Formal Institutional Distance and cross-border M&A-Contract Ineffectiveness: Moderating Role of Advisory Organizations

Abstract

Advisory organizations on cross-border mergers and acquisition deals performed as advisory governance can fill the distance between the formal institutional environment of host and home economies. This study examined the formal institutional distance between emerging and developed economies and their role in M&A initial contract ineffectiveness by expanding the phenomena of the pre-completion stage of M&A-contracts. We examine our key questions using data of 832 cross-border M&A-contracts of developed economies’ firms with emerging economies’ firms in the international business high-technology industry from 1984-2011. We find that formal institution distance explains part of the variation in the ineffectiveness of M&A-contracts. Further the gain from the external capabilities provided by advisory organizations helps in reducing the effect of institutional distance on the M&A-contract ineffectiveness.