Effect of disaggregated formal institutional distance variables on the choice

of partial versus full acquisitions

Kashif Ahmed*
Graduate School of Business Administration, Kobe University
kashif.ahmed@stu.kobe-u.ac.jp

Ralf Bebenroth
Research Institute for Economics & Business Administration (RIEB), Kobe University
rbeben@rieb.kobe-u.ac.jp

(Corresponding Author indicated by an asterisk *)

Presented at: SIBR 2019 (Osaka) Conference on Interdisciplinary

Business and Economics Research, 4th - 5th July 2019, Osaka, Japan.

ABSTRACT
We highlight the importance of investigating formal institutional distance variables measured
in the Worldwide Governance Indicator (WGI) in a disaggregated form. More specifically,
we focus on how a firms’ choice between partial and full acquisitions is affected by these
disaggregated formal institutional distance variables. Our results show that the choice is
affected by only three of the six WGI dimensions with larger differences in “regulatory
quality” and “control of corruption” leading to a higher likelihood of partial acquisitions;
larger differences in “rule of law” lead to a higher likelihood of full acquisitions.

Keywords: Governance; Worldwide Governance Indicators (WGI); Partial versus full acquisitions;
formal institutional distance

1
1. Introduction
Scholars have long discussed the role of distance between home and host countries in firm’s
internationalization (Hymer, 1960). Back in the late 20th century, multi-country empirical
studies commonly controlled for country distances using Hofstede’s (1980) culture distance
index (e.g. Barkema et al., 1996; Hennart and Larimo, 1998). Lately, scholars emphasize in
line with institutional theory that cross-national distance should be operationalized in
disaggregated form to reflect its multidimensionality (Berry et al., 2010). Hence, scholars
distinguish between formal institutional distances and informal institutional distances (Estrin
et al., 2009). Informal or normative institutional distances are grounded in values, norms, and
beliefs (North, 1990, 2005). Hence, cultural distance is an appropriate proxy for this
dimension. In contrast, formal or regulatory institutional distance includes diverse aspects
like regulatory quality, corruption, political stability, ease of doing business for foreign firms,
economic risk, etc.
Despite these diverse dimensions of formal institutional distance, most studies in the
international business (IB) literature use aggregated measures of governance as a proxy for
the extent of formal institutions (Ang and Michailova, 2008; Brouthers et al., 2003; Estrin et
al., 2009; Gaur and Lu, 2007; Salomon and Wu, 2012; Xu et al., 2004; Yiu and Makino,
2002). These scholars justify aggregations by high correlation between the various
governance dimensions and favorable results of factor analysis and by the argument that
these indicators fall under the same broader category. Among other studies (Berry et al.,
2010; Henisz, 2000; Meyer and Nguyen, 2005) which considered the multidimensionality of
formal institutions in general, Cuervo-Cazurra and Genc (2008) remains a major exception as
they focus on the multidimensionality of formal institutions particularly with respect to the
six dimensions of the WGI. They showed that disaggregated formal institutional distance
variables (as measured by six WGI dimensions separately) yield heterogeneous effects on
their dependent variable. Hence, they supported earlier findings in the economics literature
that WGI should not be investigated in an aggregated form (Albassam, 2015; Arndt and
Oman, 2006; Berden et al., 2014; Kaufmann et al., 2007; Kwon and Kim, 2014; Zubair and
Khan, 2014).
In this study, we extend the work of Cuervo-Cazurra and Genc (2008) by investigating the
effect of multidimensional formal institutional distances on the firms’ choice to acquire cross-
border targets partially or fully. In other words, we study how each dimension of the World
Governance Indicator (WGI) affects the choice of partial versus full acquisitions. The choice
of partial versus full acquisition has been studied frequently in the prior literature (Chari and
Chang, 2009; Chen, 2008; Chikhouni et al., 2017) as cross-border acquisitions has become a
common entry mode to other countries (Danakol et al., 2017).
To test our hypotheses, we use data on cross-border acquisitions undertaken by Japanese
companies. First, there is previous research available on Japanese cross-border acquisitions in
entry mode studies (Belderbos, 2003; Pease et al., 2006; Tanganelli and Schaan, 2014; Wang
and Schaan, 2008). Second, Japan is the third largest global economy and an active cross-
border acquirer (Pease et al., 2006; Tanganelli and Schaan, 2014). Third, as Japanese firms
have increased their cross-border investments, it allows us to examine vast differences with
respect to formal institutional distances.
Our results indicate that the choice of partial versus full acquisitions is affected by only three
dimensions: regulatory quality, rule of law and control of corruption. While an increase in the
distance of regulatory quality and that of control of corruption leads to a higher likelihood of

2
partial acquisitions, an increase in the distance of rule of law is associated with a higher
likelihood of full acquisitions. These findings are consistent across our main results and four
robustness checks.
This study has implications for the IB literature. It corroborates earlier findings in the IB
literature that WGI dimensions are indeed heterogeneous (Cuervo-Cazurra and Genc, 2008).
Therefore, it has direct implications for studies in which aggregated measures of WGI were
used (Ahammad et al., 2017; Ang and Michailova, 2008; Contractor et al., 2014; Lahiri et al.,
2014). For example, Ahammad et al. (2017) showed that host country risk (measured as an
aggregated measure of WGI) did not affect the choice of partial versus full acquisitions. We
argue that their aggregated measure of WGI could not capture heterogeneous effects of each
governance dimension. In the same way, this study has implications for other studies which
used aggregated measures of governance from other data sources such as the Index of
Economic Freedom (Estrin et al., 2009), the Global Competitive Index (Chao and Kumar,
2010; Xu et al., 2004), and the International country risk guide (Chari and Chang, 2009;
Henisz, 2000).
The following section presents a literature review and develops hypotheses. Next, the
methodology and measurement are discussed. Then, the data and descriptive statistics are
presented. Afterwards, we present the results and four robustness checks. Then, the
discussion, implications, future research directions, and limitations of the study are presented.
2. Literature review

