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

Abstract:     
We explore 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 contrary to general perception, cross-border acquisitions perform better in the long-run if the acquirer and the target come from countries that are culturally more disparate. 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. The positive effect of cultural distance persists after controlling for several deal-specific variables and country-level fixed effects, and is robust to alternative specifications and horizons of long-term performance. Divergence (convergence) in degree of individualism and hierarchy in power structures (attitudes towards uncertainty)beneficially impacts post-acquisition performance. Among deal characteristics, cash and friendly acquisitions tend to perform better in the long-run. There is also some evidence of synergies when acquirers from stronger corporate governance regimes acquire targets from weaker regimes.

Number of Pages in PDF File: 61

Keywords: cross-border, mergers, acquisitions, culture

JEL Classification: G34

working papers series