Introduction
In past decades, Chinese multinational enterprises (MNEs) have played important roles as both producers and consumers, helping them to succeed in the global market. A number of studies have found, however, that despite this success, Chinese MNEs have faced unique challenges due to their country of origin, a challenge often referred to as a ‘liability of Chineseness’ (Cooke, Wu, Zhou, Zhong, & Wang, Reference Cooke, Wu, Zhou, Zhong and Wang2018; Vecchi & Brennan, Reference Vecchi and Brennan2022). These unique challenges are especially notable when Chinese MNEs are involved in corporate social irresponsibility (CSiR), which puts their international legitimacy and credibility at risk (Fiaschi, Giuliani, & Nieri, Reference Fiaschi, Giuliani and Nieri2017). CSiR is usually defined as a ‘set of corporate actions that negatively affect an identifiable social stakeholder's legitimate claims’ (Strike, Gao, & Bansal, Reference Strike, Gao and Bansal2006: 852). As such, CSiR is a firm's failure to meet its social expectations and obligations toward its stakeholders (Fu, Tang, & Chen, Reference Fu, Tang and Chen2020; Lange & Washburn, Reference Lange and Washburn2012; Li & Wu, Reference Li and Wu2020). Since a firm's social activities serve as signaling mechanisms (e.g., Su, Peng, Tan, & Cheung, Reference Su, Peng, Tan and Cheung2016), CSiR may act as a signal to stakeholders of a firm's negative business operations. When an MNE acts irresponsibly, it is not only detrimental to its reputation but also undermines stakeholders’ trust and support (e.g., Khan, Lew, & Park, Reference Khan, Lew and Park2015; Zhou & Wang, Reference Zhou and Wang2020). When MNEs face challenges in gaining this trust and support due to their CSiR, it may adversely affect their business outcomes.
In this article, we examine the relationships between Chinese MNEs’ CSiR, as reported in the media, and the performance of cross-border acquisition (i.e., likelihood of deal completion) as the empirical context. We argue that media coverage of the acquiror's CSiR lessens the likelihood of deal completion. We further argue that the negative relationship between CSiR media coverage and the likelihood of acquisition depends on the acquiror's characteristics and contextual factors in the target country. The cross-border acquisition deals that receive more stakeholder attention are those with factors that make them more salient than other deals to local stakeholders. What contextual factors lead stakeholders to pay greater attention to a firm's CSiR? We argue that the negative effects are stronger when the acquiror is a state-owned enterprise (SOE), when the target country is part of China's Belt and Road Initiative (BRI), and when there are high social and ethical expectations (i.e., high institutional quality) in the target country. This is because, under these conditions, local stakeholders pay closer attention to Chinese firms’ CSiR and their cross-border acquisitions.
Our research aims to bridge the gap in the literature related to the social performance of emerging market MNEs (EMNEs) and their cross-border mergers and acquisitions (M&As). Two distinctive research streams have emerged on these topics. One line of research (e.g., Chen, Liang, & Wu, Reference Chen, Liang and Wu2023; Hawn, Reference Hawn2021) examines the impact of a firm's social outcomes on cross-border M&As. However, most of these studies have not delved into when and how local stakeholders become attentive to a firm's social outcomes, even though firms frequently utilize their social performance as signals to reveal additional information to pertinent stakeholders (Su et al., Reference Su, Peng, Tan and Cheung2016). Using the attention-based view, we seek to complement the previous research by examining key contextual factors (Madsen & Rodgers, Reference Madsen and Rodgers2015; Ocasio, Reference Ocasio1997) that make stakeholders more interested in cross-border acquisitions. Building on attention-based arguments, we suggest that contextual factors that influence stakeholders’ attention are important moderators in the relationship between a firm's CSiR and its cross-border acquisition outcomes.
Another stream of research (e.g., El Ghoul, Guedhami, & Kim, Reference El Ghoul, Guedhami and Kim2017; Marano, Tashman, & Kostova, Reference Marano, Tashman and Kostova2017; Miska, Witt, & Stahl, Reference Miska, Witt and Stahl2016; Tashman, Marano, & Kostova, Reference Tashman, Marano and Kostova2019) has focused on the role of an EMNEs’ social responsibility in its international operations, as these firms often face legitimacy and credibility challenges. However, with the exception of a few recent studies, most of the research in this stream has focused on positive corporate social outcomes (i.e., corporate social responsibility, or CSR, including how EMNEs gain legitimacy through CSR), while there has been less investigation of the negative social outcomes (i.e., such as how CSiR undermines EMNEs’ legitimacy) (e.g., Bu, Xu, & Tang, Reference Bu, Xu and Tang2023; Hawn, Reference Hawn2021). Nevertheless, CSR and CSiR are theoretically and empirically distinctive concepts (e.g., Clark, Riera, & Iborra, Reference Clark, Riera and Iborra2022; Mattingly & Berman, Reference Mattingly and Berman2006; Strike et al., Reference Strike, Gao and Bansal2006). Therefore, this study is motivated by the importance of providing insights into how EMNEs’ CSiR impacts the outcomes of their strategic decisions.
To empirically fulfill these research motivations, we use a sample of cross-border acquisitions by Chinese MNEs from 2013 to 2020. We find that the media coverage of the acquiror's CSiR per se does not have an adverse impact on deal completion outcomes. However, we find that CSiR media coverage has negative effects on deal completion when the acquiror is a SOE and when the institutional quality in the target country is high. Thus, our findings suggest that the effects of CSiR media coverage on acquisition performance are influenced by how stakeholders perceive the potential risks depending on the ownership structure of the acquiror and the institutional quality of the target country. This study's findings contribute to the literature on CSiR, cross-border M&As, and stakeholder attention.
First, our knowledge of how EMNEs’ CSiR affects organizational outcomes is still in its early stages (Fiaschi et al., Reference Fiaschi, Giuliani and Nieri2017; Hawn, Reference Hawn2021), while more research (e.g., El Ghoul et al., Reference El Ghoul, Guedhami and Kim2017; Marano et al., Reference Marano, Tashman and Kostova2017; Miska et al., Reference Miska, Witt and Stahl2016; Tashman et al., Reference Tashman, Marano and Kostova2019) has been conducted on how EMNEs’ CSR affects organizational outcomes. Our findings highlight the salience of CSiR media coverage, as CSiR may exacerbate the risks and challenges of international expansion by triggering a backlash from local stakeholders. Moreover, our findings suggest that different countries have unique contextual factors (El Ghoul et al., Reference El Ghoul, Guedhami and Kim2017) that influence the degree of stakeholder attention and subsequently play an important role in the relationships between CSiR and acquisition performance. Thus, managers need to recognize the boundary conditions in the relationship between media coverage of a firm's CSiR and its organizational outcomes.
Furthermore, this study contributes to cross-border M&A research by focusing on factors affecting the completion of acquisitions by EMNEs. There have been relatively few studies (e.g., Chen et al., Reference Chen, Liang and Wu2023; Li, Li, & Wang, Reference Li, Li and Wang2019) examining the key determinants of cross-border acquisition performance by MNEs from emerging countries, compared to studies of MNEs from developed countries. The timing of this study is also relevant given the increase in foreign direct investment (FDI) outflows from China (Buckley, Yu, Liu, Munjal, & Tao, Reference Buckley, Yu, Liu, Munjal and Tao2016; Lee, Choi, Xiao, Lew, & Park, Reference Lee, Choi, Xiao, Lew and Park2021). As such, this study sheds additional light on cross-border M&As by firms from emerging markets, specifically by Chinese MNEs.
Lastly, our study contributes to the literature on the international stakeholder management perspective based on attention-based arguments (e.g., Ocasio, Reference Ocasio1997). Stakeholder management theory (Freeman, Reference Freeman2010) argues that managing the interests of a wide range of stakeholders is critical to the success of a firm's operations. However, it is important to recognize that stakeholders’ attention to a firm's specific decisions, such as cross-border acquisitions, are not always evenly distributed. There are contextual factors (e.g., Chinese acquirors’ being SOEs and the target country's institutional quality) that can either encourage or discourage stakeholders from paying more attention to a firm's behaviors. Therefore, our study suggests that successful M&A strategies can be achieved through effective stakeholder management, taking stakeholders’ attention into consideration.
