We propose a private-government principals-principals approach to understand corporate governance of state-owned multinationals. We explain how the conflicts between large government and private blockholders may affect managerial decisions in the propensity of completing a cross-border acquisition and its dollar value. We argue that conflicts among different blockholders make it difficult to pursue large-scale, cross-border deals because such conflicts may lead to a less coherent objective function and to a rejection of deals that do not satisfy these groups’ conflicting objectives. Finally, we show that such blockholder conflicts are moderated by the salience of the government’s “dual influence” on the firm in question, related to a state’s soft budget constraint and/or diplomatic advantages in countries where the host and the home markets do not enjoy a bilateral investment treaty. Empirically, we found highly supportive evidence based on a global sample of 7,564 cross-border acquisitions between 2004 and 2013.
AbdiM.AulakhP. S.2012. Do country-level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationships. Journal of International Business Studies, 43: 477-497.
2.
AndersonD.SweeneyD.WilliamsT.CammJ.CochranJ.2013. Statistics for business and economics. Boston, MA: Cengage Learning.
3.
AngS. H.BenischkeM. H.DohJ. P.2015. The interactions of institutions on foreign market entry mode. Strategic Management Journal, 36: 1536-1553.
4.
AroraA.BelenzonS.RiosL. A.2014. Make, buy, organize: The interplay between research, external knowledge, and firm structure. Strategic Management Journal, 35: 317-337.
5.
AttigN.El GhoulS.GuedhamiO.RizeanuS.2013. The governance role of multiple large shareholders: Evidence from the valuation of cash holdings. Journal of Management and Governance, 17: 419-451.
6.
AybarB.FiciciA.2009. Cross-border acquisitions and firm value: An analysis of emerging-market multinationals. Journal of International Business Studies, 40: 1317-1338.
7.
BassA. E.ChakrabartyS.2014. Resource security: Competition for global resources, strategic intent, and governments as owners. Journal of International Business Studies, 45: 961-979.
8.
BerleA. A.MeansG. G. C.1991. The modern corporation and private property. Piscataway, NJ: Transaction.
9.
BerryH.GuillénM. F.ZhouN.2010. An institutional approach to cross-national distance. Journal of International Business Studies, 41: 1460-1480.
10.
BoardmanA. E.ViningA. R.1989. Ownership and performance in competitive environments: A comparison of the performance of private, mixed, and state-owned enterprises. Journal of Law and Economics, 32: 1-33.
11.
BoubakriN.CossetJ.-C.SaffarW.2008. Political connections of newly privatized firms. Journal of Corporate Finance, 14: 654-673.
12.
BrunoV.ShinH. S.2014. Cross-border banking and global liquidity. Review of Economic Studies, 82: 535-564.
13.
BrutonG. D.PengM. W.AhlstromD.StanC.XuK.2015. State-owned enterprises around the world as hybrid organizations. Academy of Management Perspectives, 29: 92-114.
14.
BuckleyP. J.CleggL. J.CrossA. R.LiuX.VossH.ZhengP.2007. The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38: 499-518.
15.
BuckleyP. J.StrangeR.2011. The governance of the multinational enterprise: Insights from internalization theory. Journal of Management Studies, 48: 460-470.
16.
CazurraA. C.InkpenA.MusacchioA.RamaswamyK.2014. Governments as owners: State-owned multinational companies. Journal of International Business Studies, 45: 919-942.
17.
ChenY. Y.YoungM. N.2010. Cross-border mergers and acquisitions by Chinese listed companies: A principal-principal perspective. Asia Pacific Journal of Management, 27: 523-539.
18.
ConnellyB. L.HoskissonR. E.TihanyiL.CertoS. T.2010. Ownership as a form of corporate governance. Journal of Management Studies, 47: 1561-1589.
19.
CrespiR.RenneboogL.2010. Is (institutional) shareholder activism new? Evidence from UK shareholder coalitions in the pre-Cadbury era. Corporate Governance: An International Review, 18: 274-295.
20.
Cuervo-CazurraA.InkpenA.MusacchioA.RamaswamyK.2014. Governments as owners: State-owned multinational companies. Journal of International Business Studies, 45: 919-942.
21.
CuiL.JiangF.2009. FDI entry mode choice of Chinese firms: A strategic behavior perspective. Journal of World Business, 44: 434-444.
22.
CuiL.JiangF.2012. State ownership effect on firms’ FDI ownership decisions under institutional pressure: A study of Chinese outward-investing firms. Journal of International Business Studies, 43: 264-284.