2.1. Formal institutions and the choice of partial versus full acquisitions
A number of studies have considered the role of formal institutions when investigating the
choice of partial versus full acquisitions (Ahammad et al., 2017, Chikhouni et al. 2017;
Contractor et al., 2014; Chari and Chang, 2009; Demirbag et al., 2007; Lahiri et al., 2014).
These studies have focused on levels of institutional development in host countries
(Ahammad et al., 2017, Chikhouni et al. 2017; Chari and Chang, 2009; Demirbag et al.,
2007) or on institutional differences between host and home countries (Contractor et al.,
2014; Lahiri et al., 2014). While acknowledging the relative importance of both approaches,
we limit the scope of this study to the latter method as it entails “the logic of FDI that the
multinational firm bridges the difference between the home and host nation, with one leg in
each country” (Contractor et al., 2014: 932).
Demirbag et al. (2007) considered multiple dimensions of formal institutions (viz. political
constraint and corruption) when investigating the choice of partial versus full acquisitions.
They found that a higher level of political constraint in host countries lead acquirers to prefer
partial acquisitions. Note, the authors relied for their analysis on the political constraint index
developed by Heinz (2000). This index signifies that political risk in a country is based upon
how structure and preference of independent branches of governments (such as legislative,
executive, and judicial) deter its implementation in a country. They additionally reflected on
corruption levels between home and host countries and how that affected the choice of partial
versus full acquisitions. However, the results were not clear cut, i.e. the authors found only in
a very few cases a significant relationship. The study by Vasudeva et al. (2018) showed that
higher FDI-restrictiveness in the host country increases the likelihood of partial acquisitions.
They operationalized FDI-restrictiveness as provided by OECD data (Organization for
Economic Co-operation and Development database). This database captures statutory
restrictions of foreign direct investment on four major aspects: 1. foreign equity limitation, 2.
screening or approval mechanism, 3. restrictions on the employment of foreigners as key
personnel, and 4. operational restrictions.

3
It is to state that studies with aggregated measures often produce conflicting results. For
example, Chari and Chang (2009) showed that a lower development of formal institutions in
host countries leads to a higher preference for partial acquisitions. In contrast, Chikhouni et
al. (2017) came to the opposite conclusion. Focusing on the difference between home and
host countries, Contractor et al. (2014) show that, ceteris paribus, a higher institutional
distance from home to host countries is associated with the choice of full acquisitions.
Focusing on moderating effects of acquirer’s country-of-origin on the relationship between
institutional distance and acquisition choice, Lahiri et al. (2014) demonstrate that acquirer
from developed countries prefer partial acquisitions in case of a higher institutional distance
to India. However, acquirers from developing countries behave in the opposite fashion, i.e.
they prefer full acquisitions at higher institutional distances. Table 1 presents a
comprehensive overview of studies in major business journals incorporating formal
institutional distances and its effect on partial versus full acquisitions.

-----------------------------------
Table 1 is inserted here
-----------------------------------

2.2. Worldwide Governance Indicators

Worldwide Governance Indicators (WGI) stem from a classification of different dimensions
of country-level governance scores provided by the World Bank. Kaufmann et al. (2007)
developed these indicators and defined governance as traditions and institutions by which
authority (or power) in a country is exercised. WGI classification divides governance
indicators into three major areas viz. government, policies, and legal institutions. At the
government level, indicators focus on the process by which governments are selected,
monitored and replaced. At the level of policies, indicators focus on the capacity of
governments to effectively formulate and implement sound (effective) policies. At the legal
institutional level, indicators focus on respect of citizens and the state for institutions that
govern economic and social interactions among them. More specifically, at the government
level, this index consists of two indicators: “voice and accountability” as well as “political
stability” and “absence of violence”. The next two indicators measuring policies consist of
“government effectiveness” and “regulatory quality”. Finally, the last two indicators at the
legal institutional level consist of “rule of law” and “control of corruption”. Definitions of
each dimension are provided in Table 2.
These indicators have been widely used in academic research with an extensive coverage for
over 200 countries and territories. In IB research, these indicators have been used e.g. as
proxies for institutional developments (Ahammad et al., 2017; Ang and Michailova, 2008;
Contractor et al., 2014; Lahiri et al., 2014).

-----------------------------------
Table 2 is inserted here
-----------------------------------

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3. Hypothesis Development
Since the central claim of this study is that formal institutional distance variables have to be
studied in a disintegrated form to justify a thorough analysis (Cuervo-Cazurra and Genc,
2008), we separately study all six dimensions of the WGI indicators to understand the effect
of formal institutional distances on the choice of partial versus full acquisitions.

3.1. Voice and accountability

Voice and accountability relates to the degree to which people in a country are given liberty
to select governments. It can be also said that this dimension of governance focuses on the
process of government selection. A country with lower scores on this dimension denotes that
power in those countries stays with dictators or authoritarian regimes whereas a higher score
signifies the presence of a smooth democratic system (Kaufmann et al., 2007). Hence, a
greater distance between home and host countries suggests that acquirers will have to work
under different types of governments in host countries. This will create a sense of uncertainty
for acquirer as it may increase discriminatory institutional pressure from the host country
governments (Poynter, 1985; Yiu and Makino, 2002). For example, as Japan scores on this
dimension with a higher distance to China and a lower one to Taiwan, Japanese firms will
face a greater uncertainty working in China. In order to deal with this external pressure of
political environments, Japanese firms can undertake partial acquisitions to involve local
Chinese partners lessening external uncertainties (Inkpen and Beamish, 1997; Makino and
Delios, 1996; Xu et al., 2004). Formally:

Hypothesis 1: The higher the distance between home and host

countries on voice and accountability, the higher the tendency
of acquiring firms to prefer partial acquisitions over full
acquisitions.