Theoretical Background
In recent decades, among EMNEs, Chinese MNEs have experienced the most significant economic growth, thus drawing considerable interest from both academia and practitioners (Buckley et al., Reference Buckley, Yu, Liu, Munjal and Tao2016). In particular, Chinese MNEs have attracted greater attention as they have become more active in cross-border M&As. These MNEs frequently use cross-border M&As as a springboard to acquire strategic assets, which in turn allows them to compete globally (Luo & Tung, Reference Luo and Tung2007). In addition, to encourage cross-border M&A activities, the Chinese government, under its ‘Go Global’ strategy, has provided these firms with financial support and reduced their institutional constraints (Bai, Chen, & Xu, Reference Bai, Chen and Xu2021; Buckley et al., Reference Buckley, Yu, Liu, Munjal and Tao2016). As such, for Chinese MNEs, cross-border acquisitions (rather than greenfield investments) have become the main form of outward FDI, making it imperative for researchers to examine specifically cross-border M&As by Chinese MNEs (Buckley et al., Reference Buckley, Yu, Liu, Munjal and Tao2016).
Liability of Chineseness in Cross-Border Acquisitions
When EMNEs expand internationally, they often have to deal with liabilities (Zaheer, Reference Zaheer1995), since ‘emerging market MNEs from less institutionally developed countries are likely to face liabilities of origin – negative perceptions in host countries about these firms’ willingness and ability to conduct legitimate business’ (Marano et al., Reference Marano, Tashman and Kostova2017: 386). In particular, when Chinese MNEs expand internationally through cross-border acquisitions, they encounter a unique type of challenge that MNEs from other emerging countries may not face, which is referred to as a liability of Chineseness (e.g., Cooke et al., Reference Cooke, Wu, Zhou, Zhong and Wang2018; Ramamurti & Hillemann, Reference Ramamurti and Hillemann2018). This unique form of liability is due to the acquiror's country of origin (Ramachandran & Pant, Reference Ramachandran, Pant, Timothy, Torben and Laszlo2010; Vecchi & Brennan, Reference Vecchi and Brennan2022) and its ties to the Chinese Communist Party.
When they face a cross-border acquisition by a Chinese MNE, local stakeholders tend to feel anxious about a loss of sovereignty and the possible negative economic, social, and environmental impacts (e.g., economic harm to domestic industries, negative employee relations, etc.) resulting from the M&A (e.g., Brennan & Vecchi, Reference Brennan and Vecchi2021; Hasnat, Reference Hasnat2015). These liabilities of Chineseness are often expressed as adverse reactions and counter-responses from a wide range of stakeholders in foreign countries. This is due to ‘the growing concern which accompanies the aggressive Chinese investment as a form of new colonial dominance backed by governments’ (Cooke et al., Reference Cooke, Wu, Zhou, Zhong and Wang2018: 193). Resistance from local stakeholders becomes even stronger when the acquisition is by a Chinese MNE in a sensitive or regulated industry (e.g., high-tech, natural resources, etc.), because of the acquiror's potential political ties with the Chinese Communist Party (Zhang, Zhou, & Ebbers, Reference Zhang, Zhou and Ebbers2011).
Furthermore, the liabilities are likely to be exacerbated when the Chinese acquiror is involved with CSiR. Even though the Chinese government has offered numerous incentives to encourage Chinese firms to operate in a socially responsible way (Lee et al., Reference Lee, Choi, Xiao, Lew and Park2021), it remains a matter of some controversy whether Chinese MNEs fulfill their social and environmental responsibilities when operating overseas (Cooke et al., Reference Cooke, Wu, Zhou, Zhong and Wang2018; Kamoche & Siebers, Reference Kamoche and Siebers2015). Research (e.g., Kölbel, Busch, & Jancso, Reference Kölbel, Busch and Jancso2017; Price & Sun, Reference Price and Sun2017) suggests that CSiR damages a firm's corporate image, reduces consumers’ purchase intentions, and corrodes employees’ morale, thus eventually undermining the firm's financial outcomes. In particular, previous studies (e.g., Hawn, Reference Hawn2021; Li et al., Reference Li, Li and Wang2019; Li, Xia, & Lin, Reference Li, Xia and Lin2017) have shown a decline in acquisition performance when EMNEs suffer from CSiR and subsequently face legitimacy and credibility challenges. This is because a firm's CSiR may signal that an MNE's irresponsible business operations could continue after the deal is completed. As such, it is worthwhile to examine the impacts of liabilities of Chineseness stemming from CSiR incidents on cross-border acquisitions.
International Stakeholder Management
It is necessary for MNEs to appropriately manage relationships with stakeholders when they pursue cross-border acquisitions, because developing and maintaining good stakeholder relations eventually affect cross-border acquisition performance (e.g., Hawn, Reference Hawn2021). The stakeholder management perspective (Buysse & Verbeke, Reference Buysse and Verbeke2003; Freeman, Reference Freeman2010) argues that firms should operate in a responsible way to ensure that various stakeholders’ interests and expectations are satisfied. By engaging in effective stakeholder management, firms may facilitate value-creation opportunities, which can result in successful organizational outcomes in the long run (Park & Ghauri, Reference Park and Ghauri2015; Tantalo & Priem, Reference Tantalo and Priem2016).
Managing stakeholder relationships is particularly important for MNEs that operate globally, and thus they should satisfy social, environmental, and economic demands from various local stakeholders (e.g., Oh, Choi, Chang, & Jeon, Reference Oh, Choi, Chang and Jeon2019; Park & Ghauri, Reference Park and Ghauri2015). In contrast, if MNEs fail to satisfy the needs and expectations of stakeholders in their foreign operations (i.e., if they engage in CSiR), they are likely to face negative consequences (e.g., Liu et al., Reference Liu, Tsui-Auch, Yang, Wang, Chen and Wang2019). For example, when firms engage in CSiR activities such as environmental pollution, violations of regulatory requirements, and labor exploitation, they are not aligned with the long-term interests of various stakeholders, and their organizational outcomes will be negatively impacted (Strike et al., Reference Strike, Gao and Bansal2006). This is because MNEs that engage in CSiR are likely to face greater concerns and demands from local stakeholders, leading to higher stakeholder management costs over an extended period of time (Pek, Oh, & Rivera, Reference Pek, Oh and Rivera2018).
Previous studies (e.g., Kamoche & Siebers, Reference Kamoche and Siebers2015) reported that Chinese firms are often involved with CSiR activities in foreign markets, such as environmental violations, cost-oriented labor policies, and controversial management practices, and that these activities often prompt anti-Chinese sentiment (i.e., liability of Chineseness). For example, Cooke and colleagues (Reference Cooke, Wu, Zhou, Zhong and Wang2018: 80), in their examination of the labor relations of Chinese construction firms in Africa, observed ‘the widely criticized labor standards adopted by the Chinese firms in the low-skilled sector'. As a result, cross-border acquisitions by Chinese MNEs tend to be more closely monitored by local stakeholders, such as governments, regulators, and consumers, thereby impacting the acquisition performance.
Stakeholders’ Attention to Cross-Border Acquisition
While maintaining good relationships with stakeholders is important for MNEs in their international operations (Buysse & Verbeke, Reference Buysse and Verbeke2003; Freeman, Reference Freeman2010), it does not imply that stakeholder management activities should be applied uniformly in all situations. This is because local stakeholders do not pay equal attention to all foreign MNEs’ behaviors in the target markets. Attention is defined as a ‘cognitive process that involves the noticing, interpretation, and focusing of time and effort on the acquisition of knowledge and information’ (Li, Maggitti, Smith, Tesluk, & Katila, Reference Li, Maggitti, Smith, Tesluk and Katila2013: 894). Stakeholders allocate their attention selectively because they are often faced with more information than they can easily process (Kiesler & Sproull, Reference Kiesler and Sproull1982; Simon, Reference Simon1978). Due to their bounded rationality (Cyert & March, Reference Cyert and March1963; Simon, Reference Simon1978), thus, stakeholders do not pay equal attention to all local acquisition deals by foreign MNEs.
