Spatial geography and control in foreign acquisitions

Shavin Malhotra, Ajai S. Gaur

Research output: Contribution to journalArticlepeer-review

93 Scopus citations


This article examines how spatial geography influences firms' choice of control in cross-border acquisitions (CBAs). Building our arguments on the information asymmetry in CBAs, we argue that geographic distance affects adverse selection and moral hazard problems in CBAs. Geographic distance hinders acquirers' efforts to assess the true value of the target firm, prompting them to opt for a partial control. At the same time, geographic distance hampers acquirers' ability to manage contractual relationships and integrate target firms, prompting them to opt for a full control. We argue that the cost and benefit trade-off of full vs partial ownership varies at different levels of geographic distance. Accordingly, we propose a curvilinear, U-shaped relationship between geographic distance and equity ownership. This relationship is contingent on acquisition relatedness and the listing status of the acquirer (public vs private). As the geographic distance between acquirer and target increases, acquirers assume higher equity stakes in related acquisitions than in unrelated acquisitions. At greater geographic distances, public firms acquire more equity ownership than do private firms. Findings from 10,181 deals across 52 acquiring and 61 target countries provide robust support for these arguments.

Original languageEnglish (US)
Pages (from-to)191-210
Number of pages20
JournalJournal of International Business Studies
Issue number2
StatePublished - Feb 2014

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Strategy and Management
  • Management of Technology and Innovation


  • Geographic distance
  • cross-border Mergers and Acquisitions (M&As)
  • equity ownership
  • information asymmetry
  • spline regressions


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