Abstract:
This study investigates how transaction cost and institutional variables influence emerging economy (EE) firms’ entry mode choices between acquisitions and alliances. It also considers how these decisions differ in the context of entering developed and emerging countries. Using data from 501 cross-border acquisitions and alliances conducted by firms from the six EEs between 1995 and 2008, this study finds evidence to support that asset specificity is positively associated with acquisitions as the entry modes while external uncertainty is positively related to the utilisation of alliances. It also provides support to the positive relationship between regulatory distance (normative distance) and the likelihood of conducting acquisitions. Additionally, when multinational enterprises (MNEs) enter developed economy (DE) and EE countries, the effects of asset specificity, external uncertainty, regulatory distance and normative distance are different. When entering a DE market, asset specificity and normative distance have stronger effects in determining entry modes while in an EE market, external uncertainty and regulatory distance are more influential in entry mode decisions. These findings have important theoretical implications for the significance of both the transaction cost perspective and the institutional perspective in explaining EE firms’ entry mode strategies. This study also sheds light on managerial decisions that take transaction cost and institutional variables into consideration.