According to the attention-based view (Madsen & Rodgers, Reference Madsen and Rodgers2015; Ocasio, Reference Ocasio1997), stakeholders pay more or less attention to certain events depending on contextual factors (e.g., Maoret, Moreira, & Sabanci, Reference Maoret, Moreira and Sabanci2024). Cognitive psychologists (e.g., Bandura, Reference Bandura1977; Nisbett & Ross, Reference Nisbett and Ross1980) have argued that people are more inclined to focus on stimuli or cues that are more salient, that is, those that have a greater impact on local stakeholders. Local stakeholders pay close attention to foreign MNEs’ inward FDI and can apply social pressure that can lead to an MNE being responsive to that pressure (Pisani, Kourula, Kolk, & Meijer, Reference Pisani, Kourula, Kolk and Meijer2017). This is because local stakeholders pay attention to events that directly affect their interests and well-being (Jones, Felps, & Bigley, Reference Jones, Felps and Bigley2007).
In this article, we posit that stakeholders take the acquiror's CSiR into account when it is a Chinese MNEs acquiring a local firm. However, regarding the acquiror's CSiR, we argue that stakeholders are likely to pay greater attention when (1) the acquiror is a Chinese SOE, (2) the target firm is located in a country that participates in China's BRI, and (3) the quality of local institutions is high. CSiR holds greater significance for stakeholders when these contextual factors are present, leading to a higher level of attention paid to cross-border acquisitions. This is because stakeholders anticipate that the acquiror's CSiR may lead to an increase in local social and environmental impacts in such situations.
Hypotheses Development
CSiR Media Coverage and Deal Completion
Based on the stakeholder management perspective (Buysse & Verbeke, Reference Buysse and Verbeke2003; Freeman, Reference Freeman2010), we argue that an acquisition deal is less likely to be completed when the CSiR activities of Chinese MNEs are reported in the media. When a firm acts irresponsibly, it undermines the trust and support from stakeholders (e.g., Zhou & Wang, Reference Zhou and Wang2020). In this regard, CSiR serves as a signal for stakeholders and allows them to assess the firm's social intent and ethical standing (Groening & Kanuri, Reference Groening and Kanuri2018). Particularly, stakeholders are more likely to react negatively when these firms’ irresponsible actions are reported in the media because stakeholders shape their perceptions based on ‘what a firm is blamed for in the media’ (Kölbel et al., Reference Kölbel, Busch and Jancso2017: 2280).
Media reports on CSiR are likely to elicit negative responses from local stakeholders (Kölbel et al., Reference Kölbel, Busch and Jancso2017; Lange & Washburn, Reference Lange and Washburn2012), since stakeholders interpret CSiR media coverage as a signal of Chinese MNEs’ post-acquisition behaviors, given the information asymmetry between the foreign acquiror and local stakeholders. Specifically, media coverage of CSiR raises questions about whether the MNE will operate responsibly in the target country in the future (Mishina, Block, & Mannor, Reference Mishina, Block and Mannor2012). As such, acquisition performance may deteriorate when that an MNE is involved in CSiR because CSiR may lead to negative consequences, including resistance from local stakeholders, difficulties during the post-merger integration process, and challenges in the regulatory approval process (Kamoche & Siebers, Reference Kamoche and Siebers2015). These negative consequences are detrimental to a successful acquisition completion (e.g., Arouri, Gomes, & Pukthuanthong, Reference Arouri, Gomes and Pukthuanthong2019; Hawn, Reference Hawn2021) because cross-border acquisitions usually require the support and approval, both direct and indirect, from a wide range of local stakeholders.
The completion of a deal directly depends on shareholders and governments, as they are the main actors who approve an acquisition. But these stakeholders also take into account the reactions of other stakeholders (e.g., communities, consumers, suppliers, etc.) because their concerns eventually affect post-deal stock performance and their attitudes toward the target country governments after the deal is completed. As a result, if these local stakeholders oppose the focal MNE acquiring the local firm, it will lessen the chances that the MNE will successfully complete the acquisition (Arouri et al., Reference Arouri, Gomes and Pukthuanthong2019; Hawn, Reference Hawn2021). Consistent with this argument, previous studies (e.g., Hawn, Reference Hawn2021; Li et al., Reference Li, Li and Wang2019; Li et al., Reference Li, Xia and Lin2017) have shown a decline in acquisition performance (e.g., lower likelihood of deal completion, longer deal completion time) when an EMNE suffers from CSiR. Simply put, media coverage of a firm's CSiR often blocks or delays the deal completion (Hawn, Reference Hawn2021). Therefore, we argue that Chinese MNEs’ likelihood of completing deals is lower when their CSiR receives a high level of media coverage.
Hypothesis 1 (H1): Media coverage of CSiR is negatively associated with a firm's likelihood of completing a cross-border acquisition.
Moderating Effects: Contextual Factors Influencing Stakeholder Attention
We further argue that the relationship between the media coverage of a firm's CSiR and the likelihood of completing a cross-border acquisition depends on a number of contextual factors relevant to the degree of stakeholder attention (e.g., Madsen & Rodgers, Reference Madsen and Rodgers2015; Ocasio, Reference Ocasio1997). The degree of stakeholders’ attention ‘depends on the particular context or situation they find themselves in’ (Ocasio, Reference Ocasio1997: 188), which is often referred to as situated attention. In particular, we hypothesize that the negative relationships would be more prominent when the acquirors are SOEs, when the target countries are in the part of China's BRI project, and when the target firms are located in countries with high social and ethical standards (i.e., higher institutional quality). The situation in which stakeholders find themselves shapes the focus of their attention, and thus we argue that these contextual factors may garner more attention to acquiror's CSiR by making deals more salient to local stakeholders. When these factors are present, stakeholders attach more importance to an acquiror's CSiR, and thus they are more likely to pay greater attention to cross-border deals.
Chinese SOEs
We hypothesize that CSiR media coverage leads to negative responses from local stakeholders, thereby reducing the likelihood of a deal's completion. We further argue that this negative relationship would be stronger when the acquiring firms are Chinese SOEs. Local stakeholders tend to pay closer attention when the acquiring firms are SOEs due to potential influence from the Chinese government and Chinese Communist Party (Li et al., Reference Li, Li and Wang2019) and the inherent operational inefficiency of SOEs (Lin, Lu, Zhang, & Zheng, Reference Lin, Lu, Zhang and Zheng2020). Government ownership of Chinese MNEs has raised concerns about their credibility and legitimacy (Li et al., Reference Li, Xia and Lin2017), as local stakeholders are concerned that SOEs may use an acquisition to achieve non-business objectives in foreign markets and may make inefficient decisions on behalf of the Chinese government, even at the expense of economic profits (Cuervo-Cazurra, Inkpen, Musacchio, & Ramaswamy, Reference Cuervo-Cazurra, Inkpen, Musacchio and Ramaswamy2014). For example, non-SOEs will seek to reduce CSiR in the target countries if doing so becomes necessary for economic gain, while SOEs may not address social issues even if it means accepting economic losses, as long as they remain in line with the Chinese government's policies.
This is because, unlike non-SOE firms, the Chinese Communist Party and Chinese government have been proactive in developing economic policies and intervening in Chinese SOEs’ decision-making. In particular, SOEs’ top managers are often appointed, promoted, and evaluated by Chinese state agencies (Li & Belal, Reference Li and Belal2018). As such, local stakeholders’ concerns are greater when the Chinese acquirors have state ownership, which may imply political control and business inefficiency due to the Chinese government and Chinese Communist Party's influence (Bai et al., Reference Bai, Chen and Xu2021). For instance, the China National Offshore Oil Corporation (CNOOC) attempted to acquire the American oil company, Unocal, in 2005. The deal faced strong opposition from the US government and other stakeholders due to concerns about CNOOC's irresponsible environmental and labor practices and the fact that CNOOC is a SOE. The acquisition was eventually withdrawn.
