Location, Proximity, and M&A Transactions

Journal of Economics & Management Strategy, Forthcoming

47 Pages Posted: 1 Oct 2009 Last revised: 25 Aug 2015

Ye Cai

Santa Clara University - Leavey School of Business

Xuan Tian

Tsinghua University - PBC School of Finance

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 18, 2015

Abstract

In this paper, we examine how the geographic location of firms affects acquisition decisions and value creation for acquirers in takeover transactions. We find that firms located in an urban area are more likely to receive a takeover bid and complete a takeover transaction as a target compared with firms located in rural areas, and takeover deals involving an urban target are associated with higher acquirer announcement returns, after controlling for the proximity between the target and the acquirer. In addition, a target’s urban location significantly attenuates the negative effect of a long distance between the target and the acquirer on acquirer returns, a fact that is documented in the existing literature. Our findings reveal a previously underexplored force—firm location—that can affect takeover transactions, in addition to proximity. Our paper suggests that a firm’s location plays an important role in facilitating the dissemination of soft information and enhancing information-based synergies.

Keywords: geographic location, proximity, takeover exposures, acquirer announcement returns, soft information

JEL Classification: G14, G30, G34

Suggested Citation

Cai, Ye and Tian, Xuan and Xia, Han, Location, Proximity, and M&A Transactions (August 18, 2015). Journal of Economics & Management Strategy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1480831 or http://dx.doi.org/10.2139/ssrn.1480831

Ye Cai

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Xuan Tian (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Han Xia

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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