3.2. Political stability and absence of violence

This dimension of governance focuses on the degree of destabilization of governments by
political instable and violent means. Hence, a higher score in this indicator suggests that a
country has a lower likelihood that the government will be overthrown (Kaufmann et al.,
2007). Thus, a greater distance of this indicator between home and host countries for a given
deal suggests that acquirers face more difficulty working in these host countries. Note, cross-
border investments are sensitive leading to a lower likelihood of foreign firms investing in
countries with political instability as it can results in sudden political changes, or can lead to
cancellations of existing contracts (Henisz and Williamson, 1999). For example, Japan scores
on this indicator similar to Singapore but distant to Thailand. Hence, Japanese firms will be
relatively comfortable investing in Singapore due to its similarities in the working
environment with respect to political stability and absence of violence (Contractor et al.,
2014; Lahiri et al., 2014). In contrast, Japanese firms investing in Thailand are in a stronger
need of help by local partners leaving them with a lower likelihood of full acquisitions
(Inkpen and Beamish, 1997; Makino and Delios, 1996; Xu et al., 2004). Hence, we present
the second hypothesis below:

Hypothesis 2: The higher the distance between home and host

countries on political stability and absence of violence, the
higher the tendency of acquiring firms to prefer partial
acquisitions over full acquisitions.

5
3.3. Government effectiveness
This dimension of governance focuses on the extent to which the process of policy
formulation implemented in a given country is independent of the ruling government. In other
words, it signifies quality of bureaucracy and public service in a country. A higher score for
this indicator shows the tendency of governments to refrain from using their power to
influence policies (Kaufmann et al., 2007). Thus, a higher difference between host and home
countries for this indicator shows that acquirers have not been exposed to work under similar
types of bureaucracy and public service provisions. Stated differently, acquirers from
countries with higher scores on this dimension may face more difficulties in operating at
other countries. Reason behind this is that bureaucracy may be influenced by elites or that the
basic public service is not sufficiently provided (Contractor et al., 2014; Lahiri et al., 2014).
In such a scenario, acquirer lack experience of dealing with such a bureaucracy and may have
to invest on its own to cover the deficiency of public service provisions (Cuervo-Cazurra and
Genc, 2008). An example of such a scenario could be seen in Japanese investments to
Malaysia versus Indonesia. Japan scores similar to Malaysia in terms of government
effectiveness as compared to Indonesia. Hence, ceteris paribus, Japanese firms will face a
higher uncertainty in Indonesia due to its greater difference in government effectiveness. As a
result, we suggest Japanese bidders to have a greater preference for partial acquisitions in
such countries as Indonesia to work with local partners (Inkpen and Beamish, 1997; Makino
and Delios, 1996; Xu et al., 2004). Hence, the third hypothesis is presented as:

Hypothesis 3: The higher the distance between home and host

countries on government effectiveness, the higher the tendency
of acquiring firms to prefer partial acquisitions over full
acquisitions.

3.4. Regulatory quality

This dimension of governance corresponds directly to the promotion of private sector
development. A higher score for this dimension indicates that governments are keen to assist
their local businesses through supportive policies and regulations (Kaufmann et al., 2007). A
higher distance between acquirer and target countries on this dimension signifies that acquirer
would be treated differently in host countries with respect to policies and regulations. In other
words, firms from countries with a certain type of regulatory framework may feel restricted
in these host countries where a different type of regulatory framework is prevalent
(Contractor et al., 2014; Lahiri et al., 2014). For example, in this dimension Japan stands
close to France but distant to India. Hence, ceteris paribus, Japanese firms will face a greater
uncertainty in India, and therefore prefer partial acquisitions rather in India than in France to
receive support by local partners (Inkpen and Beamish, 1997; Makino and Delios, 1996; Xu
et al., 2004). We present our fourth hypothesis as:

Hypothesis 4: The higher the distance between home and host

countries on regulatory quality, the higher the tendency of
acquiring firms to prefer partial acquisitions over full
acquisitions.

3.5 Rule of law

Rule of law relates to the quality of contract enforcement and extends to society that deals
with its inhabitants. A higher score on this dimension indicates a higher likelihood of crime
or violence in that given country. In contrast, a lower score on this dimension indicates legal

6
institutions operate fairly (Kaufmann et al., 2007). Thus, a greater distance between host and
home country in this dimension shows that acquirer will go through unique experiences when
dealing with legal institutions such as court and police. In such a scenario, acquirers will be
concerned about the lack of norms prevalent in judicial systems of host countries to ensure
the enforcement of contracts (Contractor et al., 2014; Lahiri et al., 2014). For example, Japan
ranks close to the United States but distant to China. Therefore, Japanese firms are expected
to prefer partial acquisitions in China for receiving support from local business partners with
respect to external uncertainties by the rule of law (Inkpen and Beamish, 1997; Makino and
Delios, 1996; Xu et al., 2004). Hence, the fifth hypothesis is presented as:

Hypothesis 5: The higher the distance between home and host

countries on the rule of law, the higher the tendency of
acquiring firms to prefer partial acquisitions over full
acquisitions.

3.6. Control of Corruption

This dimension of governance addresses all forms of corruption. At a broader level, it relates
to the extent to which public power is exercised for private gains. A higher score in this
dimension signifies that firms in a country are governed fairly by economic and regulatory
institutions, and in contrast, a lower score indicates that firms in that given country are
mandated to make additional, irregular payments (Kaufmann et al., 2007).
A higher distance between host and home country for this dimension leads firms
experiencing a different behavior of economic and regulatory institutions in these host
countries, and hence, perceive a higher uncertainty (Contractor et al., 2014; Lahiri et al.,
2014). Japanese ranks very low on corruption and acquirers will be relatively comfortable in
host countries that are ranked close to Japan such as e.g. the United States, France, or Hong
Kong. In contrast, Japanese firms are relatively anxious in countries which show a higher
degree of corruption as India, China, and Thailand. Hence, ceteris paribus at countries with a
high corruption, Japanese firms would be negatively influenced and would value the help of
local partners when undertaking investments. This would lead to partial acquisitions in the
latter mentioned countries (Inkpen and Beamish, 1997; Makino and Delios, 1996; Xu et al.,
2004). Hence our sixth hypothesis:

Hypothesis 6: The higher the distance between home and host

countries on voice and accountability, the higher the tendency
of acquiring firms to prefer partial acquisitions over full
acquisitions.

