Uncertainty, institutional quality and strategic commitment: US MNEs’ sequential acquisitions in emerging economies

Abstract

This study examines how multinational enterprises (MNEs) respond to demand and political uncertainty in emerging markets through sequential acquisition as a form of supplemental foreign direct investment (FDI). Drawing on real options theory, it investigates how host country institutional safeguards, specifically property rights protection and regulatory efficiency, moderate the relationship between these uncertainties and MNEs' incremental equity commitments. This study uses a complementary log-log model to test research hypotheses on US listed MNEs of 840 firm-year observations into various emerging markets between 1997 and 2020. Empirical results reveal nonmonotonic impacts of host country demand and political uncertainty on MNEs' sequential acquisition decisions in emerging target firms. Host country regulatory efficiency moderates the impact of political uncertainty only, while host country property rights protection does not significantly moderate the effects of either uncertainty types. This study contributes to the emerging markets literature by conceptualizing host country uncertainty as a multidimensional construct, distinguishing between demand and political uncertainty, and linking it to sequential acquisition through a real options framework. It further advances understanding of how institutional quality conditions the effects of uncertainty on developed country MNEs' supplemental FDI decisions in emerging markets.