Emerging market MNE cross-border acquisition equity participation: The role of economic and knowledge distance

• EMNEs pursue more equity in acquisitions in institutionally distant locations.
• Knowledge distance has a positive linear relationship with equity participation.
• The link between economic distance and equity participation is curvilinear.
• Both dimensions have greater positive effects on EMNEs than developed country MNEs.
• Suggests institutional distance may increase aggressiveness in EMNE acquisitions.

We theorize that in an attempt to facilitate the transfer of tacit assets during cross-border acquisitions, Emerging Market Multinationals (EMNEs) pursue higher levels of equity participation when targets are based in locations that are institutionally distant in terms of knowledge protection and economic development. Furthermore, we propose that these direct relationships are stronger for EMNEs than they are for MNEs. We test these propositions by comparing the cross-border acquisition activity of firms based in BRIC countries versus the U.K. While we do find a positive linear relationship between knowledge distance and equity participation, the link with economic distance is curvilinear. We also find that both dimensions of distance have greater positive effects on equity participation for EMNEs in comparison. The key implications are that institutional distance may be a positive for EMNEs and that their behavior does seem significantly different than traditional MNEs. This offers support for EMNE-specific internationalization theories.