4. Methodology and measurement

4.1. Econometric model
The categorical dependent variable in our study represents the choice of partial versus full
acquisitions. Therefore, we employ a logistic regression analysis similar to earlier research
(Arslan and Wang, 2015; Liang et al., 2009). More specifically, we use the following
specification in our final model:

7
 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 (𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 = 1)
= 𝛽𝛽𝑂𝑂 + 𝛽𝛽1 (𝑉𝑉𝑉𝑉) + 𝛽𝛽2 (𝑃𝑃𝑃𝑃) + 𝛽𝛽3 (𝐺𝐺𝐺𝐺) + 𝛽𝛽4 (𝑅𝑅𝑅𝑅) + 𝛽𝛽5 (𝑅𝑅𝑅𝑅) + 𝛽𝛽6 (𝐶𝐶𝐶𝐶)
+ 𝛽𝛽7 (ℎ𝑜𝑜𝑜𝑜𝑜𝑜 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠) + 𝛽𝛽8 (𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑)
+ 𝛽𝛽9 (𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒) + 𝛽𝛽10 (𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠) + 𝛽𝛽11 (𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠)
+ 𝛽𝛽12 (𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟) + 𝛽𝛽13 (𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑)
+ 𝛽𝛽14 (𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑) + 𝜀𝜀
In Model 1, we included only the control variables and in Model 2, we added the aggregated
measure of institutional distance. In our final model, Model 3, we entered all six dimensions
of formal institutional distance variables corresponding to each dimension of WGI indicators,
viz. VA, PS, GE, RQ, RL, and CC. Definitions of all variables are presented in Table 2.
4.2. Dependent variable
The dependent variable, acquisition mode, took the value of one for full acquisitions, and
zero for partial acquisitions, otherwise. In the definition of full acquisitions, we relied on
previous literature, where a full acquisition means that acquirers obtain 100% ownership in
the target after the deal. Likewise, ownership of any percentage less than 100% represents a
partial acquisition (Lahiri et al., 2014; Liang et al., 2009; Mariotti et al., 2014).
4.3. Independent variables
We operationalized institutional distance as the difference between host countries and Japan
for each dimension of the WGI indicators (Kaufmann et al., 2007). The aggregated measure
of institutional distance was calculated using the rank function of all six dimensions (Aybar
and Facici, 2009). We based these calculations on a three year average value, with data
ending a year before the acquisition. Note that the use of averages takes firm behavior into
consideration. It is more robust to observe trends of key variables rather than focusing on
single year observations (Ahammad et al., 2017).
4.4. Control variables
We added several control variables into our regression at three different levels regarding firm,
industry, and country. At the firm level, we controlled for the size of acquirers and targets
taking the natural logarithm of total assets (Chiu et al., 2018; Huang et al., 2014; Park et al.,
2011; Pattnaik and Lee, 2014; Reuer and Ragozzino, 2012). For acquirers, we additionally
controlled for acquisition experience in the host country. Following prior studies, we
operationalized acquirer experience as the number of years since their first investment in that
country (Arslan and Wang, 2015; Chen and Hennart, 2004; Chen, 2008; Chikhouni et al.,
2017; Mariotti et al., 2014).
At the industry level, we controlled for deal relatedness. Prior studies have controlled for
industry-relatedness if acquirers and targets shared the same three-digit Standard Industry
Classification (SIC) code (Chari and Chang, 2009; Contractor et al., 2014; Lahiri et al.,
2014). This classification denotes that acquirers and targets are from same industry if the
three digit levels fit. Because of data availability we used Bloomberg Industry Classification
Systems (BICS), and operationalized furthermore the deal relatedness as a dummy variable.
When acquirers and targets were from the same industry sub-group (i.e. same third-level
classification as per BICS), we appointed them with a value of one, and zero otherwise. We
also added industry dummy variables to control for industry fixed effects (Lahiri et al., 2014).

8
At the country level, we controlled for cultural distances between Japan and target countries
by using Kogut and Singh’s (1988) composite index, based on the four dimensions of
Hofstede’s (1980) national cultural difference index (Arslan and Wang, 2015; Demirbag et
al., 2007; Lahiri et al., 2014; Liang et al., 2009). We additionally controlled for the host
country size. This variable was operationalized as the natural logarithm of the host country
GDP based on a five year average, with data ending a year before the acquisition (Liang et
al., 2009).
Since the sample was drawn from multiple years, the year dummies were also included in the
regression analysis. Variables, their definitions, previous applications and data sources are
provided in Table 3.
-----------------------------------
Table 3 is inserted here
-----------------------------------
5. Data and descriptive statistics
We retrieved all firm level variables of M&A transactions from the Bloomberg database for
the period 2001-2018 by focusing on strategically driven cross-border acquisitions initiated
by Japanese firms. Acquirers and targets were restricted to publicly listed firms. Also, deals
with merely financial motivations undertaken by hedge funds or pension funds were not
considered in this research. We furthermore considered only transactions when the acquirer
did not have any prior ownership in the target firm before the deal. Bloomberg industry
classification and industry sub-group classification were used for industry dummies and deal
relatedness. Data availability constraint the use of a reduced sample to 151 deals.
World Bank data source was used to measure two variables. First, formal institutional
distance of the host countries was subtracted by the distance of Japan. Also, the host country
size was measured by the World Bank data source. As GDP data for Taiwan could not be
retrieved, we obtained it from an online database (Taiwan GDP, 2018). The data for cultural
distance was obtained from Hofstede et al. (2010).
Overall, our sample of 151 deals represents Japanese investments in 26 countries. Correlating
to high Japanese outward FDI to the US, most of the targets in our sample are based in the
United States. Other locations include South Korea, Australia, Singapore, and Taiwan
representing 13, 12, 11, and 10 cases respectively. Table 4 provides a detailed overview of
target firm countries. Also, out of 151 cases, 70 represent full acquisitions and 81 partial
acquisitions. Descriptive statistics and the correlation matrix are provided in Table 5 and 6.
The correlation among governance indicators is high as reported in previous studies (Ang and
Michailova, 2008; Berden et al., 2014). However, low variance inflation factors (VIF) figures
make us confident that multicollinearity is not of a problem in our analysis. The highest VIF
value for our study was 4.07 which is still under the threshold value of 10 (Chari and Chang,
2009). These initial results are in line with prior studies investigating various dimensions of
formal institutional distance variables of WGI indicators as explanatory variables (Albassam,
2015; Berden et al., 2014; Zubair and Khan, 2014; Kwon and Kim, 2014).

