Spanning the global network: Cross -border acquisitions, the MNE and social capital

Learning about and exploiting opportunities in distant markets is one of the basic challenges of international business. In an era of modern transportation and communication technologies it might seem surprising that this remains a challenge, but recent research shows that international transactions of all sorts are inhibited by a lack of information about distant exchange partners (Rauch 2001; Portes & Rey 1999). If learning about distant markets is costly and an understanding of them is scarce then actors able to bridge these gaps may be able to profit from their position (Granovetter 1973; Burt 1992; Rangan 2000; Rauch 2003). Network theory predicts that forming a new relationship between actors in two countries already connected by strong ties in the international economic network should be relatively easy but potentially less valuable. On the other hand, establishing relationships that span countries only weakly tied to each other will be more difficult but also more valuable. This opens an opportunity for entrepreneurial actors capable of spanning weak ties. By virtue of its international operating experience and existing network of subsidiaries, the MNE is in the position to use social capital from the international economic network to capture information spillovers, allowing it to span weak ties in that network more easily than other actors. I examine these issues by using a sample of cross-border mergers and acquisitions. Cross-border M&A provides a good empirical context because events are readily observable and the returns to them can be estimated in a straightforward fashion. I employ a truly multinational sample of 584 acquiring firms from 26 countries and 2,221 target firms from 61 countries