In a similar vein, local stakeholders may even be concerned that their government – that is, the local government – may not be able to use its negotiation power fully with Chinese SOEs because of their country's political or diplomatic relationship with China (e.g., Lumumba-Kasongo, Reference Lumumba-Kasongo2011). In such cases, stakeholders, such as communities, consumers, and NGOs, may fear they will be unable to raise concerns about irresponsible business practices by Chinese SOEs once the deal is completed. In contrast, stakeholders tend to perceive the acquisition by a non-SOEs as a mere economic transaction that does not involve political or diplomatic matters. As such, they expect that in such cases it would be easier to voice concerns regarding CSiR, and therefore they pay less attention to cross-border acquisitions by these firms. Thus, local stakeholders may try to engage in activities to block or delay a deal's completion when a Chinese SOE with CSiR media coverage intends to acquire a local firm. We therefore argue that successful acquisition completion becomes more difficult for acquirors with CSiR media coverage when the acquirors are Chinese SOEs due to greater stakeholder attention. Hence, we hypothesize:
Hypothesis 2 (H2): The negative relationship between media coverage of CSiR and cross-border acquisition completion is stronger when the acquiror is a SOE.
Belt and Road Initiative
Similar to the above argument on SOEs, we also argue that due to heightened attention from stakeholders, participation in the Chinese government's BRI project (also known as the One Belt, One Road Initiative) affects the relationship between the acquiror's CSiR media coverage and the likelihood of a deal completion. The BRI is China's ambitious diplomatic and geo-economic plan, backed by significant financial commitments, to connect China to Europe through Southeast Asia, Central Asia, and the Middle East (Casarini, Reference Casarini2015). The Chinese government provides financial support (e.g., infrastructural loans and trade financing) to countries that participate in BRI projects, which in turn increases China's influence not only countries that participate directly in the BRI, but also those that are traversed by the BRI. A connection to the BRI thus can have geopolitical ramifications (Li, Reference Li and Li2019; Zhu, Hui, & Gong, Reference Zhu, Hui and Gong2023). In response to this Chinese state-led initiative, a large number of Chinese MNEs have actively expanded to BRI countries in Asia, Africa, and Europe (Wang & Liu, Reference Wang and Liu2022).
While the BRI may have benefits in the form of increases in international trade, financial support, and improvements in infrastructure (e.g., Enderwick, Reference Enderwick2018), some scholars (e.g., Lai, Lin, & Sidaway, Reference Lai, Lin and Sidaway2020) have pointed out that local stakeholders often have numerous concerns – whether substantiated or not – such as the Chinese government's excessive intervention, predatory lending, and debt traps. Some have raised concerns that Chinese MNEs use their internationalization in BRI countries as a strategic tool for achieving non-commercial interests related to geopolitics (Li, Van Assche, Li, & Qian, Reference Li, Van Assche, Li and Qian2022). As a result, local stakeholders in BRI-affiliated countries often tend to attribute the causes of acquirors’ CSiR to the ‘liabilities of Chineseness’. In contrast, stakeholders in non-BRI countries are likely to perceive issues related to a firm's CSiR as ethical concerns specific to the individual acquiror, rather than attributing it to Chineseness.
Therefore, it is likely that stakeholders in countries that participate in the BRI are more sensitive and attentive to the CSiR of Chinese acquirors and more likely to question the acquiror's legitimacy (Li et al., Reference Li, Van Assche, Li and Qian2022). For example, some local stakeholders in African countries, such as Zambia, Angola, and Kenya, even perceive the BRI as a new form of colonialism and imperialism (Rapanyane, Reference Rapanyane2021). As such, these stakeholders are more likely to be sensitive to the Chinese acquiror's CSiR and to try to block a deal's completion. Since support and approval from local stakeholders are critical to a successful deal completion (Hawn, Reference Hawn2021), we argue that the negative effects of CSiR on the likelihood of a deal's completion will be greater in countries that are part of the BRI, due to greater stakeholder attention. Thus, we hypothesize:
Hypothesis 3 (H3): The negative relationship between media coverage of CSiR and cross-border acquisition completion is stronger when the target country is part of the BRI.
Target country's institutional quality
We also argue that institutional factors in the target country matter in the relationship between CSiR media coverage and the likelihood of a deal's completion. Stakeholders in different countries have different expectations and standards regarding a firm's social responsibility (Jamali & Karam, Reference Jamali and Karam2018; Surroca, Tribó, & Zahra, Reference Surroca, Tribó and Zahra2013). In general, in countries with high institutional quality, such as Norway and Finland, stakeholders usually have high expectations of a firm's social responsibility (e.g., Rahi, Chowdhury, Johansson, & Blomkvist, Reference Rahi, Chowdhury, Johansson and Blomkvist2023). As such, local stakeholders in countries with high institutional quality are more sensitive and attentive to social and ethical issues (Jones et al., Reference Jones, Felps and Bigley2007) that may be raised about a foreign acquiror.
For instance, Australia has implemented stricter regulations and increased oversight of foreign investments, particularly in sensitive and critical industries. When COFCO, a Chinese food-processing holding company, submitted a bid to acquire GrainCorp, a leading Australian agribusiness and processing company, it faced strong opposition from various stakeholders, including agricultural industry groups, politicians, and farmers. As Australian stakeholders have much higher expectations of and standards for responsible business operations (compared to stakeholders in countries with low institutional quality), they criticized COFCO's past behaviors related to labor rights and environmental degradation, and raised serious concerns about the potential negative impact the deal would have, if approved, on Australia's agricultural sector.
Furthermore, in countries with high institutional quality, stakeholders who are directly involved in a deal's completion, such as shareholders and governments, tend to be more mindful of the interests of other stakeholders (e.g., how local communities might be influenced by the environmental impacts of the acquisition). In contrast, shareholders and governments in countries with low institutional quality may care less about the interests of other stakeholders (e.g., Surroca et al., Reference Surroca, Tribó and Zahra2013) who do not have a direct influence on a deal's approval (e.g., consumers, communities, suppliers, etc.). Thus, they are more likely to proceed with the deal based on their own incentives and not on a consideration of the interests of others.
When a Chinese firm's CSiR is severe, the acquisition may pose future social or environmental threats (e.g., negative employee relations, political interference, pollution, etc.) in the target country. When local stakeholders are more attentive to these threats (i.e., the target firm is in a country with higher institutional quality), they are more likely to show organized scrutiny of, resistance to, and animosity toward Chinese acquirors because the acquisition may result in unwanted social or environmental consequences. Therefore, we assume that stakeholders in countries with higher institutional quality will pay greater attention to a Chinese firm's CSiR, which in turn may lessen the likelihood of a deal's completion. Hence, we hypothesize:
Hypothesis 4 (H4): The negative relationship between media coverage of CSiR and cross-border acquisition completion is stronger when the institutional quality of the target country is higher.
Methods
Data and Sample
We obtain our data from a number of sources, including the Securities Data Corporation (SDC) Platinum database for acquisition deal information, the RepRisk database for CSiR incident information, and Compustat for financial information. We also collect country-level data from the World Bank. The SDC Platinum database, one of the most reliable M&A databases because of its detailed records of global acquisition transactions, has been widely used in previous research on acquisitions (e.g., Buckley et al., Reference Buckley, Yu, Liu, Munjal and Tao2016; Li et al., Reference Li, Xia and Lin2017). RepRisk, the world's largest database specialized in disclosing the controversies and risk incidents of environmental, social, and governance (ESG) issues, screens more than 500,000 documents daily. These documents are aggregated from 100,000 public sources in 23 languages. RepRisk's data rely solely on media and external stakeholder reports and do not assess the accuracy of any accusations or allegations presented (Kölbel et al., Reference Kölbel, Busch and Jancso2017). In addition to identifying news items associated with CSiR, RepRisk assesses the reach of the media outlet for each news item and the severity of the criticism. This database evaluates corporate reputational risk resulting from CSiR based on news coverage, as well as the reach and severity of that news. This dataset has been used by previous studies to measure CSiR media coverage and CSiR risk (e.g., Kölbel et al., Reference Kölbel, Busch and Jancso2017; Li & Wu, Reference Li and Wu2020; Wang & Li, Reference Wang and Li2019; Zhou & Wang, Reference Zhou and Wang2020).