23.
DailyC. M.DaltonD. R.CannellaA. A.2003. Corporate governance: Decades of dialogue and data. Academy of Management Review, 28: 371-382.
24.
DenisD. J.DenisD. K.SarinA.1999. Research notes and communications: Agency theory and the influence of equity ownership structure on corporate diversification strategies. Strategic Management Journal, 20: 1071-1076.
25.
DesenderK. A.AguileraR. V.Lópezpuertas-LamyM.CrespiR.2016. A clash of governance logics: Foreign ownership and board monitoring. Strategic Management Journal, 37: 349-369.
26.
DuanmuJ.-L.2014. State-owned MNCs and host country expropriation risk: The role of home state soft power and economic gunboat diplomacy. Journal of International Business Studies, 45: 1044-1060.
27.
EdmansA.MansoG.2011. Governance through trading and intervention: A theory of multiple blockholders. Review of Financial Studies, 24: 2395-2428.
28.
EggerP.PfaffermayrM.2004. The impact of bilateral investment treaties on foreign direct investment. Journal of Comparative Economics, 32: 788-804.
29.
EisenhardtK. M.1989. Agency theory: An assessment and review. Academy of Management Review, 14: 57-74.
30.
ElkinsZ.GuzmanA. T.SimmonsB. A.2006. Competing for capital: The diffusion of bilateral investment treaties, 1960–2000. International Organization, 60: 811-846.
31.
FilatotchevI.WrightM.2011. Agency perspectives on corporate governance of multinational enterprises. Journal of Management Studies, 48: 471-486.
32.
GengX.YoshikawaT.ColpanA. M.2016. Leveraging foreign institutional logic in the adoption of stock option pay among Japanese firms. Strategic Management Journal, 37: 1472-1492.
33.
GlobermanS.ChenV. Z.2010. Best policy practices for promoting inward and outward foreign direct investment. Ottawa, Canada: Conference Board of Canada.
GriffithsW. E.HillR. C.JudgeG. G.1993. Learning and practicing econometrics. New York: Wiley.
36.
GuillénM. F.CapronL.2016. State capacity, minority shareholder protections, and stock market development. Administrative Science Quarterly, 61: 125-160.
37.
HaansR. F. J.PietersC.HeZ.-L.2016. Thinking about U: Theorizing and testing U- and inverted U-shaped relationships in strategy research. Strategic Management Journal, 37: 1177-1195.
38.
HardinJ. W.HilbeJ.2007. Generalized linear models and extensions. College Station, TX: Stata Press.
39.
HaywardM. L.2002. When do firms learn from their acquisition experience? Evidence from 1990-1995. Strategic Management Journal, 23: 21-39.
40.
HeX.EdenL.HittM. A.2016. Shared governance: Institutional investors as a counterbalance to the state in state owned multinationals. Journal of International Management, 22: 115-130.
41.
HeckmanJ. J.1977. Sample selection bias as a specification error (with an application to the estimation of labor supply functions). Cambridge, MA: National Bureau of Economic Research.
42.
HeckmanJ. J.1979. Sample selection bias as a specification error. Econometrica: Journal of the Econometric Society, 47: 153-161.
43.
InoueC. F. K. V.LazzariniS. G.MusacchioA.2013. Leviathan as a minority shareholder: Firm-level performance implications of equity purchases by the government. Academy of Management Journal, 56: 1775-1801.
44.
JacobsenS.2014. The death of the deal: Are withdrawn acquisition deals informative of CEO quality?Journal of Financial Economics, 114: 54-83.
45.
JensenM. C.2002. Value maximization, stakeholder theory, and the corporate objective function. Business Ethics Quarterly, 12: 235-256.
46.
JensenM. C.MecklingW. H.1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3: 305-360.
47.
JeongY.WeinerR. J.2012. Who bribes? Evidence from the United Nations’ oil-for-food program. Strategic Management Journal, 33: 1363-1383.
48.
KornaiJ.1979. Resource-constrained versus demand-constrained systems. Econometrica, 47: 801-819.
49.
LazzariniS. G.2015. Strategizing by the government: Can industrial policy create firm-level competitive advantage?Strategic Management Journal, 36: 97-112.
50.
LeeperE. M.WalkerT. B.YangS.-C. S.2010. Government investment and fiscal stimulus. Journal of Monetary Economics, 57: 1000-1012.
51.
LiD.MoshirianF.PhamP. K.ZeinJ.2006. When financial institutions are large shareholders: The role of macro corporate governance environments. Journal of Finance, 61: 2975-3007.
