Research On Cross-Border M&A And Knowledge Diffusion

In the period of knowledge economy, knowledge becomes a key resource that has the most important strategic value for enterprises. Knowledge is one of the most significant factors for a nation or region to keep economic development and competitive advantages. With globalization and increasing scarcity of natural recourses like land, multinational corporations (MNC) have intent to optimize their resources through cross-border Merger and Acquisition (M&A) in the world. M&A becomes an important approach for MNC to acquire and accumulate external knowledge and knowledge capital. With China’s access to WTO and further integration with international economy, more and more corporations in China join in the international economy and expand their businesses’geographical presence through M&A. Therefore, through organic integration between cross-border M&A and knowledge capital, the research on M&A and knowledge management has important theoretical contribution and empirical importance.This dissertation explored the behavior of cross-border M&A activity by applying key theories of knowledge economy into M&A practice. Based on knowledge capital and innovation, this study analyzed the internal logic and ways of knowledge transfer, knowledge expansion, and spillovers of the cross-border M&A activity in depth. This research also examined the impact of M&A activity on the knowledge capital on both micro and macro levels. The dissertation adopted a method by combining theoretical analysis and empirical analysis, qualitative analysis and quantitative analysis, theoretical study and case study. The research probed the influence of cross-border M&A activity on knowledge capital at both micro and macro levels. The dissertation is consisted of4sections with7chapters.Section1, including Chapters1and2, is the research foundation section. Chapter1introduced the research background, research objectives, methodologies, research framework, dissertation structure, and the innovative points of the dissertation. Based on literature review, chapter2defined the concept of knowledge, knowledge capital, knowledge transfer, knowledge spillovers, and etc. Knowledge capital in this research includes corporation knowledge capital at micro level and knowledge capital at macro level. The remaining of the chapter systematically conducted literature review on knowledge transfer, knowledge integration, knowledge expansion, spillovers, FDI, and technological spillovers of OFDI during the cross-border M&A activity. Based on the literature review, this study evaluated knowledge spillovers of the positive and reverse M&A on both host countries and parent countries. This dissertation also tested the influence of M&A activity on corporation knowledge capital at micro level and knowledge capital at macro level. The first two chapters are the foundation of following chapters.Section2includes chapters3and4with focus on effect of cross-border M&A activity on micro level knowledge capital, which is the corporation knowledge capital. Chapter3investigated the mechanism and path of corporation knowledge capital transfer, ways of knowledge transfer, and influencing factors of the transfer during the cross-border M&A activity. This chapter also analyzed the models and mechanism of corporation knowledge capital integration. Chapter4conducted empirical analysis on the influence of knowledge transfer effect of cross-border M&A activity. That is the influence of cross-border M&A activity on corporation knowledge capital. Based on related research before, this chapter adopted a fuzzy comprehensive evaluation method. This chapter cautiously and innovatively selected three factors including asset turnover ratio and several financial ratio index, and follow-up approach. In order to analyze5-year changes before and after cross-border M&A activity, this study conducted comparative analysis and regression analysis based on the foreign capital M&A activities of more than70public listed companies in China from1995to2010and more than40China firms’oversea M&A activity from2000to2010. The analysis results showed that, overall, cross-border M&A activity has positive impact on knowledge capital of both host countries and parent countries. However, the magnitude and effect degree varied due to the interrupt of many factors.Chapter5, which is the third section of the dissertation, analyzed the impact of cross-border M&A activity on macro level knowledge capital by the analysis of internal mechanism of cross-border M&A with the perspective of industry and region. This chapter provided guidelines for the knowledge management of cross-border M&A. First, this chapter built a theoretical model about the mechanism of cross-border knowledge spillovers. Spillovers are realized through the improvement of productivity, but such knowledge spillovers are accompanied by costs. Thus, it depends on the balance of gains and costs to get spillovers. Second, based on the analysis of China’s TFP factors, this study found the presence and increase of knowledge spillovers of M&A. Third, this study analyzed the positive and converse effects of spillovers of FDI including M&A. The research found that spillovers of FDI have two ways of spray:horizontal overflow within industry (model effects, competition effects, and labor market) and vertical overflow (backward and forward overflow). Vertical spillovers are larger than horizontal spillovers. Compared with Greenfield investment, from the sources of knowledge spillovers of FDI, spillovers of cross-border M&A have bigger and faster innovation and growth impact on host countries. Finally, this chapter analyzed the reverse knowledge spillovers, which are realized mainly by OFDI. Based on regression analysis of panel data of15countries, this chapter found the existence of reverse knowledge spillovers but such spillovers is not as significant as those generated by Greenfield investment.Chapter6is the fourth section. Based on analysis before and the perspective of knowledge capital, this chapter analyzed and summarized two manufacturing firms, two financial firms, and the author’s own experience of several cross-border M&A cases such as Yinfeituo and Pingan Bank M&A activity. The case study found that internal and external effects of knowledge spillovers should be integrated and balanced and put forward several suggestions. The study suggested that, in the process of cross-border M&A, besides detail survey and investigation, the impact of cross-border M&A activity on macro and micro level knowledge capital must be comprehensively measured. Spillover effects of the cross-border M&A activity must also be analyzed thoroughly. The actions to find, consider, and coordinate all parties’interest and benefits are needed in order to have win-win results from cross-border M&A activity.Finally, chapter7concluded the research, put forward practical implication of cross-border M&A activity, research limitations, and further research direction.The dissertation is innovative in the following key areas. First of all, through mathematical models, this study explored the internal mechanism of cross-border knowledge spillovers through the perspective of industry and region, which provided guidelines for knowledge management of cross-border M&A activity. This research suggested that the knowledge spillovers are realized by improving firms’productivity and efficiency, but such knowledge spillovers are accompanied by costs. Thus, it depends on the balance of gains and costs to get spillovers. Generally, cross-border spillovers are realized through three approaches:intermediate goods of technologic knowledge, MNC’s internal pure knowledge transfer and diffusion, and externalities of FDI (positive and negative). However, the specific way of knowledge transfer depends on many factors including the complexity of intermediate goods, technical and knowledge expansion cost between parent and subsidiary companies (communication cost), transportation costs of intermediate goods, and distance between parent and subsidiary companies.Second, this study is the first research on reverse knowledge spillovers by differentiating the FDI and Greenfield investment on OFDI. Based on regression analysis of panel data of15countries, this study found the existence of reverse knowledge spillovers. The research also found that FDI significantly increased the spillovers of parent countries and reverse spillovers is significant generated by Greenfield investment. The research showed that the establishment of cross-border R&D institutes has significant reverse spillovers.Third, this research applied fuzzy a comprehensive evaluation method to analyze the cross-border M&A activity, based on literature review and others’ research. This study cautiously and innovatively selected three factors including asset turnover ratio and several financial ratio index, and follow-up approach. In order to analyze5-year changes before and after cross-border M&A activity, this study conducted comparative analysis and regression analysis based on the foreign capital M&A activities of more than70public listed companies in China from1995to2010and more than40China firms’oversea M&A activity from2000to2010. The analysis results showed that, overall, cross-border M&A activity has positive impact on knowledge capital of both host countries and parent countries. It is relative new by using and applying comparison and regression analysis on the knowledge transfer effect based on large sample data and cases. Fourth, through the perspective of knowledge capital, this study systematically examined the impact of cross-border M&A activity on knowledge capital. Based on cross-border M&A cases, this study put forward policy suggestions and implication. The research suggested that it is important to coordinate all parties’knowledge capital gains and to find, facilitate, and integrate win-win cross-border M&A models.