This study covers Chinese listed firms’ cross-border acquisition deals announced between September 10, 2013, and December 31, 2020. We focus on listed firms due to their greater exposure to media coverage of CSiR (Fiaschi et al., Reference Fiaschi, Giuliani and Nieri2017). We limit our sample to September 10, 2013, and after, because the BRI was announced by China's President Xi Jinping on September 7, 2013. The sampling period ends in 2020, influenced by the impact of the COVID-19 pandemic and changes in screening policies in many countries, leading to a sharp decrease in cross-border acquisitions after 2020 (UNCTAD, 2020).
We initially collected data from the SDC Platinum database on acquisition deals, applying the following criteria: (1) the deals are cross-border; (2) the ultimate parent firm is a listed Chinese firm; and (3) the deal's value is US$ 1 million or more. We removed rumored transactions and excluded deals lacking information for key deal-specific variables, including payment method and sought equity stakes. This process resulted in a total of 1,100 acquisitions. We then merged the acquiring firms’ financial data from Compustat and CSiR media coverage from RepRisk, based on the mapping file created for identifiers from SDC, Compustat, and RepRisk. For acquiring firms not matched based on the mapping file, we conducted manual matching by using company names. These processes resulted in a final sample of 556 deals undertaken by 389 acquiring firms. Finally, we collected country-level data (e.g., governance indicators and GDP) from the World Bank to capture country-level differences among the target countries.
Variables and Measurements
Dependent variables
We use acquisition completion as the dependent variable. Following the prior literature on acquisitions (Hawn, Reference Hawn2021; Li et al., Reference Li, Xia and Lin2017), acquisition completion is coded as 1 if the acquisition was completed after the announcement and 0 otherwise. Information about the completion status was taken from the SDC Platinum database. Of the 556 deals, 309 deals undertaken by 233 firms were completed.
Independent variables
We construct CSiR media coverage by counting the number of CSiR incidents reported before the date the acquisition deal was announced. The data on CSiR incidents are from the RepRisk database. Based on proprietary machine learning models, RepRisk tags each risk incident to related companies, sectors, countries, issue categories, and so on, in accordance with key international standards related to ESG. The media coverage exhibits typical count-data characteristics with no negative values and a high proportion of zeroes (Kölbel et al., Reference Kölbel, Busch and Jancso2017). Following prior studies (Kölbel et al., Reference Kölbel, Busch and Jancso2017; Tang & Tang, Reference Tang and Tang2016; Zyglidopoulos, Georgiadis, Carroll, & Siegel, Reference Zyglidopoulos, Georgiadis, Carroll and Siegel2012), we use the number of CSiR incidents within a specific time period to measure media coverage. We use the number of CSiR incidents within the 365 days prior to the date of the announcement as the independent variable for the reported main analysis, using 182 days (Table 3A) and 730 days (Table 3B) for the robustness analysis.
Moderating variables
We measure state ownership using a dichotomous variable having the value of 1 if the firm is a SOE and 0 otherwise. Similarly, BRI country is a dummy variable coded as 1 if the target is a BRI-participating country and 0 otherwise. BRI, as an open arrangement by China that invites all countries to participate, does not have an official list of participating countries. We therefore used a list of 66 countries that is available from the World Bank and used in other papers (Boffa, Reference Boffa2018). This list mainly reflects the BRI countries as of the end of 2019 (Liu & Wang, Reference Liu and Wang2022). Institutional quality is measured by calculating the arithmetic average of the six dimensions from the World Governance Indictors (WGIs): Rule of law, Control of corruption, Government effectiveness, Political stability and absence of violence, Regulatory quality, and Voice and accountability. This measure has been widely used in prior studies (e.g., Gaganis, Papadimitri, Pasiouras, & Ventouri, Reference Gaganis, Papadimitri, Pasiouras and Ventouri2021; Keig, Brouthers, & Marshall, Reference Keig, Brouthers and Marshall2015) to measure institutional quality. Since each of the WGIs ranges from −2.5 to +2.5, with a negative number indicating weak governance and a positive number indicating strong governance, we transformed the WGI values by adding 2.5 to each to re-scale the WGI value into non-negative numbers, making interpretation easier (Keig et al., Reference Keig, Brouthers and Marshall2015).
Control variables
We include a number of control variables at different levels in the statistical analysis. First, at the firm level, we control for the acquiror's financial performance and characteristics, as previous studies (e.g., Li et al., Reference Li, Xia and Lin2017) suggest that these variables may influence the acquisition performance. ROA of the acquiror is measured by dividing the acquiror's net income by total assets. We measure financial leverage by dividing the acquiror's long-term debt by total assets. Firms’ slack resources are operationalized as the ratio of current assets to current liabilities (Zhang, Chen, & Jia, Reference Zhang, Chen and Jia2023). We include CAPEX intensity by dividing the acquiring firm's capital expenses by net income. Size of the acquiror is measured by taking the logarithm of the acquiring firm's total assets. All financial data of the acquiring firms are lagged one year prior to the year of the announcement and are obtained from the Compustat database.
At the deal level, we control for stakes sought, measured as the percentage of equity stakes sought by the acquiror in the target of the acquisition, as the stakes sought influence the acquiror's ability to exert control after the acquisition and may affect the likelihood of the acquisition's completion (Li et al., Reference Li, Xia and Lin2017). We also include tender offer and cash payment. Following prior studies (Schweizer, Walker, & Zhang, Reference Schweizer, Walker and Zhang2019), both are measured using a dummy variable coded as 1 if the acquisition is made through tender offer and cash payment, and 0 otherwise. Deal value is measured by taking the logarithm of the deal's transaction value in millions of dollars, as the original transaction value is highly skewed. Target status is a dummy variable coded as 1 if the target firm is publicly traded and 0 otherwise.
To capture the heterogeneity and temporal dynamics of CSiR incidents, we control for three variables related to CSiR media coverage, namely, time difference, severity ratio, and high reach ratio, from RepRisk. Time difference is measured by taking the average of the actual number of days between the CSiR incident and the deal announcement. Severity ratio is calculated by dividing the number of CSiR incidents identified by RepRisk as high severity before the deal's announcement date by CSiR media coverage. High reach ratio is calculated by dividing the number of CSiR incidents reported in media outlets with a high reach by CSiR media coverage.
At the country level, in addition to institutional quality, we control for target country GDP by taking the logarithm of the target country's GDP one year prior to the deal's announcement (e.g., Zhang et al., Reference Zhang, Chen and Jia2023), as stakeholders in larger economies may pay more attention to CSiR issues. The data are obtained from the World Bank website. Lastly, we include year dummy variables to control the time trend and capture unobserved heterogeneity among different years. As the type of industry also matters in a firms’ social performance (Fu et al., Reference Fu, Tang and Chen2020), we control for the industry effects by categorizing them using their 2-digit NAICS code, following previous studies (e.g., Won & Bidwell, Reference Won and Bidwell2023).
Analysis
We use multilevel random effects models because our interaction effects are cross-level (Aguinis, Gottfredson, & Culpepper, Reference Aguinis, Gottfredson and Culpepper2013). Given that our unit of analysis is at the deal level, and some firms in our sample made multiple acquisition announcements, we use a multilevel mixed-effects generalized model (meglm syntax in STATA) with a logit link to test our hypotheses. All standard errors are clustered around firms to account for within-firm correlation, consistent with practice in previous studies on acquisitions (e.g., Li et al., Reference Li, Xia and Lin2017). Following the advice of Cohen, Cohen, West, and Aiken (Reference Cohen, Cohen, West and Aiken2014), we mean-center continuous variables when creating interaction terms to address collinearity issues. Additionally, we use the Heckman two-stage model to address sample selection bias in the robustness test, as our sample includes only firms that have attempted cross-border acquisitions.
