Regulatory Institutional Misalignment and Cross-Border Acquisitions: Evidence From an Emerging-Market Country

Do anticorruption efforts affect a country’s investment appeal? Business investment depends on a stable and predictable institutional environment, but meaningful control of corruption typically requires a radical change in the institutional system that has enabled it. This underscores the need for a deeper understanding of how anticorruption efforts can affect the enforcing country’s institutional system on which investment relies. Synthesizing the concept of institutional complementarity and the literature on different modes of anticorruption enforcement, the authors propose that campaign-style anticorruption enforcement in emerging-market countries can produce “regulatory institutional misalignment,” defined as a situation in which government agencies continue to monopolize critical resources while the exercise of bureaucratic discretion essential to achieving effective resource allocation diminishes substantially. The authors theorize how such institutional misalignment can harm domestic business environments and drive emerging-market firms to engage more actively in cross-border acquisitions (CBAs). The authors' hypotheses derived from the regulatory institutional misalignment perspective on CBAs are supported by empirical analyses using data from a sample of privately controlled firms during China’s unprecedented anticorruption campaign launched in late 2012. The authors also discuss this study’s contributions to the IB literature on institutional complementarity, CBAs by emerging-market enterprises, and anticorruption efforts’ impact on international business.