Locations, Proximity, and M&A Transactions
Santa Clara University - Leavey School of Business
Indiana University - Kelley School of Business - Department of Finance
University of Texas at Dallas - Naveen Jindal School of Management
March 24, 2014
We examine how a firms’ geographic location affects acquisition decisions and value creation in takeover transactions. We analyze both the individual and interaction effects of three dimensions of firms’ locations: (1) the target’s location, (2) the proximity between the acquirer and the target, and (3) the acquirer’s location. We show that a firm located in an urban area has a higher takeover exposure, and generates a higher acquirer announcement return. We also find that the target’s urban location attenuates the negative effect of a long distance between the target and the acquirer on value creation as documented in the existing literature. This attenuation effect further interacts with the acquirer’s location, and is particularly strong when the acquirer does not have easy transportation to the target, and hence, the target’s urban location is more valuable in facilitating accessibility. Our findings reveal a previously underexplored force — firm locations, in addition to proximity — that can impact takeover transactions. They suggest that firm locations play an important role in facilitating the dissemination of soft information and helping the enhancement of information-based synergies.
Number of Pages in PDF File: 48
Keywords: geographic locations, proximity, takeover exposures, acquirer returns, soft information
JEL Classification: G14, G30, G34
Date posted: October 1, 2009 ; Last revised: May 14, 2014
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