Policy Risk and Cross-Border Mergers and Acquisitions: The Role of Quality and Multiplexity of Home-Host Country Relations

Multinational enterprises operate in a volatile global environment and face high policy uncertainty and risks. Policy risk is a location-specific factor that has been shown to influence foreign direct investment decisions. However, foreign investors\u27 responses to such risk may be influenced by the quality and strength of home-host country relations. Home-host country relations affect investors\u27 expectations of value capture and control in the host market and as such constitute an important factor affecting cross-border investment. In this dissertation, Iadopt a relational view to provide a more complete understanding of when and how policy risk influences cross-border mergers and acquisitions (M&As)by investigating the role of the macro structure in which nations are embedded. I focus on cross-border acquisitions in emerging economies. In the first part of the dissertation, Iexamine whether host country policy risk influences M&Aactivity in emerging economies. In addition, Iconduct a country-dyad analysis, focusing on pairs of countries, to determine whether the effect of policy risk on cross-border M&As varies based on the properties of home-host country relations, namely, their (1) quality and (2)multiplexity. In the second part of the dissertation, Ifocus on the pre-completion stage of cross-borderM&As and investigate the relationships of deal-specific factors with the likelihood of M&Adeal completion and the duration of the negotiation process under varying levels of host country policy risk and properties of home-host ties. The results of the empirical analysis confirm that policy risk is consistently negatively associated with M&A outcomes at the country, country-dyad, and deal levels. In addition, results show that the effect of policy risk varies based on the quality and strength of home-host country relations. These findings provide corroborating evidence that policy risk is a significant source of uncertainty in host environments with important implications for firms considering cross-border M&As as a form of investment. Furthermore, the findings provide insights into why some firms are less sensitive to the deterring effects of host country policy risk than others