Proximity Preference in M&A Transactions
Posted: 27 Sep 2009
Date Written: July 1, 2008
This paper shows that acquirers have a strong and consistent preference for spatially close target companies. We measure proximity preference against benchmark portfolios of hypothetical targets for each deal, using data from US domestic mergers and acquisitions transactions. With increasing distance between acquirer and target transaction stock market returns around announcement diminish significantly in the whole sample. However, deals that take place within 500 kilometers around acquirers’ headquarters perform about one percentage point worse than deals at a medium distance. Only within this radius we find acquirers with a higher percentage of affiliated directors performing worse than acquirers with higher levels of board-independency, consistent with local private benefits and overconfidence.
Keywords: M&A, merging behavior, private benefits
JEL Classification: G34, G14, R12
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