Download This PaperWhom to Acquire? – Culture, Country or Kilometers in Target Selection
30 Pages Posted: 22 May 2020
Date Written: April 27, 2020
Abstract
We investigate the role of cultural distance — linguistic, religious and political — on merger and acquisition (M&A) completion and disentangle it from the role of different regional and national formal institutions as well as geographic distance. In a large-scale sample of German and Austrian M&As, we find one standard deviation increases in linguistic distance — as captured through dialect differences that vary continuously across national and regional borders — and religious distance, holding all else constant, are associated with 25% and 20% lower probabilities of merging respectively, while political distance has no robust effect. Although when measured alone, a standard deviation increase in geographic distance is associated with a greater than 50% drop in merger probability, this penalty can be completely explained by cultural distance in our setting — controlling for culture, the effect of geographic distance vanishes. The same does not hold for formal institutions — crossing a national or provincial border is associated with 60% and 50% reductions in the probability of a merger, respectively, even after accounting for cultural effects.
Keywords: M&As, target selection, culture, sub-culture, language
JEL Classification: M16, M34, Z12, Z13, Z1
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