A Study On The Completion And Knowledge Transfer Of Chinese Firms’ Cross-border Merger And Acquisitions

Innovation is the source of progress and the engine for the development of a nation. The innovation capability of a nation derives from the innovation capabilities of its firms. Thus, firms’ innovation capability is crucial for the nation’s development. The development of innovation capability is the result of knowledge accumulation, which can either be developed inside the firm or acquired from outside. Compared with developing knowledge within the firm, which is path-dependent and requires high R&D input and long period, acquiring knowledge from outside source enables firms to develop creative ability and competitiveness quickly. As a result, more and more Chinese firms employ cross-border merger and acquisitions(CBAs) as a strategic choice and attempt to improve competitiveness through CBAs in recent years. However, a series of failed CBAs indicate that not all firms can assimilate the potential benefits of CBAs and there are still a lot of challenges facing with Chinese firms. So what challenges will Chinese firms encounter in the process of CBAs? What factors influence the completion and knowledge transfer of CBAs of Chinese firms? How can Chinese firms improve their acquisition effectiveness? Answering these questions not only deepens our understanding of internationalization behaviors of developing country firms but also advances the internationalization theory. It also provides guidance to firms’ internationalization practices, which can be important from both theoretical and practical aspects.Literatures regarding CBA performance are mainly focus on multinationals from developed countries, which limit our understanding of factors that affect acquisition activities of multinationals in developing countries, as their internationalization behaviors vary significantly from those of developed countries. In addition, large amount of literatures tend to analyze post-acquisition performance and ignore pre-acquisition completion and their relationship. Finally, as the critical process that lead to innovation capacity improvement, knowledge transfer process within multinational companies has been widely studied. However, literatures in this area also focus on multinationals in developed countries and analyze knowledge transfer process in a static way. Thus we have limited understanding regarding the unique characteristics and dynamics of knowledge transfer process in developing country firms. Therefore, this research are trying to fill in these gaps and shedding new light on CBA activities of Chinese firms.The main contents and results of this thesis are as follows:Firstly, this study establishes a cross-border acquisition process model, which provides the basic framework for analyzing the whole CBA process. In addition, it also analyses the unique characteristics of location, industry and pattern of Chinese firms’ CBAs.Secondly, this research examines factors that influence pre-acquisition completion and concludes that international acquisition experience, country-level distance and state-ownership are important factors. To be specific, first of all, there is a U-shaped relationship between international acquisition experience and acquisition completion probability, i.e. experience will have negative impacts on the acquisition completion rate when firms have little experience and it will be beneficial to completion only after firms accumulating experience to some extent. Furthermore, geographic distance not only decreases completion rate directly but also exert negative moderating effects on the experience, thus affect completion rate indirectly, i.e. when firms have little experience, the larger the geographic distance the more negative effects experience have oncompletion rate. Finally, the effects of experience and geographic distance on pre-acquisition completion vary between private and state-owned firms. Compared with state-owned firms, the effects of acquisition experience on completion rate are more significant in private firms. By contrast, geographic distance influences the completion rate of state-owned firms more.Thirdly, the knowledge transfer process in post-acquisition is dynamic, which includes knowledge acquisition process and innovation capability development process. During knowledge acquisition process, while it is critical for the firm to acquire knowledge through reverse knowledge transfer, the positive knowledge transfer facilitates it. In innovation capability development process, the interaction between these two transfers is crucial to improve innovation capability and CBA performance.Finally, firm-level factors, such as state-ownership, firm experience and firm ability and country-level factors, such as geographic distance, institutional distance as well as cultural distance are the main factors that affect effectiveness of knowledge transfer process of Chinese firms. More importantly, the influence of these factors vary between different transfer processes. As a result, Chinese firms should take different measures to manage the two knowledge transfer processes according to their unique characteristics in order to improve post-acquisition performance.The main contributions of this research are:First of all, this study bridges the pre-acquisition process with post-acquisition process together and establishes the cross-border acquisition process model, which provides the basic framework for analyzing CBA activities and enables us to understand this problem comprehensively.Second, employing a sample of cross-border merger and acquisitions by Chinese firms, this study examines the effects of international acquisition experience, geographic distance and state-ownership on the completion of cross-border acquisitions empirically. The results not only deepens our understanding of how these factors influence internationalization performance of developing country firms but also provides practical ways to improve it.Specifically, this thesis re-examines the influence of prior acquisition experience on the completion of CBAs in the contxt of when firms have little experience to learn and finds that experience is not always beneficial. On the contrary, it can be detrimental to firm performance under some circumstances, which indicates the importance for firms to apply experience correctly. In addition, this study also examines the important roles played by distance and Chinese government, which broadens our comprehension on how institutional factors affect internationalization performance in developing country context.Finally, this thesis constructs a dynamic post-acquisition knowledge transfer process model, which improves our understanding of the uniqueness and dynamics of knowledge transfer process within Chinese multinationals and supplements knowledge transfer theory about the multinationals. Based on this, this thesis emphasizes the practice of knowledge transfer and explores factors that influence knowledge transfer of post-acquisition process by Chinese firms using two related cases. Additionally, the thesis proposed managerial strategies and suggestions on how to improve the efficiency of knowledge transfer according to different stages of knowledge transfer.