Title: Why do Chinese firms pay premiums in cross-border mergers and acquisitions? An institutional perspective

Authors: Zhu Zhang; Marjorie A. Lyles; Changqi Wu

Addresses: Business School, University of International Business and Economics, Beijing, China ' Department of Management and International Business, College of Business, Florida International University, Miami, Florida, USA ' School of Management, Shandong University, Jinan, Shandong, China

Abstract: Institutional environment is a very important factor in studying cross-border mergers and acquisitions (M&As). However, the role of the institutional environment in influencing cross-border M&A premiums is understudied. This gap is important because it is a common but an under-recognised phenomenon that emerging economies, such as China, often overpay in acquiring foreign targets. To fill this gap, we study the role of institutional environment in affecting the size of acquisition premium. Based on cross-border M&A data of Chinese multinational firms, we find a positive relationship between institutional distance and premiums. The larger the institutional distance between home and host countries, the larger premium paid for the target firm. Furthermore, to better understand the nature of the institutional environment, we study the distinctive characteristics of the host country which is often referred to as institutional quality. Results show that a good institutional quality of the host country reduces the premium. In addition, when the acquiring and target firms are in related industries, the effect of institutional distance on the acquisition premiums is mitigated. Furthermore, the acquiring firm's cross-border M&A experience is unhelpful in reducing the premiums.

Keywords: acquisition premiums; cross-border M&A; institutional environment; EM MNEs; China.

DOI: 10.1504/EJIM.2025.147959

European Journal of International Management, 2025 Vol.27 No.1, pp.68 - 105

Received: 12 Dec 2019
Accepted: 11 Aug 2020
Published online: 12 Aug 2025 *

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