Disentangling Embeddedness: An Analysis of Global Acquisitions in the 1990s

This study directly tests how, to what extent, and in what ways different institutional levels influence organizational action. It responds to the call for multi-level research in institutional theory, as prior research has mostly focused on studying one level of analysis. We examine how organizational action is embedded in multiple institutional contexts by considering whether announced mergers and acquisitions (M&As) will be completed or withdrawn. This empirical setting has been largely unexplored in the organizational and strategic literatures. Using a sample of the world's largest domestic and cross-border M&As in the 1990s, we demonstrate that multiple institutional contexts-at the country, industry, and firm levels-exert embedded effects on organizational action, controlling for financial factors. Specifically, our findings show that announced M&As are less likely to be completed (1) the higher the policy and regulatory risk of the host firm country, and the greater the national cultural distance between acquiring and target firms; (2) the more related the acquiring and target firms are, and the less diversified is the acquiring firm; and (3) the smaller the status differences between merging firms, the less recent M&A experience the acquiring firm has, and the friendlier is the attitude of the target firm's board to the announced M&A. Our theory testing is important since it highlights the incomplete nature of research on organizational outcomes when the overall environmental context is not fully taken into account. We conclude by discussing the theoretical and managerial implications of our multi-level institutional framework.