The effect of the digital readiness of economies on international M&A performance

Abstract

PurposeUnderstanding the mechanism through which digital economy is significantly impacting all dimensions of global economy has become a rising priority in recent years. The purpose of this paper is to investigate the critical role of digital readiness of economies around the world on the performance of international M&As as one of the major corporate strategies for firms' global expansion. We also study circumstances under which digital readiness of an economy matters to international M&As.Design/methodology/approachThe authors examined how digital readiness superiority (or inferiority) of the United States in comparison with host countries impact capital market reaction to international M&As announced by US public companies. To do this study, analysis was run on a sample of 1,393 IMAs by publicly traded US firms during the 2010–2016 period.FindingsThe study reveals that those public US companies that target companies in countries, in which the US has superior digital readiness to them, show better performance in terms of investors' reaction (capital market reaction) to the announcement of international M&As. In fact, markets will look at the superiority of US digital readiness to target country as an opportunity for transferring digital capabilities. Moreover, these patterns are pronounced in those M&A deals in which the acquiring company is from high-tech industry. However, interestingly when US companies already have a profitable growth track record or when acquirer and target are in the same industry, the market reacts negatively to this digital superiority.Originality/valueOverall, this study contributes to a better understanding of the mechanisms through which digitalization of economies impact the performance of multinational enterprises. It adds to the information management literature on corporate global strategy and is one of the first to examine the role of digital readiness on international M&As performance.