut-off point. An opposite curvilinear relationship between the TMT proxy of foreigners’ presence and such performance was observed, however. The third chapter looked at the decision-making role of internationally-orientated TMTs of acquiring firms so as to whether and how such TMTs may(not) influence the preferred mode of payment, mitigating information asymmetry with a level of high uncertainty and complexity in deals involving international targets. In consonance with the findings of the previous chapters, non-linear effects of TMT ‘international orientation’ on the possibilities of making an appropriate choice of method of payment in cross-border transactions were proposed and tested. It was revealed that only the most experienced TMTs and/or executive-teams with a greater diverse mix of nationalities were more likely to opt for pure cash or a mixed payment mode as against pure stock exchange, amidst high environmental uncertainties, often prevalent in decisions relating to expansion abroad. Specifically, internationally-oriented TMTs seem to be positioned to act more competently after surpassing a threshold of this orientation, thereby mitigating environmental uncertainties under extreme country risk and cultural distance. These findings shed new light on alleviation of information asymmetry in cross-border payment mode decisions, hitherto studied from the perspective of returns to acquirers in the domestic context. The final core chapter concentrated solely on short-term value creation serial acquirers in cross-border deals as against in extant literature where mostly these firms are studied with one-time acquirers. Taking a more comprehensive view of earlier research, in this study the potential role of previously identified factors affecting their short-run returns against the backdrop of ‘international orientation’ of their top managerial teams (TMTs) is demystified. In other words, which of the forecasted effects, i.e. learning or post-acquisition integration issues, predominate, when TMTs of such firms have either international experience or host country familiarity or mix of diverse nationalities were analysed. Testing for the non-linear moderating influence of TMT orientation, the negative influence of indigestion, as an outcome of both frequent acquisitions and higher transaction values, cumulated over a prior three-year event window was documented. Nevertheless, this detrimental impact was likely to be mitigated at higher levels of international experience of acquirer executives. However, the findings failed to substantiate either the postulated benefits of ‘organizational learning’ or any moderating impact of TMT orientation thereon. These empirical results highlighted that when the hypothesized notion of indigestion effects outweighed that of learning for these serial bidders, moderating benefit of their internationally oriented TMTs is non-linear. This implied that beyond a cut-off point, more of these TMTs seem to mitigate either acquisition-indigestion or the memory-lapse, although the latter effect is not robust. Overall, the findings from the core chapters indicated that international orientation of bidder TMTs are beneficial after an optimal point, in respect of improved decision-making, favourable longer terms returns and finally, moderating the detriments of multiple acquisitions.
University of Exeter Business School.
PhD in Finance