Institutional Distance, Social Capital, and the Performance of Foreign Acquisitions in the United States

This dissertation examined the roles of institutional distance and corporate social
capital in the unique context of foreign acquisitions in the United States. A conceptual
framework was developed which suggests that institutional distance has a dual impact on
international acquisition performance. Institutional distance makes it more difficult for
foreign acquirers to establish legitimacy in the United States, and therefore adversely
affects acquisition success. Institutional distance also has a beneficial effect on
acquisition performance to the extent to which it provides valuable opportunities for
institutional arbitrage. Corporate social capital was discussed as a strategy to aid foreign
MNCs in overcoming the detrimental, and leveraging the beneficial effects of
institutional distance on these cross-border transactions.
Analysis results based on a sample of 247 large-scale acquisitions in the US by
publicly traded foreign acquirers that were made between 2000 and 2005 provided overall support for the hypothesized model. It was found that each of the three
dimensions of institutional distance - regulatory, normative, and cultural distance- was
negatively associated with the local media endorsement of foreign acquirers.
Furthermore, regulatory distance was negatively associated with the investment ratings of
foreign acquirers, and normative distance had a positive impact on the number of local
lawsuits filed against these firms.
Results from this study also showed that the existence of corporate social capital
aided foreign acquirers in overcoming the negative effect of regulatory distance on both
the firms' investment ratings and their local media endorsement. The findings further
revealed that media endorsement of foreign acquirers in the United States was positively
related to acquisition performance as indicated by cumulative abnormal returns.
Moreover, legitimate foreign acquirers with high investment ratings were able to leverage
cultural distance, given that the relationship between investment ratings and acquisition
performance was positive for this group of acquirers.
The results reported in this study therefore emphasize the importance of
organizational legitimacy and corporate social capital for international acquisition
performance, and shed light on the detrimental and beneficial roles of institutional
distance in this context. In so doing, this dissertation strengthens institutional theory and
social capital theory as powerful perspectives in international strategic management.