The role of BG affiliation in bridging cultural barriers in EMNE’s international acquisitions

Abstract

Business group (BG) affiliation fundamentally provides firms with greater affordability and risk-taking ability in acquiring equity stake in cross-border acquisitions. We argue that larger cultural distance generally requires EMNEs to acquire higher equity stake for greater control, in order to appropriate the value from acquired resources. BG affiliation reduces this need for higher equity, as it serves to bridge cultural barriers by leveraging the absorptive capacity of the group through exploratory learning, rather than exploitative learning through applying the existing experience within the group. Using a sample of 218 public and private firms from India, making acquisitions into 26 host countries across industry sectors, we find that Indian firms affiliated to BGs opt for lesser equity as compared to non-affiliated firms, in the face of larger cultural distance. Our study extends ambidexterity perspectives of EMNEs with implications for managers of internationalizing firms within BGs.