Sources Of Legitimacy Before Merger And Acquisition

With the deepening of global economic integration, Chinese enterprises become increasingly active in merger and acquisition (M&A) area and intensively experienced in international operation. However, while looking back on those classic M&A cases, it is easily noticed that Chinese enterprises confronted with more difficulties when conducting M&A operations in American market, especially those which were pioneers. In an emerging economy, Chinese enterprise possesses a unique organizational identity. This identity makes it experience special liability of foreigness when operating in developed countries and up against the disadvantage of the lack of legitimacy. Usually,, these disadvantages lead to the failure of a M&A case in the bid stage, because of the unfamiliarity, misunderstanding, distrust and unacceptance hold by host country audience or social actors towards Chinese enterprises. Nevertheless, most of present literatures and studies are base on the environment of developed economies and aimed at transnational companies (MNC) from developed countries. Hence, their research findings are inappropriate and inadequate to explain the situation of MNCs from emerging economies, like China. Therefore, to explore the legitimacy sources of Chinese enterprises in American market before M&A concerning macro and micro background has significant meanings theoretically and practically.Based on the review of exist literatures and studies, we established a theoretical basis of organization identity theory, liability of foreigness theory and legitimacy theory. We assume Chinese enterprise entering American market in form of M&A as the procedure of a organizational form acquiring legitimacy. Exploratory case study method is employed as a main research method in this study, through which we explore the events in the case in order to find the sources of legitimacy before M&A in American market.Consequently, the findings of this research show that existing theoretical research has limitation to explain the difficulty faced by Chinese enterprise. In this case, we adopt liability of origin to explain the special disadvantages encountered by Chinee enterprise which is adequate and applicable. The exploratory case study results indicates that there are three main legitimacy sources, namely, host country acceptance, home country acceptance and FDI communities. Therefore, the theoretical framework and legitimacy source model established in this research have theoretical and practical importance in directing Chinese enterprise acquiring legitimacy in American Market before M&A.