Results
Table 1 displays the correlations and descriptive statistics for all variables included in our models. The mean value of CSiR media coverage is 1.14, and 56% of the deals in our sample are completed. The correlation coefficients marked in bold are significant at p < 0.05. We test for multicollinearity by checking variance inflation factors (VIF). The mean value of VIFs is 1.97, with individual VIF values ranging from 1.14 to 3.34, well below the common threshold of 5, consistent with prior empirical studies (e.g., Lee et al., Reference Lee, Choi, Xiao, Lew and Park2021; Park & Ghauri, Reference Park and Ghauri2015). Thus, multicollinearity is not a major concern in our models. Table 2 reports the multilevel regression results for our models. Model 1 is the baseline model, consisting of only control variables and the independent variable. Models 2, 3, and 4 include the interaction items of the three moderators, respectively. Model 5 is the full model and incorporates all the interaction items.
Table 1. Descriptive statistics and correlation analysis
Note: The correlation coefficients marked in bold are significant at p < 0.05.
Table 2. Results of the multilevel mixed-effects regression for the CSiR media coverage
Notes: p values are shown in parentheses. All models use clustered standard errors. **p < 0.01, *p < 0.05, +p < 0.10.
In H1, we argue that there is a negative relationship between CSiR media coverage and the likelihood of an acquisition's completion. However, we did not find empirical support for this in Model 1, and thus H1 is not supported. This suggests that CSiR media coverage per se does not reduce the likelihood of a deal completion.
Model 2 tests the impact of state ownership on the relationship between CSiR media coverage and the likelihood of an acquisition completion. In Model 2, the coefficient estimate of the interaction term between CSiR media coverage and a firm being a SOE is statistically significant and negative (β = -0.163, p = 0.013). Thus, H2 is supported. The moderating effect of state ownership on the relationship between CSiR media coverage and acquisition completion is illustrated in Figure 1. As shown in Figure 1, when the acquirors are SOEs, the negative effects of CSiR media coverage on the likelihood of an acquisition completion are observed.
Figure 1. The moderating effect of state ownership on the relationship between CSiR media coverage and the likelihood of completion
H3 proposes that the negative effects of CSiR on the likelihood of a deal completion are stronger for target firms located in BRI countries. In Model 3, the coefficient estimate of the interaction term between CSiR media coverage and being a BRI country is not statistically significant. Hence, we do not find support for H3.
Model 4 tests the effect of a target country's institutional quality on the relationship between CSiR media coverage and the likelihood of a deal completion. In Model 4, the coefficient estimate of the interaction term between CSiR media coverage and institutional quality is statistically significant and negative (β = -0.116, p = 0.018). Thus, H4 is supported. The moderating effect of institutional quality on the relationship between CSiR media coverage and the likelihood of an acquisition completion is illustrated in Figure 2. As shown in Figure 2, when local stakeholders have higher expectations (i.e., local institutions are of high quality), the negative relationship between CSiR media coverage and the likelihood of an acquisition completion is stronger.
Figure 2. The moderating effect of institutional quality on the relationship between CSiR media coverage and the likelihood of completion
Overall, our findings suggest that CSiR media coverage per se does not affect the likelihood of a deal's completion. However, we find that the negative effects of CSiR on deal completion depend on the acquiror's characteristics (i.e., the acquiror being a SOE) and the target country's institutional factors (i.e., stakeholders’ expectations). Thus, H2 and H4 are supported.
Supplementary Analyses and Robustness Tests
We perform several supplementary analyses to confirm our findings. In particular, our results do not support H3. Thus, we conduct analyses using additional measurements to account for the heterogeneity among BRI countries. We use several measures as proxies for the different ties these BRI countries have with China. For instance, we separate the BRI countries according to the World Bank's classification of regions, economic similarity, and when they joined a BRI (Boffa, Reference Boffa2018), as these dimensions indirectly reflect the various ties these countries have with China. We also separate the BRI countries according to whether they joined the Green Development Plan in 2021. Lastly, we use their patterns of voting in the United Nations as a proxy for their alignment with China on a variety of issues and as a proxy for their political ties to China (Sutherland, Anderson, Bailey, & Alon, Reference Sutherland, Anderson, Bailey and Alon2020). Even with these different measures, we still do not find support for H3.
Furthermore, we perform a series of analyses to test the robustness of the results. First, we use alternative event windows to measure CSiR media coverage. We use 182 and 730 days prior to the event and the results are not different from our main analysis, as can be seen in Tables 3A and 3B.
Table 3A. Results of the multilevel mixed-effects regression for the CSiR media coverage – 182 days
Notes: p values are shown in parentheses. All models use clustered standard errors. ***p < 0.001, **p < 0.01, *p < 0.05, +p < 0.10.
Table 3B. Results of the multilevel mixed-effects regression for the CSiR media coverage – 730 days
Notes: p values are shown in parentheses. All models use clustered standard errors. ***p < 0.001, **p < 0.01, *p < 0.05, +p < 0.10.
Second, there may be a sample selection bias because our sample comprises of only Chinese firms that have carried out cross-border acquisitions as a mode of international expansion, while other firms might use different entry modes or might not have expanded internationally. As such, we use the Heckman two-stage model to address the potential issue of sample selection bias (Certo, Busenbark, Woo, & Semadeni, Reference Certo, Busenbark, Woo and Semadeni2016). In the first stage, we estimate the probability of a deal being included in our dataset. The sample is inclusive of all acquisitions made by Chinese firms with deal value larger than 1 million dollars and without key deal-specific missing values (N = 1,100). Since the independent variable media coverage is a count-data variable with a high proportion of zeroes (Kölbel et al., Reference Kölbel, Busch and Jancso2017), we use an alternative measure from the RepRisk index (RRI) to replace CSiR media coverage in the first-stage regression. RRI quantifies a firm's exposure to reputational risk resulting from CSiR concerns, calculated based on the severity of the news and the intensity of the coverage (Zhou & Wang, Reference Zhou and Wang2020). In addition to deal-level control variables, we use the city where firms are located and their sectors as additional explanatory variables in the first stage and generate an inverse Mills ratio. In the second stage, as reported in Table 4, we include the inverse Mills ratio in all the regression models (Zhang et al., Reference Zhang, Chen and Jia2023). Our findings are robust, as seen in the regression results shown in Table 4.
Table 4. Results including Heckman two-step regression for the CSiR media coverage
Notes: p values are shown in parentheses. All models use clustered standard errors. ***p < 0.001, **p < 0.01, *p < 0.05, +p < 0.10.
Relatedly, there may be concerns about different selection biases in terms of media coverage of CSiR. Our study is based on the premise that local stakeholders respond unfavorably to media coverage of CSiR, leading to a decreased likelihood of deal completion. While acknowledging the possibility of selection bias in the news, whereby newspapers may report events selectively (e.g., due to media censorship), it is noteworthy that local stakeholders depend solely on news reports to obtain information about CSiR, and they therefore make decisions based on the available media coverage. As a result, we believe any bias in reporting would not significantly impact the results of our study. For this reason, Hawn (Reference Hawn2021: 67) specifically wrote that ‘whether the media is biased or not, this is the news stakeholders get and process and on which they base their view of the EMM and whether to support or oppose the deal'.
