The Influence of Instituional Environment on the Effectiveness of M&A Deals in Developing Countries

Mergers and acquisitions (M&A) are becoming a prevalent mechanism for the companies in emerging economies to get an access to new markets and expand the share on the world arena. However, the success of a M&A deal depends on a variety of determinants, examination of which is crucial for acquiring companies. Prior studies have triggered a number of questions regarding the influence of institutional environment on the effectiveness of M&A deals in emerging economies. This paper fills this gap by investigating the degree to which institutional factors specifically affect firm value creation of emerging-market acquirers. Utilizing the event study methodology, we analyzed 281 deals performed by acquirers from BRICS countries over the three-year period from January 2014 to December 2016. Furthermore, we proposed a multivariate regression model to explain the institutional impact on cumulative abnormal returns for acquiring firms over two event window periods close to the M&A announcement. Additionally, the study investigates the difference of the institutional impact between cross-border and domestic deals. Our results from a study of 281 acquisitions indicate that M&As are, on average, effective for emerging-market acquirers and increase the firm value. Furthermore, we find that there is a significant negative influence of the institutional environment of a country on stock returns for acquiring companies in emerging economies in a relatively long event window period (-20; +20). Nonetheless, the study posits that the geography of a deal has a significant effect on the institutional impact and that cross-border transactions mitigate a negative relationship between institutional factors and firm value in emerging economies. Key words: Merger and Acquisition (M&A); corporate restructuring; institutional environment; market efficiency; event study analysis.