52.
LiJ.MeyerK. E.ZhangH.DingY. in press. Diplomatic and corporate networks: Bridges to foreign locations. Journal of International Business Studies.
53.
LiJ.Newenham-KahindiA.ShapiroD. M.ChenV. Z.2013. The two-tier bargaining model revisited: Theory and evidence from China’s natural resource investments in Africa. Global Strategy Journal, 3: 300-321.
54.
LiJ.QianC.2013. Principal-principal conflicts under weak institutions: A study of corporate takeovers in China. Strategic Management Journal, 34: 498-508.
55.
LiM. H.CuiL.LuJ.2014. Varieties in state capitalism: Outward FDI strategies of central and local state-owned enterprises from emerging economy countries. Journal of International Business Studies, 45: 980-1004.
56.
MillerD.Breton-MillerL.LesterR. H.2010. Family ownership and acquisition behavior in publicly-traded companies. Strategic Management Journal, 31: 201-223.
57.
MoellerS. B.SchlingemannF. P.StulzR. M.2005. Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave. Journal of Finance, 60: 757-782.
58.
MusacchioA.LazzariniS. G.2014. Reinventing state capitalism: Leviathan in business, Brazil and beyond. Cambridge, MA: Harvard University Press.
59.
O’ConnorN. G.DengJ.LuoY.2006. Political constraints, organization design and performance measurement in China’s state-owned enterprises. Accounting, Organizations and Society, 31: 157-177.
60.
OsborneS. P.2010. The new public governance: Emerging perspectives on the theory and practice of public governance. Abingdon, UK: Routledge.
61.
PanY.TengL.SupapolA. B.LuX.HuangD.WangZ.2014. Firms’ FDI ownership: The influence of government ownership and legislative connections. Journal of International Business Studies, 45: 1029-1043.
62.
PatelP. C.KingD. R.2015. Acquire or get acquired. In RisbergA.KingD. R.MeglioO. (Eds.), The Routledge companion to mergers and acquisitions: 57-73. London, UK: Routledge.
63.
PengM. W.SunS. L.PinkhamB.ChenH.2009. The institution-based view as a third leg for a strategy tripod. Academy of Management Perspectives, 23: 63-81.
64.
PengM. W.WangD. Y.JiangY.2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39: 920-936.
65.
RamaswamyK.LiM.VeliyathR.2002. Variations in ownership behavior and propensity to diversify: A study of the Indian corporate context. Strategic Management Journal, 23: 345-358.
66.
RendersA.GaeremynckA.2012. Corporate governance, principal-principal agency conflicts, and firm value in European listed companies. Corporate Governance: An International Review, 20: 125-143.
67.
RoubiniN.SachsJ.HonkapohjaS.CohenD.1989. Government spending and budget deficits in the industrial countries. Economic Policy, 4: 100-132.
68.
SauerwaldS.PengM. W.2013. Informal institutions, shareholder coalitions, and principal-principal conflicts. Asia Pacific Journal of Management, 30: 853-870.
69.
SauvantK. P.SachsL. E.JongbloedW. P. S.2012. Sovereign investment: Concerns and policy reactions. Oxford, UK: Oxford University Press.
70.
SethA.SongK. P.PettitR.2000. Synergy, managerialism or hubris? An empirical examination of motives for foreign acquisitions of US firms. Journal of International Business Studies, 31: 387-405.
71.
SethA.SongK. P.PettitR. R.2002. Value creation and destruction in cross-border acquisitions: An empirical analysis of foreign acquisitions of US firms. Strategic Management Journal, 23: 921-940.
72.
ShleiferA.VishnyR. W.1997. A survey of corporate governance. Journal of Finance, 52: 737-783.
73.
SuY.XuD.PhanP. H.2008. Principal-principal conflict in the governance of the Chinese public corporation. Management and Organization Review, 4: 17-38.
74.
ViningA. R.WeimerD. L.2016. The challenges of fractionalized property rights in public-private hybrid organizations: The good, the bad, and the ugly. Regulation and Governance, 10: 161-178.
75.
XiaF.WalkerG.2015. How much does owner type matter for firm performance? Manufacturing firms in China 1998–2007. Strategic Management Journal, 36: 576-585.
76.
YoungM. N.PengM. W.AhlstromD.BrutonG. D.JiangY.2008. Corporate governance in emerging economies: A review of the principal-principal perspective. Journal of Management Studies, 45: 196-220.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