Another concern is related to the potential endogeneity of CSiR incidents regarding the completion of the acquisition. The fact that CSiR media coverage values are accumulated for the period prior to the deal announcement may mitigate concerns about reverse causality, but it could still be argued that firms with the ability to close a deal may manage media coverage of their CSiR before the acquisition announcement. We employ a two-stage instrumental variable approach to address the potential concern of reverse causality. Industry average CSiR risk exposure, measured as industry average RRI, is likely correlated with CSiR media coverage, but exogenous to the firm's deal completion. Similarly, Koh, Qian, and Wang (Reference Koh, Qian and Wang2014) used industry average social performance as the instrumental variable for firm-level social performance when investigating the impact on a firm's litigation risk. As a result, we use industry average RRI (according to 2-digit NAICS codes) as the instrumental variable to address the endogeneity concern here. In the first stage, the industry average RRI and other control variables with year dummies, clustered by firm and target country, were included to predict a firm's CSiR incidence. In the second stage, we replaced the CSiR media coverage in the multilevel mixed-effects generalized models with the predicted CSiR media coverage from the first-stage estimation and re-estimated all the analyses in Tables 2 and 3. Table 5 presents the results of the second stage instrumental variable regression for the main analysis. The results are consistent with those reported in Tables 2 and 3.
Table 5. Results using predicted CSiR media coverage from instrumental variable regression
Notes: p values are shown in parentheses. All models use clustered standard errors. ***p < 0.01, **p < 0.01, *p < 0.05, +p < 0.10.
Considering the nested data structure by target countries, our multilevel model is most appropriate. However, as with prior studies (Hawn, Reference Hawn2021; Li et al., Reference Li, Xia and Lin2017), we also use logit models with clustered standard errors by target countries or firm-target country pairs. The results do not differ from those in Tables 2–5 (Appendix I).
We recognize that many studies of M&As exclude minority stake purchases or tender offers. As a result, we conduct additional tests by dropping minority stake purchases or tender offers. Both tests generated similar results to those reported in Tables 2–4 (see Appendix II). Since we adopt the attention-based view as the overarching theoretical framework, the distinct nature of CSiR incidents may attract differential attention from stakeholders. As a result, we conduct subsample tests of CSiR media coverage in different issue areas: environmental, social and governance. The results are not different from the main results (see Appendix III). Hence, our results show robustness across different time frames, accounting for sample selection bias and endogeneity concerns, as well as alternative statistical models.
Discussion
In this study, we examined the relationship between CSiR media coverage and the likelihood of Chinese MNEs completing cross-border acquisitions. Drawing on stakeholder management theory (Buysse & Verbeke, Reference Buysse and Verbeke2003; Freeman, Reference Freeman2010) and the attention-based view (Madsen & Rodgers, Reference Madsen and Rodgers2015; Ocasio, Reference Ocasio1997), we argue that the effects of CSiR on deal completion depends on the acquiror's characteristics and contextual factors in the target countries, as they influence the degree of stakeholder attention. Our results show that CSiR media coverage per se does not lead to negative outcomes from deal completions. However, the adverse effects of CSiR media coverage on deal completion are observed when Chinese acquirors are SOEs and the target country has high-quality institutions. In line with the situated and selective attention argument (e.g., Ocasio, Reference Ocasio1997), these findings suggest that local stakeholders are more attentive to an acquiror's CSiR when this CSiR could suggest that the acquiror's irresponsible behavior could worsen or otherwise fall short of local expectations in the future. As such, our findings highlight that the effects of a firm's social performance are compounded by the firm's characteristics and the local stakeholders’ institutional environment.
In this regard, our study suggests that the ‘liability of Chineseness’ (Cooke et al., Reference Cooke, Wu, Zhou, Zhong and Wang2018; Vecchi & Brennan, Reference Vecchi and Brennan2022) may be jointly shaped by a firm's CSiR; China's government-led policy factors, such as SOEs and BRI; and the expectations and attention of local stakeholders. From this perspective, the liability of Chineseness differs from the liability concepts discussed in previous studies (e.g., Hawn, Reference Hawn2021; Johanson & Vahlne, Reference Johanson and Vahlne2009), such as the liability of emergingness (i.e., Chinese firms as being from an emerging economy) or the liability of outsidership (i.e., Chinese firms as outsiders). Thus, it represents a specific and unique form of the liability of foreignness or origin (Madhok & Keyhani, Reference Madhok and Keyhani2012; Zaheer, Reference Zaheer1995). Therefore, Chinese MNEs should be strategic in balancing opposing pressures to effectively deal with the liability of Chineseness. On one hand, internally, they need to assure the Chinese central government and Chinese Communist Party of their allegiance as ‘patriotic’ Chinese firms. On the other hand, externally, they need to alleviate concerns about geopolitics and to establish a ‘normal’ multinational brand identity that is not excessively linked to the Chinese government, to appeal to local stakeholders (De Graaff, Reference De Graaff2020). By demonstrating responsible behavior (i.e., by refraining from engaging in CSiR) in the global market (Fiaschi et al., Reference Fiaschi, Giuliani and Nieri2017), Chinese MNEs may be better positioned to overcome the liability of Chineseness.
Despite the argument presented above, our test results did not support all the hypotheses regarding the liability of Chineseness. Although H3 posits that BRI participation would moderate the relationship between CSiR media coverage and acquisition completion, we found no empirical support for this, even with supplementary analyses using additional measurements. While stakeholders pay greater attention to China influence through the BRI, the lack of empirical support may be interpreted as a result of conflicting views on the BRI. Local stakeholders are concerned about the negative effects of BRI (Rapanyane, Reference Rapanyane2021), including a loss of sovereignty, social irresponsibility, and debt traps. However, they are also aware of the BRI's positive impacts on the local economy (Sutherland et al., Reference Sutherland, Anderson, Bailey and Alon2020), such as economic growth and human development. Given these conflicting views, it is reasonable to assume that stakeholders see the BRI's impacts differently in different countries, leading to diverse interpretations from different local stakeholders. Such diverse interpretations could explain why we did not find empirical support for H3. Furthermore, given the heterogeneity among BRI countries, other factors such as variations in institutional quality and government involvement play more significant roles as boundary conditions for the completion of cross-border acquisitions than merely being a participant in the BRI. The degree to which the BRI is integrated into a country's economy may not be extensive enough to warrant labeling these countries as a distinct category that shows a consistent impact on cross-border acquisitions.
Interestingly, while not hypothesized in this study, we also found that when an acquiror's CSiR is high, the likelihood of a deal's completion actually increases when the acquiror is not an SOE (the dotted line in Figure 1) and when the target country has low institutional quality (the dotted line in Figure 2). Why does the likelihood of a deal's completion increase in these cases? Acquirors with high CSiR may be perceived as being excessively profit-oriented, even at the expense of their social and environmental legitimacy. Thus, when non-SOE acquirors have high levels of CSiR media coverage, stakeholders in the target country may value the economic benefits that these acquirors could bring, setting aside their concerns about non-commercial motives and political influence. Similarly, when local stakeholders have low expectations of a foreign acquiror's social and environmental responsibility, they may put more weight on economic impacts and overlook the social and environmental irresponsibility of the acquiror. As a result, a Chinese MNE's irresponsible practices may be transferred to foreign markets where local institutions are particularly weak (e.g., Surroca et al., Reference Surroca, Tribó and Zahra2013), similar to the concept of ‘pollution havens’ (i.e., lax environmental regulations attract businesses seeking to evade stricter standards). Based on these empirical findings, this study makes theoretical contributions and points to practical implications.
Theoretical Contributions
This study makes several theoretical contributions. First, it advances our understanding of how CSiR, when it is reported in the media, affects organizational outcomes in target countries. Many studies (e.g., Gardberg & Fombrun, Reference Gardberg and Fombrun2006) argue that a firm's CSR engagements act as an intangible asset to help overcome challenges and risks in international expansion. Our findings complement this premise by suggesting that, in contrast to the role of CSR (i.e., doing good) as an intangible asset, CSiR (i.e., doing bad) may exacerbate challenges and risks in target countries due to local stakeholders’ adverse reactions. CSiR media coverage can negatively affect the implementation of important strategic actions (i.e., cross-border acquisition), because local stakeholders interpret CSiR media coverage as a negative signal that an acquiror's past irresponsible actions may continue in the target country after the deal's completion. Accordingly, this study improves our understanding of how media coverage of CSiR may act as a signaling mechanism for various stakeholders in the international market.