9
 -----------------------------------
Table 4 is inserted here
-----------------------------------
-----------------------------------
Table 5 is inserted here
-----------------------------------
-----------------------------------
Table 6 is inserted here
-----------------------------------

6. Results and robustness check

Results of our regression analysis are provided in Table 7. Model 1 was run only entering
control variables. Host country size and acquirer size variables were significant. Since the
dependent variable was coded 1 for full acquisition and 0 for partial acquisition, a significant
positive coefficient of the acquirer size variable suggested that large acquirers tend to prefer
full acquisitions. Further, targets from developed countries received more full acquisitions, as
it is shown by a significant positive coefficient of the variable Host country size.
In Model 2, we entered the aggregated measure of institutional distance, taking all six
indicators together. This variable was not statistically significant (β = -1.0376, n.s.).
However, in line of our argument to disaggregate dimensions, we obtained several significant
results when we entered our six indicators separately (Model 3). We additionally compared
Model 2 and Model 3 by conducting the Vuong non-nested test (Vuong, 1989). The results
showed that Model 3 is significantly better than Model 2 at a 1% level, lending support to our
central argument that formal institutional distances need to be investigated in a disaggregated
form.
Three out of six dimensions were significantly related to the dependent variable. More
specifically, Hypotheses 1-3 were not supported whereas two hypotheses 4 and 6 were
supported. Surprisingly, the result for Hypothesis 5 turned out to be significant but contrary
to our expectations.
We conducted four robustness checks. All robustness tests yielded similar results with the
exceptions noted below. In our first robustness test, we operationalized the aggregated and
disaggregated measures of institutional distance between host and home country based on an
alternate distance formula used in Chari and Chang (2009). More specifically, the
disaggregated dimensions of formal institutional distance variables were calculated as
squared differences between Japan and host countries in a certain dimension, divided by the
variance of that dimension. The aggregated measure of formal institutional distance was
calculated as a simple average of all six dimensions. Chari and Chang (2009) adopted these
measures from the Kogut and Singh (1988) index. In our second robustness test, we used
percentile scores of countries to calculate institutional distances. This operationalization aims
to measure distance in a country rank order instead of their absolute distances (Russell and

10
Gray, 1994). In our third robustness test, we defined partial acquisitions as those where the
acquirer takes a 10 to 90% stake (Demirbag et al., 2007). The idea behind this
operationalization is that investments smaller than 5 or 10% may be just financial
investments and hence can be safely ignored. Similarly, a share greater than 92% or 95% may
in fact be treated as a full acquisition (Dang and Henry, 2016). For our fourth robustness test,
we conducted a step-wise backward elimination regression process based on Akaike
information criterion (AIC), Bayesian information criterion (BIC), and p-value criterion
(Zubair and Khan, 2014). In backward elimination procedure, we start off having all relevant
variables and eliminate the non-important variables based on certain criteria one-by-one until
only the important predictors are left in the model. In all of these cases, the results were
qualitatively similar to our main results. The results of the robustness tests are reported in
Tables 8 to 11.
-----------------------------------
Table 7 is inserted here
-----------------------------------
-----------------------------------
Table 8 is inserted here
-----------------------------------
-----------------------------------
Table 9 is inserted here
-----------------------------------
-----------------------------------
Table 10 is inserted here
-----------------------------------
-----------------------------------
Table 11 is inserted here
-----------------------------------
7. Discussion
We find that only three of the six formal institutional distance variable indicators of WGI are
influencing our dependent binominal variable of cross-border bidders to overtake targets fully
or partially. Our study corroborates previous results of Cuervo-Cazurra and Genc (2008)
who found the very same dimensions of governance significantly related with their dependent
variable looking at investments in least-developed countries. In their study, they
demonstrated that investors from emerging market countries had advantages against
developed market firms when investing in least-developed markets. We demonstrate that the
very same indicators as used in the Cuervo-Cazurra and Genc’s study (2008) influence our
dependent variable. Similarly, in both our studies, ours and the study of Cuervo-Cazurra and
Genc (2008), the coefficients for regulatory quality and control of corruption were

11
statistically significant and took the expected signs. Furthermore, the rule of law was
affecting the dependent variable too; however (in both studies) to the opposite direction as
predicted.
Our research design was developed upon the broader idea of institutional theory that a higher
distance between home and host countries increases acquirer’s uncertainty as they have not
experienced a similar environment before (Contractor et al., 2014; Lahiri et al., 2014). Hence,
they prefer working with local partners by opting for partial acquisitions (Inkpen and
Beamish, 1997; Makino and Delios, 1996; Xu et al., 2004). Our results support this argument
for the two dimensions of governance viz. regulatory quality and control of corruption.
However, opposite results for the dimension of rule of law could be due to the fact that a
higher distance (with respect to rule of law) signifies uncertainty in a judicial system in host
countries. Partial acquisitions allow acquirers to take the help of local partners in dealing with
issues such as court cases involving suppliers or customers. However, working with local
partners in itself may increase the number of interactions with judicial institutions for the
acquirer due to possible opportunistic behavior by local partners. Stated differently, acquirers
expecting greater uncertainty in respect to judicial systems of host countries may fear rather
opportunistic behavior from local partners and hence prefer full acquisitions to fully control
the target.

8. Implications, future research directions, and limitations

This study extends previous research results in IB in several ways. We show that not all
formal institutional distance indicators of WGI have the same effect (Albassam, 2015;
Berden et al., 2014; Cuervo-Cazurra and Genc, 2008; Kwon and Kim, 2014; Zubair and
Khan, 2014). Hence one should not aggregate all dimensions into one single variable of WGI.
For example, Ang and Michailova (2008) showed that their variable of formal institutions of
host countries (measured as an aggregated variable of the six WGI governance indicators)
was insignificant in 2 out of their 3 models. We imagine that their dependent variable could
have been affected by any of the formal institutional distance dimensions when measured in a
disaggregated form. In the same line of argumentation, our findings raise questions over the
reliability of other studies which used aggregated measures of formal institutional distance
variables.
This study has also practical implications. For practitioners, this study highlights key
dimensions which are more relevant for firm’s internationalization viz. regulatory quality,
rule of law and control of corruption. We additionally caution managers that not all
dimensions of the formal institutional governance index have the same relevance for the
choice of partial versus full acquisitions. Managers should especially consider the peculiar
nature in the rule of law when making their decision to acquire targets fully or partially in
cross-border investments.
Like in all other studies, results of this study need to be interpreted in light of its limitations.
First, our data collection is limited to acquirers from one single country, Japan. Japanese
managers may be more sensitive to uncertain situations than those of other countries.
However, we are confident that our results will remain the same for other countries, even if
not so clear than in our setting (Cuervo-Cazurra and Genc, 2008). Second, we used only
publically listed firms in our sample due to the nature of control variables required. Third, we
did not have longitudinal data and not enough cases to investigate variations over time. These
factors limit the generalizability of our study.

