On the Asymmetric Effect of Institutional Heterogeneity on Minority Acquisitions

International business research asserts that cross-country institutional heterogeneity imposes to foreign corporations some cost for doing business abroad. Yet, institutional scholars still debate on whether this is always the case. This paper joins this discussion by investigating whether comparatively lower institutional quality has the effect of discouraging cross-border minority acquisitions. We find that in these instances firms are less likely to acquire minority equity stakes and, when they do decide to purchase them anyway, they limit their risk exposure by acquiring a smaller portion of the target’s equity. These results support arguments in favor of the view that research needs to abandon the assumption of symmetry in the study of institutional heterogeneity in order to consider effects of different sign and different magnitude. Keywords: institutional distance, agency problems, minority acquisitions, institutional theory.