Furthermore, our findings contribute to the cross-border M&A research by examining factors affecting the likelihood of an acquisition completion by EMNEs. Determinants of the acquisition performance of developed market MNEs have been relatively well-studied (e.g., Dikova, Sahib, & Van Witteloostuijn, Reference Dikova, Sahib and Van Witteloostuijn2010), but our understanding of the key determinants of EMNEs’ cross-border acquisition performance is still limited (e.g., Chen et al., Reference Chen, Liang and Wu2023). EMNEs, particularly Chinese MNEs, often have a high failure rate because they may not have an appropriate way of gaining legitimacy and trustworthiness in the eyes of local stakeholders (Madhok & Keyhani, Reference Madhok and Keyhani2012). As such, this study highlights implications by showing that EMNEs (specifically, Chinese MNEs) may achieve better cross-border acquisition outcomes by strategically managing their relationships (i.e., doing no harm) with local stakeholders. These implications are important in both theory and practice, given the increase in FDI outflows from China (Buckley et al., Reference Buckley, Yu, Liu, Munjal and Tao2016; Lee et al., Reference Lee, Choi, Xiao, Lew and Park2021).
Lastly, this study contributes to the literature on the international stakeholder management perspective based on attention-based arguments (e.g., Ocasio, Reference Ocasio1997). Our findings show that CSiR may pose challenges and risks to MNEs’ international growth through acquisition by serving as a basis for possible stakeholder sanctions if a firm's CSiR is reported in the media. As such, building and maintaining relationships with various stakeholders are important in completing cross-border acquisitions. In particular, we provide evidence that the importance of stakeholder management is contingent on contextual factors such as state ownership of the acquiror and the institutional quality in the target country. Local stakeholders’ attention to a foreign firm's cross-border acquisitions is not always uniformly distributed. Instead, the degree of their attention to cross-border acquisition is influenced by contextual factors. Thus, it is important for MNEs to understand when cross-border acquisitions capture more or less attention from stakeholders. This is because the level of stakeholders’ attention may influence the potential for sanctions and subsequent acquisition outcomes.
Practical Implications
Our research also points to practical implications. First, MNEs anticipating international expansion need to preemptively manage the effects of CSiR media coverage. Our study shows that CSiR media coverage is an important precursor influencing the successful completion of an acquisition even before the acquisition bid takes place. Therefore, MNEs should strategically manage their social performance (e.g., reduce their CSiR) in advance to help them succeed in their international expansion. Furthermore, even if managers are not able to control the media coverage, they still need to be aware of the importance of building and improving effective media relations.
Second, in the process of engaging in strategic social performance management, managers should take into account contextual factors that affect acquisition performance. Simply put, there are many factors in a deal's completion, but some matter more than others. In our findings, for example, being part of the Chinese government-led BRI does not seem to matter in a deal's completion, but the target country's institutional qualities do. As such, managers should be aware of the joint effect of a firm's social outcomes and contextual factors on deal completion, and they need to ‘strategize’ their actions in implementing cross-border acquisitions.
Finally, managers should fully consider the interests and expectations of various stakeholders in the target countries. Moreover, they need to consider the circumstances under which stakeholders become more attentive to cross-border acquisitions. An MNE's acquisition completion usually requires the approval of the stakeholders who are directly involved with the deal, such as the target country's government and shareholders. As such, MNEs may focus only on these stakeholders and overlook the voices of other stakeholders who may not directly affect the completion of an acquisition. However, our findings imply that managers should be sensitive to the interests of all stakeholders, even if some seem to have less influence over the MNEs’ international operations.
Limitations and Future Research
In spite of these theoretical contributions and practical implications, this study is not without limitations, and thus points to avenues for future research. First, we examined the impact of CSiR media coverage on acquisition completion without exploring other relevant outcomes such as the acquiror's motivations, acquisition premiums, and post-acquisition performance. Additionally, in our investigation of the impact of media coverage on acquisition completion, we primarily focused on the long-term effects over a period ranging from 182 to 730 days. However, exploring the short-term effects of CSiR media coverage on organizational outcomes would also be meaningful (e.g., Liu & McConnell, Reference Liu and McConnell2013). Future studies could build on our work by examining the factors that determine these outcomes with different timeframes, thus broadening the scope of the research.
In addition, this study relied on data on CSiR media coverage from RepRisk and financial data from Compustat, which primarily covers public firms. As a result, our sample does not include private firms. Although these firms are less likely to be active in cross-border acquisitions, this sample bias may limit the generalizability of our findings. Additionally, RepRisk does not encompass information on other types of media coverage beyond a firm's social responsibility. Therefore, we have neither investigated nor controlled for the impact of other types of negative news (e.g., poor financial performance) that are not directly related to CSiR. However, we controlled various financial variables, which are likely correlated with other types of news related to negative (or positive) financial performance. Future research could address this limitation by incorporating a more diverse range of firms and different types of negative media coverage.
Furthermore, this study examined China-specific factors (e.g., SOEs, the BRI) influencing the degree of stakeholder attention. Thus, it is reasonable to assume that cross-border acquisitions by other EMNEs may face their own contextual factors (e.g., geopolitical issues, cultural distance, etc.). Future research could enhance our understanding further by exploring the distinctive contextual factors faced by each country and MNE. Lastly, although this study is based on stakeholder theory and the attention-based view, we did not examine how each stakeholder reacts differently and pays attention to an acquiror's CSiR media coverage. Future studies could examine these reactions, thus highlighting implications for how managers can effectively engage with different stakeholders in cross-border acquisitions.
Conclusion
To conclude, based on the stakeholder management perspective and attention-based view, our study shows that CSiR media coverage plays an important role in the likelihood of a deal's completion under certain circumstances, as it may generate risks in cross-border acquisitions. This study provides insights concerning media coverage of CSiR, SOEs, and local stakeholders’ expectations and attention in the context of Chinese cross-border acquisitions. By managing a firm's CSiR and its relationship with the media – even though media coverage is not fully controllable – MNEs may improve the prospects of their cross-border acquisition outcomes.
Data availability statement
The data that support the findings of this study are openly available in the Open Science Framework at https://DOI.org/10.17605/OSF.IO/RC5X6
Acknowledgements
This research has received the financial support from the Social Sciences and Humanities Research Council of Canada (430-2021-00128). It was also supported by the U.S. Department of Education through a Business and International Education grant to the UNLV LEE Business School and Rocky Mountain CIBER Faculty Grant program.
Appendix I Results of the Logit Regression
Appendix II Results of Additional Subsample Tests
Appendix III Results of Additional Subsample Tests: Nature of CSiR Incidents
Won-Yong Oh ([email protected]) is Lee Professor of Strategy and an Associate Professor at the Lee Business School, University of Nevada, Las Vegas, US. Previously, he was an Associate Professor at the Haskayne School of Business, University of Calgary, Canada. His research interests include corporate social responsibility, corporate governance, and strategic leadership. Before entering academia, he worked as a management consultant for A.T. Kearney and Deloitte Consulting in Korea. He currently serves as an associate editor at the Journal of Business Research.
Rong (Ratchel) Zeng ([email protected]) is an Assistant Professor at the Asper School of Business, University of Manitoba, Canada. Her primary research interests are at the intersection of international business and business strategy. Specifically, her current research interests focus on integration challenges in multinational enterprises, foreign direct investments from emerging countries, and corporate social irresponsibility. She has published in the Journal of World Business, Journal of International Business Studies, and others.
Chang Hoon Oh ([email protected]) is the William and Judy Docking Professor at the University of Kansas School of Business. His research centers on business responses to NOSTEP (natural, organizational, social, technological, economic, and political) risks, business continuity and sustainability, and non-market strategy. He has published over 70 papers in peer reviewed journals and over 10 book chapters. He is currently an associate editor of Global Strategy Journal and a consulting editor of Journal of World Business.
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