12
Our research opens multiple avenues of future research. In future, scholars can focus on how
each dimension of formal institutional governance indicators affect other IB decisions such as
the choice of strategic alliances (Ang and Michailova, 2008), choices between joint ventures
or wholly-owned subsidiaries (Yiu and Makino 2002), survival rates of firms (Gaur and Lu,
2007), performance (Chao and Kumar, 2010), or local isomorphism strategies (Salomon and
Wu, 2012).

9. Conclusion
In this study, we highlight the importance of disaggregating formal institutional distance
variables of WGI indicators to analyze them in a more fine-grained manner. We focus on a
firm’s choice to acquirer its cross-border target partially or fully. Based on a sample of
Japanese acquirers the results show that the choice of partial of versus full acquisitions is
affected by only three dimensions: regulatory quality, rule of law and control of corruption.
An increase in the distance of regulatory quality and control of corruption leads to partial
acquisitions. This is in line with the idea that a higher distance between home and host
countries leads acquirers to enlist the help of local partners in host countries. Our unexpected
result for the dimension rule of law is that a higher distance of this particular dimension leads
to a greater tendency of full acquisitions. We explain this finding by the acquirer’s preference
for higher control in uncertain legal environments.

13
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18
Table 1 (Studies on partial versus full acquisitions at major journals considering formal institutional
distance indicators)

Studies Operationalization Data source Conclusion

Vasudeva et al. Single variable for FDI OECD Higher FDI-
(2018) restrictiveness restrictiveness in the host
country leads to the
preference of partial
acquisitions.

Ahammad et al. Single variable based upon six Worldwide No clear evidence i.e.
(2017) dimensions of WGI. Governance insignificant coefficient
Indicators (WGI)
Chikhouni et al. Single variable based upon IMD World High host country risk
(2017) three dimensions: political, Competitiveness leads to the preference of
financial, and economic. Report full acquisitions.
Contractor et al. Single variable for the Worldwide High distance leads to the
(2014) difference across six Governance preference of full
dimensions of WGI.* Indicators (WGI) acquisitions.
Lahiri et al. Single variable for the Worldwide Acquirers from developed
(2014) difference across six Governance nations, in case of higher
dimensions of WGI.* Indicators (WGI) distance, prefer partial
acquisitions. Acquirers
from developing nations
behave opposite.

Chari and Chang Single variable based upon International High risk in host country
(2009) three dimensions: political, Country Risk leads to the preference of
financial, and economic. Guide (ICRG) partial acquisitions.

Demirbag et al. Two variables:

(2007) (1) Political constraints index:
developed by Henisz (2000)
(2) Corruption index:
transparency distance
multiplied by sectorial bribery
index.*
* represents variables based on the distance between
levels of host countries.
(1) Political (1) High political
constraints index: constraint in host country
POLCON (2005) leads to the preference of
partial acquisitions.
(2) Corruption (2) No clear evidence.
index:
Transparency
International
home and host countries rather than on absolute

19
Table 2

Dimensions Definitions
(1) Voice and The extent to which a country’s citizens are able to participate in selecting
accountability their government, as well as freedom of expression, freedom of
association and a free media.
(2) Political stability and The likelihood that the government will be destabilised or overthrown by
absence of violence unconstitutional or violent means, including politically-motivated
violence and terrorism.
(3) Government The quality of public services, the quality of the civil service and the
effectiveness degree of its independence from political pressures, the quality of policy
formulation and implementation, and the credibility of the government’s
commitment to such policies.
(4) Regulatory quality The ability of the government to formulate and implement sound policies
and regulations that permit and promote private sector development.
(5) Rule of law The extent to which agents have confidence in and abide by the rules of
society and, in particular, the quality of contract enforcement, property
rights, the police and the courts, as well as the likelihood of crime and
violence.
(6) Control of corruption The extent to which public power is exercised for private gain, including
both petty and grand forms of corruption, as well as ‘capture’ of the state
by elites and private interests.
Adopted from Kaufmann et al. (2007)

20
 Table 3 Summary of variables

Variables Definitions Similar applications in prior Data

research Sources
Acquisition Dummy variable which took the value of Lahiri et al. (2014); Liang et Bloomberg
mode one if acquirer’s ownership of the target al. (2009); Mariotti et al. data
firm equaled 100% (full acquisitions) and (2014)
took the value of zero for any percentage
less than 100% (partial acquisitions).

Institutional Absolute difference in country risk based Aybar and Facici (2009) World
distance on World Bank’s six governance indicators Bank Data
(individual (Kauffman et al., 2007)
dimensions)

Institutional Composite distance measure based on six Aybar and Facici (2009) World
distance individual dimensions calculated using Bank Data
(aggregated rank function.
measure)

Host Natural logarithm of host country GDP Liang et al. (2009) World
country size based on five years average data ending Bank Data
one year before the deal.

Cultural Kogut and Singh (1988) "composite" index Arslan and Wang (2015); Hofstede et
distance for difference in country culture based on Demirbag et al. (2007); Lahiri al. (2010)
four dimensions of Hofstede (1980). et al. (2014); Liang et al.
(2009)

Acquirer Number of years since the first investment Arslan and Wang (2015); Bloomberg
experience in the target country. Chen and Hennart (2004); data
Chen (2008); Chikhouni et al.
(2017); Mariotti et al. (2014);
Tang and Cheung (2016)

Acquirer/ Natural logarithm of the total assets. Chiu et al. (2018); Huang et al. Bloomberg
(2014); Park et al. (2011); data
target size Pattnaik and Lee (2014);
Reuer and Ragozzino (2012);
Tang and Cheung (2016)

Deal A dummy variable which took the value of Chari and Chang, 2009; Bloomberg
relatedness one if acquirer and target were from same Contractor et al., 2014; Lahiri data
industry sub-group, and took the value of et al., 2014
zero otherwise.

