New research finds conflictive relations between two countries can negatively affect acquisition efforts.

By Sarah Steimer

Policy risk has a negative effect on whether firm acquisitions are completed, but the strength of that effect depends on how positive, negative, or ambivalent the home-host country relations are, according to new research published in the Global Strategy Journal.

Researchers led by Tsvetomira V. Bilgili, an assistant professor at Kansas State University, found that the relationship between policy risk and cross-border acquisition completion is negative and strong under conflictive intercountry relations, weaker under cooperative relations, and — to their surprise — weakest under ambivalent relations.

The study included a sample of 26,124 cross-border acquisitions by 14,568 unique acquirers. To measure how positive, negative, or ambivalent intercountry relations are, the research team used news events involving pairs of countries extracted from international media. Each event was given a score between -10 and +10 that ranked how positive or negative the event was. For example, signing a formal agreement was scored 8, but imposing an embargo, boycott, or sanctions received a -8.

They found that for each unit increase in policy risk, the likelihood that a deal was completed dropped by 2.2%. When the relationship between countries is conflictive, policy risk became a major challenge to deal completion because host governments were more likely to intervene in the deal. Cooperative intercountry relations did provide a buffer, but the effect wasn’t fully mitigated. Ambivalent intercountry relations, however, were found to reduce the effect of policy risk to the greatest extent, possibly because host countries wish to avoid turning an ambivalent relation into a negative one and thus refrain from arbitrary and adverse actions toward acquirers.

For executives considering acquisitions in a foreign country, the study suggests keeping a close eye on home-host country relations. “Most importantly, executives looking to acquire foreign assets in high policy risk countries can use intercountry relations to better assess the likelihood of policy changes that may negatively affect their acquisitions,” Bilgili says.

Based upon:

Bilgili T.V., Bilgili H., Allen D.G., Loncarich H., Kedia B.L., & J. L. Johnson (2022). Friends, foes, or “frenemies”: Intercountry relations and cross-border acquisitions. Global Strategy Journal

Sarah Steimer is a Chicago-based writer and editor with experience in magazines, newspapers and multimedia projects. She has covered subject matter that spans local news, marketing, medicine, food and more.

Published Date
02 September 2022

Article Type
Article Press Release, Article Summary/Abstract


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