Mars-Venus Marriages: Culture and Cross-Border M&A

Abstract

We explore different factors affecting the long-term performance of cross-border M&A with a special focus on cultural distance between the countries of the two firms. Using a sample of over 400 cross-border acquisitions in the period 1991-2000, we find that crossborder acquisitions are associated with a significantly positive “announcement effect” on the acquirer’s share value, followed by a partial reversal of these gains in the long-run. Considering several deal-specific variables and country-level economic and cultural variables, we find that acquisitions perform relatively better in the long-run if the acquirer and the target come from countries that are culturally more disparate. The “announcement effect” appears to miss this cultural aspect though it is more cautious about economic disparity between the two countries. Among deal characteristics, cash acquisitions perform better in the long-run. We use the Hofstede measure of cultural dimensions to define cultural distance and also examine alternative measures such as language, religion and legal origin to capture cultural differences.