21
 Table 4 (Countries of origin of target firms)

Countries of origin of target firms Number of Total Cases by Percentage

deals for each row
country
United States 44 44 29.14%
South Korea 13 13 8.61%
Australia 12 12 7.95%
Singapore 11 11 7.28%
Taiwan 10 10 6.62%
Britain 8 8 5.30%
India, Malaysia 7 14 9.27%
Thailand 6 6 3.97%
Hong Kong 5 5 3.31%
Vietnam 4 4 2.65%
France, Germany, Italy, Norway 3 12 7.95%
Canada 2 2 1.32%
Indonesia, Ireland, Israel, Kenya, 1 10 6.62%
Netherlands, New Zealand, Poland,
South Africa, Sweden, Switzerland
Compiled by the authors

Table 5 (Descriptive statistics)

Complete sample Partial deals Full deals

Mean Median Mean Median Mean Median
Institutional variables
Voice and Accountability 00.50 00.32 00.64 00.38 00.35 *** 00.13 ***
Political Stability and 00.57 00.43 00.65 00.43 00.47 ** 00.39
Absence of Violence
Government Effectiveness 00.44 00.28 00.57 00.32 00.29 *** 00.14 ***
Regulatory Quality 00.52 00.41 00.61 00.63 00.42 *** 00.37 **
Rule of Law 00.51 00.31 00.62 00.39 00.39 *** 00.30 ***
Control of Corruption 00.71 00.49 00.92 00.80 00.46 *** 00.28 ***
Aggregated measure 00.50 00.46 00.57 00.53 00.42 *** 00.36 ***
Control variables
Host country size 28.11 27.82 27.56 27.66 28.75 *** 29.47 ***
Culture distance 03.11 02.76 03.18 02.65 03.02 02.76
Acquirer experience 04.62 00.00 03.05 00.00 06.43 *** 04.50 ***
Acquirer size 22.90 22.97 22.63 22.55 23.20 * 23.25
Target size 18.90 18.73 18.82 18.71 18.99 18.93
Deal relatedness 00.19 00.00 00.19 00.00 00.20 00.00
Note: ***, **, and * denote statistical significance at 1%, 5%, and 10% levels respectively,
based on T-tests for the differences in mean values, and Wilcoxon tests for the differences
in median values between partial and full deals.

22
Table 6 (Correlation Matrix)

(1) (2) (3) (4) (5) (6) (7)

Dependent variable
(1) Full acquisition
Institutional variables
(2) Voice and accountability -0.26 ***
(3) Political stability and -0.16 * 0.42 ***
absence of violence
(4) Government effectiveness -0.29 *** 0.69 *** 0.71 ***
(5) Regulatory quality -0.23 *** 0.69 *** 0.53 *** 0.72 ***
(6) Rule of law -0.24 *** 0.70 *** 0.76 *** 0.88 *** 0.74 ***
(7) Control of corruption -0.37 *** 0.68 *** 0.72 *** 0.90 *** 0.60 *** 0.89 ***
(8) Aggregated measure -0.35 *** 0.79 *** 0.70 *** 0.85 *** 0.75 *** 0.88 *** 0.91 ***
Control variables
(9) Host country size 0.36 *** -0.71 ** -0.20 ** -0.54 *** -0.48 *** -0.49 *** -0.60 ***
(10) Culture distance -0.07 0.56 -0.01 0.15 * 0.33 *** 0.09 0.11
(11) Acquirer experience 0.26 *** -0.33 -0.11 -0.25 *** -0.30 *** -0.27 *** -0.32 ***
(12) Acquirer size 0.15 * -0.04 0.01 0.04 0.06 0.06 -0.01
(13) Target size 0.05 -0.10 -0.03 0.01 0.03 -0.05 -0.11
(14) Deal relatedness 0.02 -0.05 0.01 -0.09 -0.10 -0.04 -0.06
(continued on next page)

23
 Table 6 (continued)

(8) (9) (10) (11) (12) (13)

Dependent variable
(1) Full acquisition
Institutional variables
(2) Voice and accountability
(3) Political stability and absence
of violence
(4) Government effectiveness
(5) Regulatory quality
(6) Rule of law
(7) Control of corruption
(8) Aggregated measure
Control variables
(9) Host country size -0.71 ***
(10) Culture distance 0.31 *** -0.41 ***
(11) Acquirer experience -0.42 *** 0.55 *** -0.17 **
(12) Acquirer size 0.01 -0.01 0.06 0.32 ***
(13) Target size -0.05 0.08 0.09 0.33 *** 0.36 ***
(14) Deal relatedness -0.06 0.04 0.00 0.00 -0.18 ** 0.06
Note: ***, **, and * represent statistical significance at 1%, 5% and 10% level respectively.

24
Table 7 (Main Results)

Model 1 Model 2 Model 3

Institutional variables
Voice and Accountability 0.68
(1.00)
Political Stability and Absence of 0.52
Violence (0.68)
Government Effectiveness 0.56
(1.33)
Regulatory Quality -2.23 *
(1.23)
Rule of Law 3.09 *
(1.61)
Control of Corruption -3.48 **
(1.39)
Aggregated measure -1.04
(1.36)
Control variables
Host country Size 0.64 *** 0.55 *** 0.30
(0.17) (0.20) (0.25)
Culture distance 0.22 0.23 0.17
(0.18) (0.18) (0.24)
Acquirer experience -0.02 -0.02 -0.01
(0.04) (0.04) (0.05)
Acquirer size 0.24 * 0.24 * 0.21
(0.13) (0.13) (0.15)
Target size -0.09 -0.09 -0.11
(0.14) (0.14) (0.15)
Deal relatedness 0.22 0.19 -0.12
(0.51) (0.51) (0.55)
(Intercept) -2.05 -1.91 -2.12 **
(0.95) (0.97) (1.02)
Year dummies Yes Yes Yes
Industry dummies Yes Yes Yes
Pseudo R square 35.79% 36.17% 42.39%
Dependent variable takes the value of 1 for full acquisitions and 0 for partial acquisitions. For main
results, the distance formula for formal institutional distance is adopted from Aybar and Facici
(2009).

