This study aims to investigate the influence of generalized and arbitrary institutional inefficiencies on firms’ ownership strategy in cross-border acquisitions in the Middle East and North Africa (MENA) region. Drawing on institutional theory, we examine the challenges faced by foreign firms entering via acquisitions in the MENA region and how unfamiliarity with the institutional environment of the MENA region may lead to shared ownership strategies with local partners.
This study uses a sample of 1,050 foreign firms with subsidiaries in 12 countries in 12 MENA countries, a total of 2,197 observations. Using secondary data, we conduct linear regression analyses.
Firms facing high levels of generalized institutional inefficiencies are likely to choose more ownership in their subsidiaries, and informal institutional distance reinforces that effect, but conversely, higher arbitrary inefficiencies seem conductive to lower ownership stakes, whereas previous experience does not reveal a significant effect.
Results shed light on potential underlying motives that shape firms’ ownership strategy in an effort to cope with the types of institutional inefficiencies encountered. We conclude that, faced with an unfamiliar institutional environment, foreign firms enter into partnerships with local firms to gain access to local knowledge and acquire local legitimacy.
