Cross-Border Acquisitions and Ownership
This dissertation examines firms’ corporate and global strategies, specifically the use of ownership design as a strategic tool. The three chapters explore different perspectives on the potential use of ownership structures to overcome certain barriers firms may face in their corporate and geographic expansion. The first chapter looks at the global portfolio of Sovereign Wealth Funds (SWFs), large state-owned institutional investors, and shows how their reach is much larger than previously accounted for once one includes indirect investments. An analysis of the pyramidal investments of SWFs reveals that, while subsidiaries seem to have a fair amount of autonomy in deciding the location of further investments, this autonomy mostly apply to smaller investments. The findings indicate that the management of important issues in such large investors are mostly centralized, and that ownership structures are likely used to smoothen frictions of foreign investments. The second chapter investigates the ownership patterns of firms around the world and challenges the longstanding common knowledge about the use of pyramidal structures as a control enhancing tool. Instead, it proposes that more vertical ownership designs can maximize managerial efficiency in face of industrial and geographic diversification. The findings that over 75 percent of pyramidal ownership paths have virtually no separation between cash flow and voting rights, and that firms with broader (both industrial and geographic) and more unrelated portfolios have more vertical ownership designs are consistent with the view of managerial efficiency. Finally, the third chapter presents an experimental measurement for one of the most challenging issues foreign firms must face, namely nationalism. Employing conjoint analysis, the chapter provides a causal estimate for the disadvantage of being foreign in the setting of a domestic acquisition. It shows there is a strong component of anti-foreign sentiment in public opinion, and that such effect is quite difficult to overcome through market mechanisms. Connecting with previous chapters, a possible mechanism to overcome this liability of foreignness is the adoption of more vertical and opaque ownership structures that can “hide” the true origin of firms and shareholders.