***, **, and * represent statistical significance at 1%, 5% and 10% level respectively.

25
Table 8 (Robustness check 1)

Model 1 Model 2 Model 3

Institutional variables
Voice and Accountability 0.75
(0.55)
Political Stability and Absence of -0.01
Violence (0.32)
Government Effectiveness 0.18
(1.11)
Regulatory Quality -2.93 **
(1.43)
Rule of Law 2.90 *
(1.51)
Control of Corruption -2.02 **
(0.97)
Aggregated measure -0.29
(0.27)
Control variables
Host country Size 0.64 *** 0.56 *** 0.36
(0.17) (0.18) (0.23)
Culture distance 0.22 0.21 0.13
(0.18) (0.18) (0.23)
Acquirer experience -0.02 -0.02 -0.03
(0.05) (0.04) (0.05)
Acquirer size 0.24 * 0.25 * 0.24
(0.13) (0.14) (0.15)
Target size -0.09 -0.11 -0.06
(0.14) (0.14) (0.15)
Deal relatedness 0.22 0.21 -0.09
(0.51) (0.51) (0.54)
(Intercept) -2.05 ** -2.02 ** -2.43 **
(0.95) (0.96) (1.06)
Year dummies Yes Yes Yes
Industry dummies Yes Yes Yes
Pseudo R square 35.79% 36.53% 43.68%
Note: Robustness test 1 is different from main result in its distance measure of focus variable. In
Robustness test 1, the distance formula for formal institutional distance is adopted from Chari and
Chang (2009).

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Table 9 (Robustness check 2)

Model 1 Model 2 Model 3

Institutional variables
Voice and Accountability 0.03
(0.04)
Political Stability and Absence of 0.04
Violence (0.03)
Government Effectiveness 0.03
(0.07)
Regulatory Quality -0.10 *
(0.06)
Rule of Law 0.20 ***
(0.08)
Control of Corruption -0.21 ***
(0.07)
Aggregated measure -1.04
(1.36)
Control variables
Host country Size 0.64 *** 0.54 *** 0.42 *
(0.17) (0.21) (0.25)
Culture distance 0.22 0.22 0.00
(0.18) (0.18) (0.25)
Acquirer experience -0.02 -0.02 -0.01
(0.04) (0.04) (0.05)
Acquirer size 0.24 * 0.24 * 0.19
(0.13) (0.13) (0.16)
Target size -0.09 -0.09 -0.11
(0.14) (0.14) (0.15)
Deal relatedness 0.22 0.20 -0.08
(0.51) (0.51) (0.56)
(Intercept) -2.05 ** -1.92 -2.30 **
(0.95) (0.97) (1.07)
Year dummies Yes Yes Yes
Industry dummies Yes Yes Yes
Pseudo R square 35.79% 36.17% 46.11%
Note: Robustness test 1 is different from main result in its measure of WGI. Robustness test 2 bases
its distance measure on percentile ranking rather than point estimates. ***, **, and * represent
statistical significance at 1%, 5% and 10% level respectively.

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Table 10 (Robustness check 3)

Model 1 Model 2 Model 3

Institutional variables
Voice and Accountability 1.14
(1.08)
Political Stability and Absence of 0.23
Violence (0.80)
Government Effectiveness -0.07
(1.45)
Regulatory Quality -2.32 *
(1.39)
Rule of Law 3.95 **
(1.82)
Control of Corruption -3.03 *
(1.62)
Aggregated measure 1.30
(1.61)
Control variables
Host country Size 0.75 *** 0.87 *** 0.65 **
(0.20) (0.25) (0.30)
Culture distance 0.23 0.23 0.18
(0.19) (0.19) (0.27)
Acquirer experience -0.04 -0.03 -0.04
(0.05) (0.05) (0.05)
Acquirer size 0.18 0.18 0.11
(0.14) (0.14) (0.16)
Target size -0.09 -0.09 -0.04
(0.16) (0.16) (0.18)
Deal relatedness 0.44 0.47 0.09
(0.56) (0.57) (0.62)
(Intercept) -1.94 * -2.09 * -1.97 *
(1.11) (1.13) (1.18)
Year dummies Yes Yes Yes
Industry dummies Yes Yes Yes
Pseudo R square 41.33% 41.83% 47.82%
Note: Robustness check 3 is different from main results in its operationalization of dependent
variable. In this table, dependent variable has been measured such that partial acquisitions’ lower
bound and upper bound is 10% and 90% respectively.

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Table 11 (Robustness check 4)

Model 1 Model 2 Model 3

Institutional variables
Voice and Accountability 0.6790
(1.00)
Political Stability and Absence of 0.52
Violence (0.68)
Government Effectiveness 0.56
(1.34)
Regulatory Quality -2.23 * -1.82 ** -1.79 **
(1.23) (0.78) (0.77)
Rule of Law 3.08 * 3.76 *** 3.93 ***
(1.61) (1.23) (1.22)
Control of Corruption -3.48 ** -3.34 *** -3.43 ***
(1.39) ( 0.78) (0.77)
Control variables
Host country Size 0.30
(0.25)
Culture distance 0.17
(0.25)
Acquirer experience -0.01
(0.05)
Acquirer size 0.21 0.17
(0.15) (0.11)
Target size -0.11
(0.15)
Deal relatedness -0.12
(0.56)
(Intercept) -2.12 ** -0.24 -0.23
(1.02) (0.19) (0.19)
Year dummies Yes Eliminated Eliminated
Industry dummies Yes Eliminated Eliminated
Pseudo R square 42.39% 29.35% 27.49%
Note: Model 1 in this table is the reproduction of Model 4 from Table 1, logistic regression. Model 2
and Model 3 in this table are step-wise backward elimination model. The criterion for Model 2 is AIC.
Results from BIC and p-value criteria are identical and have been reported in Model 3.

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