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Is failure the mother of success? Prior failure experience and cross-border M&A completion by emerging market firms

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Abstract

Although emerging market firms (EMFs) seek to undertake aggressive cross-border mergers and acquisitions (M&As), many of the announced deals are not finalized. This study examines how the prior failure of EMFs to complete cross-border M&As may influence the likelihood of completing future deals. Challenging the conventional wisdom that failure is the mother of eventual success, we argue that EMFs’ prior failure experiences may instead reduce the likelihood of their completing a subsequent deal. Moreover, the negative effect of prior failure experience is conditioned on firm capabilities to learn and the institutional contexts of the subsequent deals. Specifically, if EMFs have successfully completed cross-border M&A(s) or achieved a high degree of internationalization, they can learn more effectively from prior failure experience. Prior failure experience can be even more detrimental when the subsequent deal is carried out in an institutionally distant or more developed market. Based on over 30 years of data on cross-border M&As announced by EMFs, mostly from Asia, our analyses strongly support these propositions.

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Notes

  1. Although some EMFs are truly global, such as Huawei, Tata, Lenovo, Infosys, Embraer, and Cemex, they are few in number and not representative of most EMFs (Luo & Zhang, 2016). In our sample of 4,510 cross-border M&A deals announced by EMFs from 1980–2015, only 17.622% of sales of these EMF acquirers came from overseas markets on average.

  2. Our robustness test also confirms the non-existence of the U-shape relationship.

  3. Whether the target is in a developed or an emerging market and the institutional distance between the home country and the target country are theoretically and empirically distinct. While institutional distance is generally larger when EMFs expand into a developed market rather than an emerging market, there is still substantial variation in the institutional environments among developed markets and among emerging markets. Moreover, even if the institutional distance is the same for an EMF to expand into a developed market and expand into an emerging market, the implications can be different because of the differences in the direction of expansion (Hernández & Nieto, 2015). Our study is thus consistent with the recent development in the literature on institutional distance about considering the directionality in institutional distance (Deng & Sinkovics, 2018).

  4. Including the U.S., the U.K., Netherlands, Canada, Japan, France, Australia, Germany, Greece, Switzerland, Sweden, Italy, Belgium, Finland, Spain, Norway, Denmark, Iceland, New Zealand, Austria, Luxembourg, Portugal, Hong Kong, and Singapore.

  5. Including Argentina, Brazil, Chile, China, Colombia, Costa Rica, Cyprus, the Czech Republic, India, Indonesia, the Republic of Kazakhstan, Malaysia, Malta, Mexico, Nigeria, Oman, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, Saudi Arabia, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Ukraine, the United Arab Emirates, Vietnam, and Zambia.

  6. We used the mean level to divide the sample into high and low DOI, and into large and small institutional differences.

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Funding

This work was supported by National Natural Science Foundation of China for Young Scientists (No. 71902167), Natural Science Foundation of Fujian Province, China (Grant No. 2021J05012), Social Science Foundation of Fujian Province, China for Young Scientists (Grant No. FJ2021C086), and JSPS KAKENHI Grant Number JP20K13555.

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  1. School of Management, Xiamen University, Xiamen, 361005, Fujian, China

    Chenxi Zhou & Kent Ngan-Cheung Hui

  2. Faculty of Business and Economics, The University of Hong Kong, Pokfulam, Hong Kong

    Kevin Zheng Zhou

  3. Discovery Program for Global Learners, Okayama University, Okayama, Okayama Prefecture, 700-8530, Japan

    Yuanyuan Gong

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Zhou, C., Hui, K.NC., Zhou, K.Z. et al. Is failure the mother of success? Prior failure experience and cross-border M&A completion by emerging market firms. Asia Pac J Manag 40, 775–813 (2023). https://doi.org/10.1007/s10490-021-09802-9

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  • DOI: https://doi.org/10.1007/s10490-021-09802-9

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