Age Matters: The Contingency of Economic Distance and Economic Freedom in Emerging Market Firm's Cross-Border M&A Performance

The primary studies on emerging market multinational firms (EMFs) thus far have depicted a picture of accelerated internationalization in which EMFs conduct a series of aggressive cross-border acquisitions to further enhance their competitive advantage. However, it is not clear whether the EMFs which conducted the acquisitions at a young age experience better performance. EMFs constrained by their home market development in economic institutions may encounter different challenges in their cross-border acquisitions. Using a sample of South African firms' acquisitions between 1994 and 2012, we find support for the benefit of foreign acquisitions at a young age as well as the moderation effects of economic distance and economic freedom. While early inorganic growth provides an excellent opportunity to propel South African firms' growth, the country level factors present important boundary conditions to examine the benefit of early internationalization. While facing a significant economic distance, older firms are better at utilizing their experience and experience better post-acquisition operating performance. By contrast, the younger firms benefit more from the post-acquisition when the home country has weaker economic freedom. Keywords Emerging-market multinational firms * South African firms * Economic distance * Economic freedom * Cross-border post-acquisition operating performance
1 Introduction Lacking market-supporting institutions back home, emerging market multinational firms (EMFs) often choose to acquire internationally at an early stage of the company's development to escape the institutional constraints [...]