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Conflictive home-host country relations have a solid, negative influence on policy risk

Policy risk negatively affects acquisition completion, however the strength of the result would depend on home-host country relations, in accordance with new research published in Global Strategy Journal. The partnership between policy risk and cross-border acquisition completion is negative and strong under conflictive relations, weaker under cooperative relations, and weakest under ambivalent relations, the analysis authors found.

“In the recent decade, we have been observing major shifts in the geopolitical environment and a lot more dynamic intercountry relations that may likely continue steadily to influence cross-border investments, making our research timely and relevant,” says lead researcher Tsvetomira V. Bilgili, an assistant professor at Kansas State University.

The team used longitudinal event data on intercountry interactions to infer cooperative, conflictive, and ambivalent relations. Each event in the sample was assigned a score between -10 and +10 to point how positive or negative the function is. For instance, the signing of a formal agreement was scored 8, as the imposition of an embargo, boycott, or sanctions received a ranking of -8.

To check the result of home-host country relations on the partnership between policy risk and cross-border acquisition completion, the study team used on an example of 26,124 cross-border acquisitions by 14,568 unique acquirers.

The researchers discovered that for every unit upsurge in policy risk, the probability of completing a deal decreases by 2.2%, but that home-host country relations can transform the effect. Once the relationship between countries is conflictive, policy risk poses sustained challenges to deal completion because host governments could be more motivated to intervene in the offer.

Cooperative intercountry relations may provide a buffer, however the aftereffect of policy risk isn’t fully mitigated; however, ambivalent intercountry relations decrease the aftereffect of policy risk to the best extentpossibly, the team hypothesized, because host governments may choose to maintain relations with the house country by avoiding arbitrary and adverse actions toward acquirers.

“For example, China and India have long had disputes over but also have collaborated in the economic realm,” Bilgili says. “We argue that hawaii of intercountry relations could be indicative of the host country government’s intentions and motivations to activate in arbitrary or opportunistic policy changes that may avoid the completion of cross-border acquisitions.”

For executives, this underscores the significance of keeping track of intercountry relations to raised assess the odds of policy changes which could have a on foreign acquisitions. According to the state of intercountry relations, some organizations will undoubtedly be better positioned to successfully pursue investment opportunities in high policy risk countries.

“Our findings claim that within an increasingly complex global environment, understanding intercountry relations is crucial to firms’ capability to complete cross-border acquisitions in countries where risk is high,” Bilgili says.

More info: Tsvetomira V. Bilgili et al, Friends, foes, or “frenemies”: Intercountry relations and crossborder acquisitions, Global Strategy Journal (2022). DOI: 10.1002/gsj.1460

Provided byStrategic Management Society

Citation: Conflictive home-host country relations have a solid, negative influence on policy risk (2022, September 2) retrieved 3 September 2022 from

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